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REG > Reg Flashcards - Chapter 5 > Flashcards

Reg Flashcards - Chapter 5

1
Q

Authority for tax treatment of an item

A
  1. IRC
  2. Regulations
  3. Revenue rules from US Treasury
  4. Court cases
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2
Q

Listed transaction

A

Transaction specifically identified by the Secretary of the US Treasury Dept as a tax avoidance transaction

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3
Q

Reportable transaction

A

Transaction with respect to which information is required to be included with a return because US Treasury Dept has determined as having potential for either tax avoidance or tax evasion

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4
Q

Tax shelter

A

Entity whose significant purpose is the avoidance or evasion of federal income tax

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5
Q

Penalties for understatement of taxpayer liability

A

$1,000 for no reasonable belief the position would be sustainable based on merit
$5,000 for willful or reckless conduct

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6
Q

Treasury dept Circular 230

A

Address the practice before the IRS of “practioners”

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7
Q

Covered opinion

A

Any written or electronic advice by a practioner concerning one or more federal tax issues and arising from:

  1. A listed transaction
  2. Principal purpose of which is federal tax avoidance or evasion
  3. A reliance opinion or marketed opinion
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8
Q

Reliance opinion

A

Type of covered opinion
Written advice concluding at a confidence level of at least more likely than not likelihood that the significant federal tax issue would be resolved in the taxpayer’s favor

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9
Q

Marketed opinion

A

Type of covered opinion

Advice that will be used to promote, market or see a partnership, investment plan, or arrangement

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10
Q

State Board of Accountancy

A

Sole power to license CPA

Only entity with the power to suspend or revoke a CPA’s license

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11
Q

JEEP

A

Joint Ethics and Enforcement Program

State program for enforcement of their codes of conduct by means of a single investigation and action

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12
Q

Possible sanctions with AICPA conviction

A
  1. Expulsion from the AICPA or state CPA society
  2. Suspension of membership
  3. CPE courses requirement
    (no monetary or criminal sanction)
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13
Q

IRS Disciplinary Actions

A
  1. Criminal Penalties

2. Civil Penalities

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14
Q

SOX Goal

A

Improve investor confidence in financial reporting

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15
Q

PCAOB

A

Created by SOX
2 CPAs, 3 non
1. Register public accounting firms
2. Establish rules relating to preparation of audit reports
3. Conduct inspections, investigations, and disciplinary proceedings

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16
Q

Audit Committee

A

Helps to address problem of inadequate board oversight
Members of board of directors
Must have a financial expert

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17
Q

Title IV Enhanced Financial Disclosures for SOX

A
  1. All material correcting adjustments identified by the auditor
  2. Conflict of interest provisions (prohibited from making “personal loans” to directors)
  3. Disclosure of transactions involving management and principal stockholders (10% owners)
  4. Management assessment of internal controls
  5. Code of ethics for senior financial officers
  6. Disclosure of audit committee financial expert
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18
Q

Origination of tax legislation

A
  1. House of Representatives Ways and Means Committee
  2. Full House
  3. Senate Finance Committee
  4. Full Senate (normally not same bill as one voted on in House)
  5. Differences resolved by Joint Conference Committee
  6. Compromise bill is voted on by House and Senate
  7. President signs bill
  8. Presential veto can be overriden by 2/3 vote of both House and Senate
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19
Q

Steps of appeal for a tax issue

A
  1. Revenue agent
  2. Adminitrative appeal (30 days to appeal)
  3. Tax court
  4. US district court
  5. Federal Claims Court
  6. US Court of Appeals
20
Q

US Tax Court

A

Hears only federal tax cases
Trial by Judge (not jury)
Judges travel nationwide to hear cases at various sites
Cases cannot be taken to Tax Court before the IRS sends out the notice of deficiency
Follows the Court of Appeals that has direct jurisdiction over the taxpayer in question

21
Q

Court of Federal Claims

A

Taxpayer must pay the tax first and then sue government for the refund
No trial
Follows the decisions of the Federal Court of Appeals (not the geographic Court of Appeals)

22
Q

US Court of Appeals

A

Three judge panel (no jury)
In most cases represents the final word on federal tax manners
Hear cases that involve a question of law, not a question of fact
2 types:
Geographic = handle tax and nontax issues brought from the tax or district court for a specific area
Federal = tax and nontax issues that originate in Court of Federal Claims and other types of specialized appeals

23
Q

Failure to file penalty

A

5% per month of the amount of tax due
Maximum is 25% of unpaid tax
Reduced by the amount of the failure-to-pay penalty (if applicable)

24
Q

Failure to pay penalty

A

1/2 of 1% per month

Maximum is 25% of unpaid tax

25
Q

Reasonable basis standard

A

Position that has at least a 20% chance of succeeding

26
Q

Substantial Authority Standard

A

Position that has more than a 33% change of succeeding but less than a 50% chance

27
Q

More Likely than Not

A

Position that has more than a 50% chance of suceeding

Defense to avoid penalty for tax shelters

28
Q

To make a case for negligence, plaintiff must show:

A
  1. Defendant owned a duty of care to the plaintiff
  2. Defendant breached that duty
  3. Breach caused plaintiff injury
  4. Damages
29
Q

Ultramares Decision

A

Limits CPA liability to persons in privity and intended (named) third party beneficiaries

30
Q

Five elements of fraud

A 
MAIDS:
Misrepresentation of material fact
Actual and justifiable reliance
Intent to induce plaintiff to rely on misrepresentation
Damages
Scienter
31
Q

Section 11 of 1933 Act

A

CPA can be held liable to plaintiff who:

  1. Acquired the stock
  2. Suffered a loss
  3. Misrepresentation of material fact contained in financial statements
32
Q

Rule 10b-5 of 1934 Act

A

Plaintiff must prove:

  1. Acquired the stock
  2. Suffered a loss
  3. Misrepresentation of material fact in FS
  4. Misrepresentation made with scienter
  5. Reliance on FS
  6. Use of some means of interstate commerce
33
Q

SEC Act of 1933

A

Regulates original issuance of securities

34
Q

SEC Act of 1934

A

Regulates purchases and sales after intial issuance

35
Q

Shelf Registrations

A

Prepare one registration statement for all securites they will offer in the future

36
Q

Security Exemptions from registration requirements

A 
Securities issued by:
BRINGS
1. Banks and savings and loan
2. Railroads 
3. Insurance policies
4. Not-for-profit organizations
5. Government
6. Short-term commercial paper (maturity date of 9 months or less)
37
Q

Regulation A

A

Sales may not exceed $5M in a 12-month period

Simplified form of registration = offering statement

38
Q

Regulation D

A

Rules 504, 505, 506
Intended for private offerings
Must insure purchaser will hold for 2 or more years
SEC must be notified of issuance within 15 days after first sale

39
Q

Rule 504

A

$1M limit
No limitation on number or type of purchaser
Does not require any specific disclosure to investors prior to sale

40
Q

Rule 505

A

$5M limit
Sold to any number of accredited investors and 35 or fewer unaccredited investors
Disclosure required if any unaccredited investors

41
Q

Rule 506

A

Unlimited dollar amount of sales

Any number of accredited investors and 35 or fewer unaccredited investors

42
Q

Unaccredited investor

A

Institutional investor, bank, natural person with at least $1M net worth or $200K annual income

43
Q

Companies that must register their securites under SEC Act of 1934

A
  1. Traded on a national exchange

2. More than $10M in assets and at least 2,000 s/h or 500 unaccredited s/h

44
Q

Form 10-K

A

Filed annually within 60 days (90 days for small corp) of the end of the fiscal year.
Contains material facts concerning management

45
Q

Form 10-Q

A

Quarterly report filed within 40 days (45 days for small corp) of the end of the first three quarters of the fiscal year
Contain reviews of financial information by indepedent CPAs

46
Q

Form 8-K

A

Must be filed within 4 days of major change in the company

REG (27 decks)

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