REG 5.1 Flashcards
What is the Substantial Authority Standard?
Greater than 33% but less than 50% chance that a tax position will be upheld in court.
What is the “More Likely than Not” Standard?
Greater than 50% chance that a tax position will be upheld in court.
What is a listed transaction?
A reportable transaction that is substantially similar to a tax avoidance transaction.
What is disregard?
To recklessly, carelessly, or intentionally disregard regulations.
What are the primary sources of tax authority?
Internal Revenue Code, revenue rulings/procedures/tax treaties/US Treasury dept, court cases, and proposed/temp/final regulations. ***IRS Publications are NOT a primary source of authority.
What is the “Reasonable Basis” Standard?
Greather than 20% change that a tax position will be upheld in court.
Negligence (ordinary) is a failure to?
Make a reasonable attempt to comply with regulation, exercise ordinary & reasonable care in preparing taxes, of the tax payer to keep good books or records.
Who can be considered to be a “person”?
Individual, trust, estate, partnership, association, company, or corporation.
What is a reportable transaction?
Information required to be submitted with a return because of the potential for tax avoidance (legal) or tax evasion (illegal).
What is a tax return preparer?
A person who prepares tax returns for compensation. They must register with the IRS and obtain a PTIN. It is NOT a data entry/processor, employee of the company, or a fiduciary (trustee executor).
What is a tax practitioner?
A person who practices before the IRS (attorney, CPA, enrolled agent, enrolled actuary, or enrolled retirement plan agent)
What is a tax shelter?
A vehicle used for avoidance or evasion of federal income tax.
Understatement of Taxpayer’s Liability by Tax Preparer Due to Unreasonable Position
It is an unreasonable position unless: 1)There is substantial authority, doesn’t involve tax shelter or reportable transaction, and it does not have to be disclosed; 2) If the position is disclosed and there is reasonable basis and doesn’t involve tax shelter or reportable transaction; 3) if a tax shelter or reportable transaction must be more likely than not. Penalty is greater of $1000 or 50% of income received, but if reasonable basis exists and acted in good faith, pentaly does not apply.
Understatement of Taxpayer’s Liability by Tax Preparer Due to Willful or Reckless Conduct
Not considered an error if calculation was made in good faith. Preparer not required to obtain supporting docs from client unless they suspect info to be wrong, in which case they must make reasonable inquiries. Penalty is greater of $5000 or 50% of income received.
Understatement of Taxpayer’s Liability by Tax Preparer Due to Provide Copy of Completed Tax Return to Client
Penalty: $50/failure, max of $25K/yr. If reasonable cause then no penalty.
Understatement of Taxpayer’s Liability by Tax Preparer Due to Failure to Sign Tax Return
Penalty: $50/failure, max of $25K/yr. If reasonable cause then no penalty.
Understatement of Taxpayer’s Liability by Tax Preparer Due to Failure to Include TIN on Return
Penalty: $50/failure, max of $25K/yr. If reasonable cause then no penalty.
Understatement of Taxpayer’s Liability by Tax Preparer Due to Retain Records Properly
Must keep records for 3 years after last day of return period (12 mos period beg. July 1), keep copy of the return or name&ID of the tax payer, penalty: $50/failure, max of $25K/yr. If reasonable cause then no penalty.
Understatement of Taxpayer’s Liability by Tax Preparer Due to Lack of Diligence in Determining Eligibility for “Earned Income Credit”
Need to have eligibility checklist, computation worksheets, make reasonable inquiries of the client, record retention, penalty: $500/failure, if it is isolated/inadvertent event then no penalty
