R6 professional responsibilities and tax preparer penalties Flashcards
Tax preparer
&
Tax practitioner
- tax preparer:
- License not required
- need PTIN ( preparer tax identification number) to prepare federal tax returns
- does not include merely furnishes typing or other mechanical assistance
- Tax practitioner
- license required ( enrolled agents, CPA, attorneys)
- unlimited representation rights
PTN holder with no credentials - tax prepares
GR: do not have authority to represent clients before IRS
Signing tax return preparer
&
Nonsigning tax return preparer
Signing tax return preparer:
- the primary responsibility for the overall substantive accuracy
Nonsigning tax return preparer
- not primary
- Assist (provide advice)
- not merely mechanical
Substantial Authority
- determining whether there is substantial authority for tax treatment ( include as income, allowable deduction)
Primary Authoritative Sources:
- Internal Revenue Code, other statutory provisions
- regulations constructing such statues
- revenue ruling, us treasury department
- court cases
Not primary authoritative sources:
- press releases, administrative pronouncements published in the internal revenue bulletin
- Listed transaction & Reportable transactions
- More likely than not
- Reasonable basis
- Substantial Authority Standard
- Negligence
- Listed transaction - tax avoidance transactions
& Reportable transactions: tax avoidance, tax evasions
** listed, reportable, tax shelters - special rules apply**
- More likely than not
>50% - Reasonable basis
>20% tax position upheld - Substantial Authority Standard
>40% but <50% - Negligence
- Ordinary negligence is not Fraud
Fraud = willful, reckless
* different penalties apply for negligence vs. fraud
Unreasonable Position
& penalty
A position is deemed unreasonable UNLESS:
- Substantial authority ( regardless of disclosure - 40-50%)
- If disclosed, reasonable basis >20%
- reasonable to believe that a tax shelter or reportable transaction position needs more likely than not >50%
- Penalty for understatement due to unreasonable position (ordinary negligence)
greater of $1000 or 50% of the income the preparer received for the tax return
Supporting Document **
- Gr: not required to obtain supporting document
UNLESS
prepare has reason to suspend the accuracy of the info provided - reasonable inquires if info seems incorrect or incomplete
- what you know or should know
Penalty for Willful or Reckless Conduct
greater of $5000 or 75% of the income the preparer received for the tax return
Tax preparer penalties for unethical behavior
$50 per failure (1 -5 )
- Failure to provide copy to tax payer
- Failure to Sign return
- Failure to furnish Identification Number of Preparer
- Failure to properly retain records
for 3 years (copy return or listing clients) - Failure to file correct information returns
………………………………
6. negotiation of IRS check
who endorse or negotiates IRS refund check -$545
- Failure to be diligent in determining a clients eligibility for the earned income
- $545
- eligibility checks, computation worksheets, reasonable inquires to the taxpayers, record retention
……………………….
- Aiding and abetting the understatement of tax liability
- Individuals 1k , corp 10k
- applies to any person, doesn’t have to be tax preparer
- burden of proof lies to IRS
Burden of proof
Civil action: is on taxpayer otherwise stated by the law
Criminal action: is on the government to establish evidence beyond a reasonable doubt that taxpayer is guilty of charges
Wrongful Disclosure
GR: Duty of confidentiality (includes refund/workpaper)
penalty : $250
Exceptions:
- Disclosures allowed by IRC - court order (enforcable subpoena)
- allowable uses - state.local tax returns
- disclosures for quality and peer reviews
Consent of client
- may be disclosed
Role of State Board of Accountancy
- Sole power to license and revoke
- Disciplinary power of state board
- 3 board categories of misconduct
- misconduct while performing accounting services
- misconduct outside the scope of accounting services
- criminal convisiton
After investigation - formal hearing
- board must find more likely than not
- proof beyond a reasonable doubt
the accountant is entitled to due process of law
all adverse state board decisions are subject to judicial review
5 penalties
- suspension or revocation of license ( only state board can do this)
- monetary fine
- reprimand or censure
- probation ( no jail, federal can do jail but not state board)
- requirement for continuing professional eduction (CPE)
Requirement of Regulatory Agencies
ACIPA
and State CPA socities
- The professional code of conduct
JEEP ( joint ethical enforcement program )
- single investigation ( AICPA and 49 state societies jointly created)
……………..
Disciplinary action AICPS and CPA societies can take
- suspend or terminate membership
- can do this without hearing, no $, no license, no jail
IRS Disciplinary Actions
SEC actions
IRS
Criminal
- beyond reasonable doubt
- burden on government
Civil
- GR: tax preponderance of evidence
- prohibit an accountant from practicing before IRS
- impose fines
SEC
-civil
- only investigates criminal
- suspend accountants practice before SEC
- fines
** monetary fines always have limit**
