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REGULATION > R6 > Flashcards

R6 Flashcards

1
Q

What are the 4 elements of ordinary negligence?

A
  1. Duty of care
  2. Breach
  3. Casualty
  4. Injury
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2
Q

What is a 30 day letter from the IRS?

A

If an agreement b/n tax payer and IRS agent following an audit - the taxpayer receives copy of report and 30 day letter notifying the taxpayer of right to appeal

Taxpayer then has 30 days to either request an admin appeals conference OR agree to the IRS proposed adjustment

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3
Q

Under the Ultramares rule - who will an accountant be liable for negligence (2) and who will they NOT be liable to?

A

Liab for negligence to: 1. parties in privity AND 2. Intended TP beneficiaries

NOT liab to parties merely “Foreseen” cannot recover

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4
Q

If a taxpayer loses case in Small Cases Division of the US TAX court –> where can they appeal to?

A

CANNOT appeal the Small Cases Division of the US Tax Court

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5
Q

What are the 4 due diligence requirements for the earned income credit address?

A
  1. eligibility checklist
  2. computation worksheets
  3. record retention
  4. reasonable inquiries to the taxpayer
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6
Q

What type of business can NOT qualify for a 501(c)(3) exemption?

A

Partnership

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7
Q

What is the general rule of who a CPA liable to when negligent?

A

Liable to anyone in a class of Third parties whom the CPA knows will rely on the opinion of the F/S

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8
Q

What is the 90-day letter and when is is sent to taxpayer?

A

90-day letter is sent to taxpayer AFTER the 30-day letter IF taxpayer does NOT respond to 30 day letter.

90-day letter gives taxpayer 90 days to either pay the tax deficiency OR file a petition with the US Tax Court

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9
Q

What are the three courts of original jurisdiction for tax cases (courts in which taxpayer would first bring a lawsuit against IRS)

A

Tax Court
U.S. District Court
U.S. Court of Federal Claims

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10
Q

When does the IRS issue a Private Letter Ruling? Who relies on PLR?

A

IRS issues in response to taxpayer’s request for guidance on the tax treatment of proposed transaction (typically one with sig tax consequence)

PLR can be relied on taxpayer who this is issued to BUT NOT relied on as a precedent by other tax payers

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11
Q

What is a revenue ruling and who relies on it?

A

Revenue Ruling is an official pronouncement by IRS on how tax laws applies to specific transaction or fact pattern - not issue one a singular tax payer

Published by IRS and can be relied on as precedent by tax payers

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12
Q

What are the qualifications of the U.S Tax Court

What is it?

how much payment is due?

How many judges/juries?

A

Nationwide court solely for tax cases

No pmt required and has small claims division hear disputes involving liabs of $50k or less

No Jury

One Judge - they are tax expert

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13
Q

What are the two types of decisions the U.S Tax Court Issues?

A

Regular Decision - regular decision involving new or unusual point of law

Memorandum Decision - only the application of existing law or interpretation of facts

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14
Q

What are the qualifications of the U.S District Courts

What is it?

how much payment is due?

How many judges/juries?

A

District Courts are trial courts in US court system which both civil OR criminal cases are filed.

One district court for each state

Must pay disputed tax liability AND then sue the IRS for a refund (filed within 3 years from date of the original return filed)

Only 1 judge

Taxpayer can request jury trial

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15
Q

What are the qualifications of the U.S Court of Federal Claims

What is it?

how much payment is due?

How many judges/juries?

A

Nationwide court that has jurisdiction over most claims for money damages against the US (include tax refunds). Has concurrent jurisdiction with US District Courts when claim is <$10k and statute of limit of 6 yrs

Court in D.C

Taxpayer must pay disputed tax liability before filing claim

NO jury allowed

16 judges

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16
Q

What is the Difference b/n the Court of Appeals and the US. Court of appeals for Federal Circuit Court?

A

US Court of Appeals (circuit court) are the first level of appellate courts

Court of appeals hears appeals from the District courts and Tax Courts

US Circuit Court of Appeals hears appeal from U.S Court of Fed Claims

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17
Q

What are the qualifications of the US Supreme Court?

A

Highest court in the nation - last level of appeal

9 justices who all hear cases that the Supreme court grants a Writ of Certiori in DC

Hears seldom tax cases

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18
Q

What is the penalty for failure to make sufficient estimated income tax payments?

A

Taxpayers who do not have sufficient withholdings or do not pay estimated tax payments timely –> IF liability < $1k –> no penalty

If AGI is less than 100–> lessor of 100% of PY or 90% of CY
IF AGI > 150k -> lessor of 100% of CY and 110% of PY

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19
Q

What is the Failure to File penalty?

A

5% of amount tax due for each month up to 25% of unpaid tax

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20
Q

What is the Failure to Pay penalty?

A

Penalty is .5% per month up to 25% of unpaid tax

No penalty IF at least 90% of tax is paid by OG due date and requested extension

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21
Q

What is the negligence penalty with respect to understatement of tax?

A

Penalty is an accuracy - based penalty for negligence or for disregard of tax rules and regulations

Penalty is equal to 20% of the understatement of tax

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22
Q

What is the reasonable basis std tax position?

A

Tax position that has at least 20% chance of succeeding

std not met if taxpayer fails to make reasonable attempt to determine correctness

will avoid the negligence penalty/substantial underpayment penalty

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23
Q

What is the Substantial Authority standard tax position?

A

Tax position more than 40% of succeding in court

Reports issued by congress, IRS reg, rules, and releases req this.

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24
Q

What is the More Likely than not (MLTN) std?

A

Tax position where greater than 50% liklihood of tax position being upheld.

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25
Q

What are the 3 general tax forms to be file to disclose uncertain tax positions?

A
  1. Disclosure Statement
  2. Regulation Disclosure statement
  3. Reportable Transaction Disclosure Statement
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26
Q

What are 3 types of torts?

A

Ord Negligence
Constructive Fraud (gross negligence)
Actual Fraud

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27
Q

What are the 4 elements to prove ordinary negligence?

A
  1. Defendant owed duty of care to the plaintiff
  2. Defendant breached that duty by failing to act with due care
  3. The breach caused plaintiff’s injury
  4. damages
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28
Q

What are the 5 elements of Fraud? (MAIDS)

A

Misrepresentation of material fact
Intent to decieve (Sceinter)
Actual and justifiable reliance on the misrepresentation
Intent to induce plaintiff reliance on the misrepresentations
Damages

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29
Q

What are the 3 types of Privileged communications?

A
  1. Attourney-Client Privilege
  2. Work Product Privilege
  3. Tax Practitioner - taxpayer priviledge
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30
Q

What does the IRS need to prevail against a case with criminal penalty?

A

IRS must prove beyond a reasonable doubt that the taxpayer willfully AND deliberately attempted to evade tax

31
Q

Under Circular 230, what does a covered opinion include?

A

Covered opinion includes any written or electronic advice concerning transactions specified by IRS as listed transactions

32
Q

What are the 4 topics that are covered through circular 230?

A
  1. Rules governing the authority to practice before IRS
  2. Duties and restrictions relating to practice before IRS
    3.The sanctions for violation of regulation
  3. rules applicable to disciplinary proceedings
33
Q

How do you calc the amount of tax that is subject to “Failure to pay penalty”?

A

Tax due on tax on return - amount paid (including withholding)
EXCEPTION: IF the amount paid is > 90% of the the total tax –> no payment due

34
Q

When can a CPA charge a contingent fee?

A
  1. IRS examination or audit
  2. Claim solely for refund of interest/penalties
  3. judicial proceeding arising under the IRC
35
Q

With Regards to a tax shelter, when is a tax preparer penalty NOT applicable?

A

When it is reasonable to believe (substantial authority) that the position would more likely than not be upheld.

36
Q

What are 3 Primary authoritative sources when conducting tax research?

A
  1. IRC
  2. Tax Court Cases
  3. Treasury regulations
37
Q

What are the 4 characteristics of a simple trust?

A
  1. Only makes distributions out of current income (NOT from corpus aka principal)
  2. required to distribute all of its income currently
  3. cannot take deduction for a charitable contribution
    4.Entitled to $300 exemption of $300 in arriving at taxable income
38
Q

What are the 4 characteristics of a complex trust?

A
  1. may accumulate income
  2. may distribute principal
  3. may deduct charitable contributions
  4. permitted an exemption of $100 in arriving at taxable income
39
Q

What is the 2023 gift tax exclusion limit per year/donee?

A

$17,000 or $34k if gift splitting

40
Q

What is the lifetime combined gift and estate tax exclusion?

A

$12,920,000

any amount over $17k per year –> this is reduced

41
Q

What are the 4 categories of gift that have unlimited exclusion?

A
  1. Payments made directly to an education institution
  2. Payments made directly to a health provider for medical care
  3. Charitable gifts
  4. Marital deduction
42
Q

What is a present interest and what are 5 examples?

A

qualifies for the annual exclusion

  1. outright gifts of cash or property
  2. Trust income interests where annual or more frequent distribution is mandatory
  3. life estates/estates for a term certain
  4. bonds or notes (even though not paid till maturity)
  5. Unrestricted transfers of life insurance policies
43
Q

What is a future interest and what are 4 examples?

A

The postponement of a right to use, possess, or enjoy the property

  1. reversions (gifting assets and later getting back the property
  2. remainders (distributed at some time in the future time)
  3. Trust income where accum of income is mandatory and distributions is later

4.present interests without ascertainable value

44
Q

What are 2 characteristics of a completed gift?

A
  1. even thought the donee is not born yet
  2. despite property may revert to the donor at some point
45
Q

What are the two types of incomplete gifts? are they taxable?

A
  1. Conditional gifts - subject tot conditions precedent and will not be provided until conditions are met
  2. Revocable gift - of donor reserves the right to revoke the gift or change the beneficiary

NOT TAXABLE

46
Q

What are the 3 requirements to apply the exclusion of a gift?

A
  1. A present interest
  2. complete
  3. Under $17k/$34k(gift splitting
47
Q

What documentation is a Taxpreparer required to retain?

A

Must retain Taxpayers name and ID number OR copy of tax return

48
Q

If after the 30 day letter –> the taxpayer agrees with IRS proposed adjustment, what is the next course of action taken?

A

Taxpayer will sign form 80 and pay any additional tax assessed

49
Q

If failure to file is fraudulent - what is the tax?

A

15% per month with max of 75% of unpaid tax

50
Q

What is a substantial understatement of tax for individuals?

A

One that exceeds the greater of: 10% of the tax or $5k

51
Q

What is a substantial understatement of tax for C Corporations?

A

One that exceeds the lesser of:
1. 10% of the tax
OR
2. $10M

52
Q

What is the board that gives CPA license and can take it away?

A

State board of accountancy

53
Q

What societys have the ability to perform peer review?

A

AICPA and State Society (every 3 years)

54
Q

What are 3 reasons the state board may revoke license?

A
  1. Misconduct while performing accounting services - negligence, fraud
  2. Misconduct outside the scope of accounting (intoxication, drug, insanity)
  3. Criminal conviction of a felony, failure to file own tax return
55
Q

If the AICPA and state societies has a hearing for a CPA - what is the name of the Panel thats holds this?

A

Joint Enforcement Ethics Panel (JEEP) (2/3 majority to expel)

56
Q

Which board determines the CPE requirements for CPA’s?

A

State Board of accountancy

57
Q

What are the exceptions where client consent is not required to show their records? (4)

A
  1. Court order
  2. Peer reviews by AICPA or Review by PCAOB
    3.The SEC
    4.. Surviving partner on death of a partner

Not even the IRS

58
Q

What is the frivolous tax position penalty?

A

If you claim the frivolous tax position and it is improper- tax is Greater of
1. $1k OR 2. 50% of income derived from preparing the return

59
Q

What is the percentage of confidence in reasonable basis, Substantial authority and More likely than not?

A

Reasonable basis = At least 20%

Substantial authority = 33 - 40%

More likely than not = Greater than 50%

60
Q

If the understated tax liability is due to an unreasonable position and prepare willfully/recklessly attempts to understate tax - what is the penalty?

A

GREATER OF:

$5K OR 75% of preparer fee

61
Q

What are the three credits that require a taxpayer to exercise due diligence on eligibility?

A

EIC, AOC, Child tax credit

62
Q

What is the punishment for a tax prepare who uses or discloses information on client without consent?

A

Fine up to $1k or 1 year imprisonment OR both

If it results in Identity theft –> penalty is $1k for each disclosure up to $50k

63
Q

What are the three reasons for a correspondence audit?

A

Information errors (missing signature, wrong SS#)
Matching issues
Mathematical errors

64
Q

Who has the burden of proof and when does is switch?

A

Most have the party bringing the case has the burden of proof (civil cases –> most taxpayer)

EXCEPTION Burden of proof shifts to IRS where income, gift skipping tax with respect that factual issues taypaer complied with IRS

65
Q

Who has the burden of proof in a case of aiding and abetting?

A

IRS

66
Q

What organizations are considered a public charity for purposes of charitable contributions?

A
  1. max 60% Charitable deduction donees (Church/Religious orgs)
  2. 1/3 support from members of public
  3. Supporting orgs
  4. public safety testing org
67
Q

What a are the 3 requirements for a tax exempt status?

A
  1. No part of the net earnings may benefit any private shareholder/individual
  2. Substantial part of activities of org may not be nonexpempt activities (propaganda)
  3. Org may not directly participate or intervene in any political campaign
68
Q

What are the 3 definitions of Unrelated Business income?

A
  1. Derived from activity that constitutes trade or biz
  2. Regularly carried on
  3. Not substantially related to orgs tax exempt purpose
69
Q

What are examples that are not UBI?

A

WGames of chance
Sales of merch received as gifts
Sales of articles made by disabled person as part of their rehab
activity where substantially all work is performed by unpaid volunteer

70
Q

What is the Restatement rule for CPA liability?

A

Extends CPA liability to parties the CPA knew or should have known will rely on work

71
Q

What is the Foreseeable users std for CPA Liability?

A

Expands liability to any potential user of FS that CPA could reasonably forsee - not just parties they knew (i.e potential investor)

72
Q

What are the 3 elements of constructive fraud?

A
  1. Material misrepresentation or omission of Fact
  2. Justifiable Reliance on CPAs work
  3. Suffered Monetary losses
73
Q

What regulatory board coordinates with the state boards of accountancy in their role of licensing and regulations for CPAs?

A

NASBA

74
Q
A

REGULATION (8 decks)

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