REG Module 4 Flashcards
If the CPA does not have possession of the records or control of the records that the IRS is requesting, what should they do?
Notify the IRS of the identity or any person who according to the CPA’s belief could have the records.
When is a contingent fee allowable?
When it’s for penalties, or statutory interest
What items are NOT required to be returned to the client
A practitioner does not have to provide a client with the work product (I.e. mathematical schedule, working docs, etc.).
How can the fee be communicated?
In many ways. Professional lists, telephone directories, mailings, electronic mail, etc.
Can more than one person be deemed a preparer of a tax return?
YES!
What does “reportable transaction” mean?
Any transaction that the Secretary of the US treasury department has determined as having a potential for either tax avoidance or tax evasion
What is “willful or reckless” conduct and what is the penalty for it?
The greater of $5000 or 75% of the income derived to the tax return or refund claim on which the willful or reckless conduct exercised. 1. A willful attempt to understate the tax liability. 2. Reckless or intentional disregard of tax rules and regulations. Knowingly deducting personal expenses as business expenses could constitute as willful or reckless
How long does a taxpayer have to keep a completed copy of the tax return?
3 years
When is it okay for a CPA to give out clients info?
When they’re giving it for court subpoenas or state CPA society quality control panels
What is the penalty for understatement of tax?
It is 20% of the understatement of tax
What is the more likely than not standard?
It involves a position that has a more than 50% chance of succeeding
Where does it go if the IRS and taxpayer can’t agree?
The US Court of Federal Claims
The courts of original jurisdiction for tax cases are:
The Tax Court, US District Court, and US Federal claim
How long do you have to petition for a deficiency?
90 days. You either have 90 days to agree and pay the deficiency or file a petition with the US Tax Court.
A decision in small cases division cannot be relied upon on where?
It cannot be relied upon in any other court. I.e. they couldn’t reference a decision that was made for another case. It is case specific in small case division.
When does interest on a tax deficiency begin to accrue?
When the tax was due, without regard to extension of time to file.
Who is the CPA liable to if they negligently give an opinion on an audit of a clients financial statements?
Anyone in a class of third parties (investors and such) who would rely on the opinion of the financial statements
Money/Compensatory damages
This is 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
What are the 4 elements of a negligence claim
- Defendant owed a duty of care to the plaintiff
- Defendant breached that duty of care
- The breach of duty was the actual and proximate cause of the plaintiff’s losses
- The plaintiff suffered damages
What is Scienter?
An intent to deceive
For an act to be considered negligent, what must they prove? There are 4 factors.
The client must prove that the CPA failed to exercise due care. The 4 factors are:
1. Duty of care
2. Breach (lack of due care)
3. Causality
4. Injury
What is constructive fraud?
C.F. Does not require intent (whereas actual fraud does). It only requires reckless disregard for the truth or falsity.
What is evidentiary privilege that protects communication between a CPA and the CPAs taxpayer-client in a non criminal tax matter before the IRS?
Tax Practitioner privilege
