REG Deck 3 Flashcards
An individual tax return preparer must include the preparer’s ________ on any tax returns prepared for compensation.
PTIN
any transaction that the Secretary of the U.S. Treasury Department has determined as having a potential for either tax avoidance or tax evasion.
reportable transaction
What is the penalty when a tax preparer is liable for willful or reckless conduct
Greater of $5,000
75% of the income derived with respect to the tax return or refund claim on which the willful or reckless conduct exercised
How long must a CPA retain a completed copy of each return after the close of the return period (IRC Section 6107)
3 years
Internal Revenue Code (IRC) Section 6695(b) provides a penalty of ________ for each failure of a preparer to sign a tax return [maximum penalty of _________ per calendar year (2024)].
$60
$31,500
The penalty for failure to comply with the IRS’ “due diligence” requirements with respect to determining a client’s eligibility for the earned income credit is a penalty of _______ (2024) for each such failure
$635
When can a CPA disclose confidential client information without the consent of the client
Preparation of state and local tax returns
Quality and peer reviews
Court order or administrative order
Which regulatory body coordinates the state boards of accountancy in their role of licensing and regulation for CPAs?
National Association of State Board of Accountancy (NASBA)
A tax return preparer who discloses taxpayer information without the taxpayer’s formal consent is subject to a civil penalty under Internal Revenue Code (IRC) Section 6713 of ______ for each such disclosure (maximum annual penalty of _________) and a criminal penalty under IRC Section 7216 of a fine up to ________ and/or imprisonment up to one year.
$250
$10,000
$1,000
Where, if any location is personal property tax on personal automobile deductible?
On Schedule A, as an itemized deduction
Where, if any location is current-year state and city income taxes withheld deductible?
On Schedule A, as an itemized deduction
The accumulated earnings tax is a penalty tax:
On C-Corps
Excess of retained earnings of $250,000 without a valid reason
The tax rate is 20% for the penalty
The reasonable basis standard is a tax position that has at least a __________ percent chance of succeeding, one that is arguable but fairly unlikely to prevail in court
20%
The substantial authority standard is a position that has more than a ______ percent chance of succeeding in court.
40%
The more likely than not standard is met when there is greater than a ______ percent likelihood of a tax position being upheld by the courts
50%
If an individual taxpayer rejects the IRS examiner’s findings in an audit of the taxpayer’s tax return, the IRS will issue the taxpayer a ___________________________ notifying the taxpayer of the right to appeal.
30 day letter (preliminary notice)
If the taxpayer agrees with the conclusions reached by the IRS agent in an audit, the taxpayer will sign _______________ and pay any additional tax assessed (plus interest and penalties).
Form 870
Which of the following is a list of courts that are referred to as courts of original jurisdiction, or trial courts, for tax matters?
The Tax Court
U.S. District Court
U.S. Court of Federal Claims
Upon receipt of a notice of deficiency from the IRS, the taxpayer has _________________ to pay the deficiency or ______________________________________ for a redetermination of the deficiency.
90 days
File a petition with the Tax Court
The IRS issues a _____________________________ in response to a taxpayer’s request for guidance on the tax treatment of a proposed transaction, typically one with significant tax consequences.
private letter ruling (PLR)
Interest on a tax deficiency begins to accrue _______________________________________________, even if an extension of time to file was filed.
on the date the original tax was due
What are the types of IRS audits?
Correspondence audit
office audit
field audit
Taxpayers who file petitions with the U.S. Tax court have the option of having the case heard before the informal small cases division if the amount of tax in dispute does not exceed ___________ for any one tax year
$50,000
A taxpayer who disagrees with the IRS may take his or her case to a _______________ only after paying the disputed tax liability and then sue the IRS for a refund.
U.S. District Court
_____________ cases are heard before one judge, not a panel of judges
U.S. District Courts
Which types of entities are reported on Schedule C?
unincorporated sole proprietorship and general partnerships
failing to take proper care in doing something
negligent
a writ ordering a person to attend a court
subpoena
When a CPA breaches a contract for professional services, the client and any third party beneficiary of the contract are entitled to compensatory ___________ ______________.
money damages
Ultramares limits the accountant’s liability for negligence to:
parties in privity
intended third party beneficiaries
a relation between two parties that is recognized by law, such as that of blood, lease, or service.
privity
knew that the statement was wrong or recklessly disregarded the truth
scienter
Reckless departure from standards of due care constitutes ____________________ _________________, which is also called constructive fraud
gross negligence
A plaintiff must show four elements to make a case for negligence against a CPA. The plaintiff must show that
The defendant owed a duty of care to the plaintiff
the defendant breached that duty by failing to act with due care
breach caused the plaintiff’s injury
plaintiff suffered damages
If a CPA recklessly departs from the standards of due care when conducting an audit, the CPA will be liable to third parties who are unknown to the CPA under the law of:
Gross negligence
What’s the difference between constructive fraud and actual fraud?
Actual fraud requires intent in making a material misstatement
A CPA who commits fraud is liable to anyone who can prove the case for fraud. Fraud has five elements:
a misrepresentation of material fact
intent to deceive
actual and justifiable reliance by the plaintiff on the misrepresentation
an intent (also known as scienter) by the defendant to induce plaintiff’s reliance on the misrepresentation
damages to the plaintiff
The ___________ __________ is the rule followed by a majority of jurisdictions providing that if a CPA performs an audit negligently, the CPA is liable to the client and to any foreseeable class of persons whom the CPA knows will be relying on the audit.
restatement rule
Which of the following is an evidentiary privilege that protects communication between a CPA and the CPA’s taxpayer-client in a noncriminal tax matter before the IRS?
tax practitioner privilege
. Work papers belong to the __________ who prepares them, not the client. Thus, as the owner of the workpapers, the ______ does not have to disclose them to the client.
accountant
accountant
any written or electronic advice concerning transactions specified by the IRS as listed transactions.
covered opinion
Tax return preparer checklists for whether a person is one or not
compensation
employs people who are compensation for preparing returns
signing tax return preparer
An _____________ may be terminated by the offeror at any time unless the offeree gave ______________ to keep the offer open.
offer
consideration
To be effective, consideration must be __________ ___________, which means something that the law recognizes as consideration.
legally sufficient
A unilateral contract is formed when a __________ is made in exchange for an ________.
promise
act
___________________ are generally not offers, but invitations to negotiate
advertisements
The death of an offeror prior to acceptance ________________ the offer by operation of law without notice to the offeree.
terminates
person that receives an offer
offeree
person that makes an offer
offeror
What is the mailbox rule?
acceptances are effective upon dispatch
Generally, under the ________ _________, acceptance is effective when sent. However, an offeror may opt out of the __________ ___________ by stating that the acceptance must be received by a certain date to be effective
mailbox rule
a principle in contract law that states that for an acceptance of an offer to be valid, it must exactly match the terms of the offer without any modifications or additions
mirror image rule
In order to form a contract, there must be at least three things:
an offer
an acceptance
consideration
Can a cpa disclose confidential client information without the consent of the client to another cpa who has purchased the cpa’s practice?
No
The victim was deceived as to the reasons for entering into the fraudulent transaction
fraud in the inducement
Fraud requires misrepresentation of a ________ __________. What is an example?
material fact
appraised value
when a person in a position of trust or confidence takes unfair advantage of the relationship such that the other party’s free will to contract is overcome.
undue influence
valid agreement that can be legally enforced, but it has a flaw or defect that gives one or more of the parties the option to void (cancel) it
voidable contract
an agreement that is not legally enforceable from the start. It has no legal effect and cannot be enforced by either party
void contract
occurs when a person overcomes the will of another through wrongful force or threats of imminent force
duress
means to cancel or revoke it, effectively undoing the agreement and returning the parties to their original positions as if the contract had never been made
rescind
A _________ ___________ of a material fact will make a contract voidable at the option of the adversely affected party.
mutual mistake
Under a personal services contract, which of the following circumstances arising after a contract is made will cause the discharge of a party’s duties?
illegality of the services to be performed
means to reject or void it, typically by someone who has the legal right to do so, such as a minor
disaffirm
A minor has a _________ __________ after reaching the age of majority to disaffirm contracts
reasonable time
Failure to have a license required to protect the public (as opposed to merely raise revenue) renders the contract __________.
void
a formal judgment or decision has been made by a court or legal authority on a matter or dispute.
adjudicated
a law that sets a deadline for how long you have to take legal action, like filing a lawsuit, after an event occurs
statute of limitations
In an action for breach of contract, the statute of limitations time period would be computed from the date of the:
breach of the contract
With regard to an agreement for the sale of real estate, the Statue of Frauds: Does not require the agreement by sign ___________________
by all parties
The Statute of Frauds is not a problem here since the contract is for services and can be performed within a year (the examiners were trying to trick you by taking the contract over the __________ threshold, but that threshold applies only to contracts for the sale of goods).
500
A real estate contract is within the Statute of Frauds, and a contract within the Statute of Frauds generally is enforceable against a party only if that party ___________ a written memorandum containing the material terms of the contract.
signed
A promise to pay the debt of another must be evidenced by some type of writing to be _____________.
enforceable
As a general rule, under the statute of frauds, a contract that cannot be performed within one year from the time of its making is ________________ absent proof of its material terms in a writing signed by the party being sued.
unenforceable
What is the rule for statute of fraud when it comes to the sale of good?
Contracts for the sale of goods of $500 or more must be in writing
________________________________ (that no one can perform) discharges a contract by operation of law as opposed to by the action of the parties
impossibility of performance
the agreement is unchanged but one of the original parties is released and a new party is substituted into their place
novation
the original parties are both released from the original agreement but are both bound by a new agreement.
substituted contract
The parole evidence rule prohibits introduction of __________________________________________ to vary the terms of a fully integrated contract, but it does not bar the introduction of subsequent oral or written agreements.
prior written statements
enough money to put the nonbreaching party in the position he would have been in had the other party performed—is the standard contract remedy and is available if a party fails to deliver goods under a contract.
compensatory damages
a court order instructing a party to perform as promised
specific performance
_____________ _______________ must be part of the basis of the bargain between buyer and seller.
Express warranties
The Sales Article of the UCC applies to contracts involving the sale of __________, which is defined as all things moveable.
goods
What does a shipment of non-conforming goods mean to the seller/buyer under sales article UCC?
Acceptance
immediate breach unless the seller had notified the buyer that the nonconforming goods would be shipped as an accommodation with reasonable notice
The Statute of Frauds requires contracts involving the sales of goods to be in writing if they exceed ___________ (MYLEGS). However, if any of these exceptions apply, an oral contract will be enforceable:
$500
SWAP
Specially manufactured (custom) goods
Written confirmation between merchants
Admission in court
Performance to the extent that the performance has been accepted
Under the UCC (Article 2) a written contract for the sale of goods must contain some indication of what?
quantity of goods being sold
occurs when either the buyer or seller indicates in advance of performance that he or she will not perform.
anticipatory repudiation
occurs if an event takes place that makes the contract objectively impossible for anyone to perform.
impossibility of performance
an offer or attempt to do what is required under a contract.
tender of performance
Under the Sales Article of the UCC, and unless otherwise agreed to, the seller’s obligation to the buyer is to:
holder conforming goods for the buyer’s disposition
When does the risk of loss pass to the buyer when the seller is not a merchant?
Upon tender of delivery of the goods
Under the Sales Article of the UCC, which of the following statements is correct regarding a seller’s obligation under a F.O.B. destination contract?
the seller is required to tender delivery of conforming goods at a specified destination
Under the Sales Article of the UCC, in an F.O.B. place of shipment contract, the risk of loss passes to the buyer when the goods:
are delivered to the carrier
In a sale or return, the ________ has title and risk of loss unless and until the goods are returned to the ___________.
buyer
seller
a guarantee from the seller that the goods are delivered free of all liens of which the buyer is unaware.
warranty of title
implied whenever a merchant (one who ordinarily sells goods of the kind sold) sells goods.
warranty of merchantability
When does title to goods revert back to the seller for non-conforming goods?
When the buyer has rightfully rejected the non-conforming goods.
Under the Sales Article of the UCC, which of the following rights is(are) available to the buyer when a seller commits an anticipatory breach of contract?
demand assurance of performance
cancel the contract
Failure to give adequate assurances when reasonably demanded is a form of ____________ _____________. It constitutes a breach and discharges the buyer.
anticipatory repudiation
Anticipatory repudiation is considered a _________ ____________ of contract, giving the nonbreaching party the right to sue immediately (among other options).
material breach
An agent will usually be liable under a contract made with a third party when the agent is acting on behalf of a (an):
undisclosed principal
Which of the following rights will a third party be entitled to after validly contracting with an agent representing an undisclosed principal?
performance of the contract by the agent
Most states require an agency agreement to be in writing if the agent is to purchase or convey interests in _________.
land
the duty to act solely in the principal’s interest in matters relating to the agency.
duty of loyalty
a principal’s written authorization granting an agent authority to enter into binding contracts on the principal’s behalf.
power of attorney
the duty to hold the agent harmless for liabilities the agent incurs on behalf of the principal.
reimbursement/indemnification
a duty to notify the principal of all issues known to the agent.
notification
What are things to remember for MCQs regarding power of attorney?
Limited to specific transactions
Terminations with the death of either the principal or the agent
No specific time is required
If writing is required it only has to be signed by the principal
What is necessary to create an agency?
Consent and a principal a with capacity
must obey all reasonable directions of the principal
duty of obedience
agent to principal
owes the principal a duty to carry out the agency with reasonable care
duty of reasonable care
agent to principal
the agent has a duty to account to the principal for all property and money received and paid out when acting on behalf of the principal
duty to account
If an agent is authorized to hire a subagent, the subagent owes a duty of care to who?
Both the agent and the principal
to something that is given or done without any expectation of payment, reward, or return.
gratuitous
What are the duties of an agent to a principal?
LORA ACRONYM
Duty of Loyalty
Duty of Obedience
Duty of reasonable care
Duty to account
the authority the agent reasonable believes he possesses because of the principal’s communications to the agent
actual authority
when an agent collects payments in an agency relationship
agency is coupled with an interest
the death of the principal will not end an agency coupled with an interest
the principal’s conduct has caused third parties to reasonable believe that the agent had authority
apparent authority
What does a business manager have the authority to do?
hire/fire employees
purchase inventory
pay business debts
the formal rejection or abandonment of a right, claim, title, or responsibility
renunciation
What happens when an agency is terminated by operation of law?
The agent no longer has power to bind the principal in a contract
Who is liable to a 3rd party for an undisclosed principal?
Both the principal and the agent
How is actual authority affected if the principal is disclosed or undisclosed?
Actual authority is the same in both cases
one in which the existence of the principal is known to the third party, but the principal’s identity is not disclosed.
partially disclosed principal
Who is liable for a tortfeasor if they were acting within the scope of their employment?
Both the employee and the employer
What is the most important factor in determining whether a person is an independent contractor?
The right to control the manner in which work is performed
What is the doctrine under which a corporation is made liable for the torts of the corporation’s employees when the torts are committed within the scope of employment?
Respondent Superior
a doctrine limiting a corporation’s power to act outside the scope of the corporation’s stated purposes or statutory powers.
Ultra vires
a civil wrong or wrongful act, whether intentional or accidental, that causes harm or injury to another person or entity, for which the injured party may seek legal remedy, typically in the form of damages (monetary compensation)
tort
