Statements on Standards for Tax Services Flashcards
List the grounds on which a CPA can omit an answer on a tax return.
- Information not readily available and the answer is not significant in terms of liability.
- There is genuine uncertainty as to meaning of the question in relation to a particular return.
- The answer is voluminous and the return states that data will be supplied upon examination.
List the circumstances in which use of estimates on a tax return must be disclosed.
- Taxpayer has died/is ill at the time of filing.
- Taxpayer has not received a K-1 for a flow-through entity at the time of filing.
- Litigation bearing on the return is pending.
- Relevant records have been destroyed.
When can estimates be used on a tax return?
When:
- Obtaining exact figures would be excessively expensive or impractical
- The estimate is reasonable given known facts
- The estimates do not imply greater accuracy than exists
What is the rationale for Statements on Standards for Tax Services No. 2 of the American Institute of Certified Public Accountants’?
- Omission tends to detract from the quality of the return.
- Member must sign the preparer’s declaration stating that the return is true, correct, and complete.
Under what circumstances can a CPA recommend a tax position to a tax client?
- There’s a realistic possibility it will be sustained, or
- There is a reasonable basis, and it is disclosed.
What things should a CPA never tell a tax client?
- This isn’t right, but the IRS never checks.
- This isn’t right, but we’ll use it to bargain the IRS down.
Realistic possibility =
> 33% chance.
What does Statements on Standards for Tax Services No. 2 of the American Institute of Certified Public Accountants state?
“A member should make a reasonable effort to obtain from the taxpayer the information necessary to provide appropriate answers to all questions on a tax return before signing as preparer.”
In what situation are inquiries by the tax preparer appropriate?
Inquiries should be made if there is a need to determine that a specifically required condition by the Internal Revenue Code or other legislation, such as maintaining books and records or substantiating documentation, has been satisfied and to obtain information when the material furnished appears to be incorrect, incomplete, or inconsistent.
What does Statements on Standards for Tax Services No. 3 of the American Institute of Certified Public Accountants state?
A member may in good faith rely without verification upon information furnished by client or third parties, provided the member’s obligations are met.
What is the tax preparer’s responsibility to inform the Internal Revenue Service (IRS) of an error in a prepared tax return?
The member need not, and may not, do so without client’s permission, except where required by law.
What format should a tax preparer’s advice to a client be given in?
No standard format is required.
In what situations is it impractical for a taxpayer to obtain exact data for the preparation of tax returns?
Examples:
- Numerous transactions involve very small amounts.
- Records are missing/precise information is unavailable.
Reasonable basis =
> 20% chance.
What is the responsibility of a CPA regarding errors contained in a previously filed tax return?
Advise a client of errors contained in a previously filed tax return.
