R5- Pt2/3 Flashcards
How long does the taxpayer have to petition the court for appeal after an audit?
90 Days
If no petition to appeal is filed, how long does a taxpayer have to pay tax due after an audit?
10 Days
The board is subject to Oversight by the SEC & has duty to:
- Register Public accounting Firms
- Establish Rules relating to the prep. of audit reports
- Conduct inspection, investigations
Each firm registered with the PCAOB must adhere to the Auditing Standards:
- Audit Documentation for 7 years
- Provide a concurring or 2nd partner review of each report
A registered Public Accounting firm that performs SEC may only provide Tax Services to an Audit Client IF:
- Pre-Approved by the Audit Committee
The Lead Audit or Coordinating partner & reviewing partner must rotate off the audit in how many years?
- Every 5 Years
Public Company Audit Committee is directly responsible for?
- Compensation
- Appointment
- Oversight of the work
What is the Relationship between the Auditor & Audit Commitee?
- Auditor Reports directly to the Audit Committee
- Audit Committee Resolves Disputes betwn Auditor & MG.
Audit Committee members are to be members of the issuer’s board of directors BUT are to be?
- Independent
- Can’t be officers, employees, etc
What are the Corporate Responsibility for Financial Reports?
- The CEO & CFO must sign representations regarding Annual & Quarterly Reports
Once the CEO & CFO signed the Annual & Quarterly Reports, it includes their assertion that?
- Reviewed the report
- Report does Not contain untrue Statements or Omit material Information
- FAIRLY present all material respects to financial condition
The CEO & CFO signing the report have Assumed the responsibility for Internal Controls, including that:
The Internal Controls:
- Designed to ensure that material info has been made available
- Evaluated for effectiveness
- Conclusions as to the Effectiveness of I/C
When the CEO & CFO signs the report, they made the disclosures to the Issuer’s Auditors & Audit Committee that:
- All significant deficiencies of I/C
- Any Fraud involving MG or any employee
If there is an accounting Restatement due to material Noncompliance, the CEO & CFO may be required to reimburse the issuer for:
- Bonuses or incentives-based or equity based Compensation
- Gain on Sale of securities during that 12-month period
The F/S should disclose all Material Off-Balance Sheet Transactions, including?
- Contingent Obligations
& - Unconsolidated Subsidiaries
Form 10-K & 10-Q reports must include an Internal Control Report stating:
- That MG. is responsible for establishing & maintaining an adequate I/C
- Assessment of the Effectiveness of the I/C structures
The Code of Ethics contemplates standards that Promote:
- Honest & Ethical Conduct
- Full, Fair, Accurate & Timely Disclosures
- Compliance with laws, rules & Regulations
The Audit Process is part of the enforcement system to ensure that :
- This ‘Voluntary’ assessment & payment is actually occurring.
The IRS utilizes statistical models, a form of discriminant analysis called?
- Discriminant Inventory Function System or DIF
The Discriminant Inventory Function System does what?
- Select Tax Returns that are most likely to contain Errors
& - Yield significant amounts of additional tax revenue upon audit
- The criteria is not disclosed
What is a Information Return Discrepancy?
- W-2s & 1099s do not match the amounts reported on a return
If an individual’s Itemized deductions are in excess of norms established fro certain income levels,
- The return may be selected for an Audit
Upon Submission of a tax return, it is immediately reviewed for?
- Math Errors
- Soc. Sec numbers are accurate
- Signatures are not missing
After the audit, if the Revenue agents agrees with tax return then?
- Taxpayer signs a Form 870
- Normally closes the case, But may review for fraud
When the Taxpayer signs Form 870, waives rights to?
- Rights to appeal
- Receive statutory notices
- Petition the US Tax Court
The Revenue Agent can’t settle an unresolved issue based on?
- Probability of winning the case in court
If an agreement can’t be reached at the Revenue Agent level then?
- Taxpayer receives a copy of the Revenue Agent’s Report & 30day letter of the right to appeal.
- Adms Appeal
The taxpayer can’t take a case to the US Tax Court before?
- IRS sends a notice of deficiency
The Appeals division is authorized to settle?
- All tax disputes
- Based on the hazards of litigation
If an agreement is reach with the Appeals Division, the taxpayer signs?
- Form 870-AD
If no agreement after Appeals Conference, taxpayer is entitled to take the case to?
- US Tax Court
- US Court of Federal Claims
- US District Court
Who can Initiate the Process to take the Tax case to court when no agreements have been made?
- Either the IRA or Taxpayer
Unique Characteristics of the US Tax Court:
- No Jury
- Only Federal Cases
- No full Payment is Req,
- 19 Judges travel to hears cases
US Tax Court’s decisions can be Appealed to?
- Various US Courts of Appeals
- Tax Court will follow the Court of Appeals that has Direct Jurisdiction
Unique Characteristics of the US District Court:
- 1 Judge & option for jury
- Not just Tax Cases
- Must first pay disputed tax Liability & sue IRS for refund
Unique Characteristics of the US Court of Federal Claims:
- 16 Judges & No Jury
- Must first pay disputed tax Liability & sue IRS for refund
- Nationwide
The Court of Federal Claims follows the decisions of the Fed. Court of Appeals, NOT?
- The Geographic Court of Appeals
Unique Characteristics of the US Courts of Appeals:
- First level of Appellate court
- 3 Judge Panel, No Jury
- Handles tax & non-tax issues brought from tax court or district court from geographic area
What are the Exceptions to Penalties?
- No more then $1,000
- At least 90% of the current yr tax
- At Least 100% of prior year
What is the Failure to File Penalty?
- 5% of the Amount of Tax due for each month
What is the Failure to Pay Penalty?
- 1/2 of 1% per month
- Up to a Max. of 25% of Unpaid Tax
What is the Penalty for Negligence with respect to an Understatement of Tax?
- 20%
- When understatement is not Substantial
What is the Defense for Negligence with respect to understatement of tax?
- Reasonable Basis
What is the Penalty for Substantial Understatement of Tax?
- 20%
- Accuracy-related Penalty
- More difficult for the taxpayer to avoid the penalty
If the Taxpayer adequately Discloses the tax position, taxpayer can avoid the penalty IF?
- Has Reasonable Basis
- Other then a Tax Shelter
If the Taxpayer does NOT disclose the tax position, can avoid the penalty if?
- Substantial Authority for the Tax Position
- Except a Tax Shelter
What is the Penalty for Fraud ?
- 75%
- Willful, Intentional, Reckless
For the IRS to prevail for a Civil Penalty, then?
- IRS Must prove by a Preponderance of evidence
For the IRS to prevail for a Criminal Penalty, then?
- IRS must prove beyond a Reasonable Doubt
What is a Frivolous Position?
- Position taken on the return that is Patently Improper, but Arguable
- Less then 20%
- NOT: Defense to avoid any penalty
SOX prohibits Executives & Officers who worked for the Accounting Firm within how many years?
- Within one year before the Audit
What is the order of events in the Legislative Process for a specific tax law, in logical order?
- The Legislation originates in the House Ways & Means Committee
- The Legislation is voted on & approved by the full house
- The Legislation is voted on & approved by the full Senate
- The Legislation is considered by a Joint Conference Committee
- The Legislation is vetoed by the President
- The President’s veto is overwritten by 2/3 votes of the House & Senate
