Week 1 Chapter 1 Flashcards
Tax preparers must adhere to which nine key rules of conduct
- Managing conflicts of interest
- exercising diligence
- submitting info requested by the IRS promptly
- known client noncompliance
- practitioner must not negotiate, including by endorsement, any income tax refund check issued to a client
- A practitioner may not charge an unconscionable fee in connection with any matter before
the IRS - Contingent fees
- Return of client records
- Circular 230 allows advertising and solicitation with the following conditions
Tax preparers are
Individuals (including CPA’s, EAs, and Attorneys) authorized to represent clients before the IRS based on Treasury Dept Circular 230
Practice before the IRS
Defined as presenting matters related to a client’s rights under IRS-administered laws, including:
Representing taxpayers in IRS meetings.
Preparing and filing documents.
Providing written tax advice.
Liability Types: CPAs can be liable under
Contractual Liability: Breaches of engagement letters leading to financial damages.
Negligence: Failing to exhibit due care, resulting in client losses.
Fraud: Intentional wrongdoing for gain, subject to severe penalties.
Accountant-Client Privilege
Limited under federal law, offering some protections for tax advice.
Working Papers
Confidential records of engagements, subject to court subpoenas
Tax return preparers must
Sign and provide a completed copy of the return to clients.
Retain copies of returns or a list of relevant taxpayer information for at least 3 years.
Transparency
Clearly communicate engagement terms
Essentials of Advice
Advice must be based on reasonable assumptions and supported by law.
Unreasonable Positions
Penalties for taking undisclosed positions without substantial authority.
Negligence and Fraud
Severe penalties and potential criminal consequences for willful misconduct.
State Boards of Accountancy
Grant CPA licenses; enforce standards through suspensions or revocations.
AICPA Disciplinary Mechanisms
Investigates ethical violations; may impose sanctions.
CPAs can be held liable for
negligent misrepresentation and fraud, impacting clients and foreseeable third parties.
What are the possible penalties for tax return preparers who take unreasonable positions on tax returns?
A penalty of the greater of $1,000 or 50% of the income to be derived from the position taken on the return.
Due Diligence
The responsibility of tax preparers to make inquiries to ensure clients’ accuracy and truthfulness and to appropriately apply tax law to the facts during return preparation.
What must a tax return preparer do if they discover an error in the taxpayer’s filed document?
The tax return preparer must notify the taxpayer of the error or omission immediately and advise them of the consequences.
Tax Return Preparer
Any person who for compensation prepares or assists with the preparation of all or a substantial portion of any return of tax, amended return, or claim for refund under the Internal Revenue Code (IRC).
Who is allowed to represent taxpayers before the IRS according to Treasury
CPAs, enrolled agents (EAs), attorneys, and other individuals authorized to practice before the IRS.
