REG: Compliance Responsibilities Results: 5/5/2018

Question 1

A tax return preparer may disclose or use tax return information without the taxpayer’s consent to

1) Facilitate a supplier’s or lender’s credit evaluation of the taxpayer.
2) Accommodate the request of a financial institution that needs to determine the amount of taxpayer’s debt to it, to be forgiven.
3) Be evaluated by a quality or peer review.
4) Solicit additional nontax business.

Answer 1

Be evaluated by a quality or peer review.

Disclosure or use of the information on a tax return can only be done with the written consent of the taxpayer. Absent the taxpayer’s written consent, disclosure or use of the taxpayer’s tax return information by a tax preparer makes the preparer subject to a penalty for knowingly or recklessly disclosing tax return information.

However, there are exceptions to the penalty. Specifically, tax preparers may disclose or use information on a tax return if the disclosure is (1) for quality or peer reviews; (2) for use in preparing state and local taxes and/or in declaring estimated taxes;(3) under code; and (4) under the order of a court of law.

Thus, disclosing information for a peer review is an allowable exception to the penalty for knowingly or recklessly disclosing tax return information.

Question 2

An accuracy-related penalty applies to the portion of tax underpayment attributable to

I. Negligence or a disregard of the tax rules or regulations.

II. Any substantial understatement of income tax.

1) I only.
2) II only.
3) Both I and II.
4) Neither I nor II.

Answer 2

Both I and II.

The accuracy-related penalty applies to any portion of an understatement if tax on a tax return is due to negligence or to substantial income tax understatements, income tax valuation misstatements, estate or gift tax understatements, or pension liability overstatements.

Question 3

Chris Baker’s adjusted gross income on her 2016 tax return was $160,000. The amount covered a 12-month period. For the 2017 tax year, Baker may avoid the penalty for the underpayment of estimated tax if the timely estimated tax payments equal the required annual amount of

I. 90% of the tax on the return for the current year paid in four equal installments.

II. 100% of prior year’s tax liability paid in four equal installments.

1) I only.
2) II only.
3) Both I and II.
4) Neither I nor II.

Answer 3

I only.

The required annual amount is usually the lower of 90% of the tax shown on the taxpayer’s current year return or 100% of the tax shown on the taxpayer’s prior year return. If the taxpayer’s adjusted gross income exceeded $150,000 in the prior year and the taxpayer elects to base his/her required annual amount on the prior year, then the taxpayer would have to use 110% of the prior year’s return.

Thus, Baker must base his required annual amount on 90% of the current year’s tax liability or, since his adjusted gross income exceeded $150,000, 110% of the prior year’s liability.