Reg Deck 1 Flashcards
Surgent Sections 1 & 2
What are the 3 types of IRS Audits?
Correspondence Examination (through mail), Office Examination (at IRS District office), Field Examination (at business or residence)
IRS Form 2848 “Power of Attorney and Declaration of Representative”
IRS Form allowing an Attorney, CPA, EA, or preparer that signed the tax return to speak with the IRS.
IRS Form 980 “Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment”
Taxpayer acceptance of tax deficiency.
When can the Disciplinary Hearing be appealed?
Within 30 days to of the decision by the Administrative Law Judge to the Secretary of the Treasury.
Give an example of an ethical violation by a CPA performing a consulatation service for a stated fee
When the CPA knows that the fee will be a lot more.
What type of fee is not allowed under Treasury Dept 230?
Contingent fee for preparing a client’s income tax return.
Civil penalty for claiming allowances on false information.
$500
Maximum fine (criminal) attempting to evade tax?
$100,000 and/or 5 years in prison. $500,000 for Corporations; no jail time
Income less than $150,000 may avoid a penalty by paying what % of current year taxes and prior year taxes?
100% & 90%
Income >$150,000 may avoid a penalty by paying what % of current year taxes and prior year taxes
90% & 110%
Failure to file by due date penalty
5%/month up to 25% max.
Failure to file due to fraud
15%/month up to 75% max.
Failure to pay amount due on return
0.5%/month up to 25% on tax due
CPA liability to clients under common law
Fraud, Gross Negligence or Constructive Fraud, Negligence, Breach of Contract
Basis for suing CPA without showing cause
Breach of Contract or negligence
A client suing a CPA for negligence must prove each of the following factors except:
Reliance
Which of the following pairs of elements must a client prove to hold an accountant liable for common law fraud?
Scienter and justifiable reliance
Define Fraud
Intentional misrepresentation of a material fact WITH resultant harm.
What is gross negligence or constructive fraud?
Extreme, flagrant, or reckless departure from the standards of due care.
Define Ordinary or Simple Negligence
Failure to do what an ordianry, reasonable, prudent CPA would do.
What is Breach of Contract?
Failure by a CPA to fulfill requirements of a contract
What is the difference between Simple Negligence and Gross Negligence?
Simple Negligence is failing or not doing what a regular CPA would do. Gross Negligence is intent to not follow due care.
Defenses that a CPA has: (5)
1.) CPA was not negligent.
2.) Client contributed to the loss.
3.) CPA followed professional standards.
4.) Mistake was immaterial.
5.) CPA’s error did not cause the loss.
Ultramares rule
CPA may be liable for fraud or gross negligence
Who are CPA’s not liable to who do not have privity (contractual or near contractual relationship) on ordinary negligence?
3rd parties such as investors and creditors.
What is a 3rd party beneficiary rule?
A CPA may be liable for ORDINARY negligence when the services benefit the 3rd party primarily. 3rd party is party to contract when they are the beneficiary. Plaintiff can be a 3rd party when they are the AIM and END transaction benficiary.
When is a CPA liable under Foreseeability rules?
CPA is negligent in issuing the report to parties who can be forseen as being injured.
A Taxpayer received a 90-day letter proposing a deficiency. The taxpayer challenged th proposed deficiency in the Small Cases Division of the U.S. Tax Court. If the taxpayer loses the case, then the decision is:
Not appealable.
List of courts that are referred to as courts of original jurisdiction, trial courts, for tax matters?
The Tax Court, the U.S. District Court, and the U.S. Court of Federal Claims.
What is Schedule UTP used for?
To disclose specific information regarding Uncertain Tax Positions
If a noncash donation is made, what is the minimum amount that a qualified appraisal is required?
$5,000.
What are the requirements if a donation exceeds $500?
A description of how the property was acquired and the taxpayer’s basis in the property must be included with the taxpayer’s return.
What is a reportable transaction?
The potential for tax avoidance or evasion.
A Civil fraud penalty can be impsoed on a corporation that underpays taxes by
Maintaining false records and reporting ficticious transactions to minimize corporate tax liability
What is the deduction allowed for underpayment of federal estimated taxes?
Not deduction is allowed per IRC Section 162
What committee report is not used as a source of tax law?
Accounting and Review Services Committee Report
