True / False: An intern inputs data provided by a taxpayer into a tax preparation software. He calls the taxpayer to obtain missing information. He is not allowed to give tax advice. The intern is considered a tax preparer.
The intern is a data entry clerk, but only the CPA whos name is on the final document is considered the tax preparer.
True / False: A tax preparer holds a PTIN, but no professional credential or license. The tax preparer is allowed to represent the client before the IRS.
They are not even allowed to represent the client with regard to the tax return that they prepared.
Who is considered a non-signing tax return preparer?
A person holding a PTIN who provides substantive input into a taxpayer’s tax return, in the form of advice or monetary figures, but does not prepare or sign the tax return.
Define Reportable Transaction
Any transaction with respect to which information is required to be incuded with a return or statement b/c such transaction is of a type that the Secretary of the U.S. Treasury has determined as having a potential for either tax avoidance or evasion.
Define tax avoidance
The legal use and application of the tax laws and cases in order to reduce the amount of tax due
Define tax evasion
Efforts, by illegal means to not pay taxes
Define Listed Transaction
A specific type of reportable transaction that is identified by the Secretary of the US Treasury as a tax avoidance transaction.
How are the Substantial Authority Standard and More-Likely-Than-Not Standard the same or different?
Substantial Authority is the objective measurement of the basic analysis and application of the law to relevant facts. You have a >33% but <50% chance of likelihood of being upheld by the courts.
This is less stringent than the more-likely-than-not standard wherein the position taken based on the law has a greater than 50% likelihood of being upheld by the courts.
True / False: A “person” includes a corporation.
It includes all forms of entity plus individuals
What is an “unreasonable position?”
A position is unreasonable unless:
For a disclosed position – reasonable basis must exist (20% chance of winning)
For a tax shelter or reportable transaction – the more-likely-than-not position is required (>50% chance of winning)
For all others, disclosed or not – substantial authority is required (33-49% chance of winning)
Define Reasonable Basis
When a position taken is based on one or more of the authorities.
You have a >20% chance that your basis will be upheld in court.
aka = arguable but not likely to prevail in court
A tax preparer takes an unreasonable position on a tax return resulting in understatement of the taxpayer’s liability due. What is the penalty to the tax preparer for this ordinary negligence?
The GREATER of $1,000 OR 50% of the income the preparer received for tax return preparation services.
When may a penalty for understatement due to unreasonable position be imposed on a tax preparer?
When there is no reasonable belief that the position would be sustainable based on its merit
the preparer should have known that
disclosure of the position was not made, and
the position actually lacks reasonable basis
True / False: When a tax preparer suspects that information provided by the taxpayer is incorrect or incomplete, the tax preparer is obligated to obtain supporting documentation.
The preparer must make “reasonable inquiries” which could include requiring supporting documentation.
What is the penalty on a tax preparer who willfully or recklessly attempts to understate the tax liability, or disregards the tax rules and regulations? (The preparer commits fraud)
The GREATER of $5,000 OR 50% of the income the preparer derived with respect to the tax return or refund claim.
The penalty is reduced by any penalty assessed because of an understatement of a taxpayer’s liability as the result of an unreasonable tax position.
True / False: The IRS can impose a penalty on ANYONE who assists in the purposeful understatement of tax liability.
What is the civil penalty imposed on a person who aids and abets understatement of tax liabilities, who is NOT a tax preparer?
$1,000 for all taxpayers who are not corporations
$10,000 for all corporations
Who is responsible for the burden of proof in the following: (1) a civil action of to determine if a person understated the tax liability, (2) a court proceeding regarding fines or imprisonment including aiding and abetting
(1) the preparer must prove that the understatement was justified and not due to negligence
(2) the IRS must prove that the understatement was due to negligence or fraud and the penalty justified
When is disclosure of tax return information allowed? What is the penalty if not allowed?
When using the info to prepare a federal, state, or local tax return or estimated taxes
Disclosures allowed per the IRC
Disclosures pursuant to a court order
Disclosures permitted by U.S. Treasury regulations for quality and peer reviews, or administrative orders.
If the client consents to the disclosure in writing.
The penalty is $250.
True / False: The IRS may suspend or revoke a CPA’s license.
Only the state board from which the license was obtained may do that
What are the 3 categories of misconduct for which the state boards typically subject a CPA to disciplinary action
Misconduct while performing accting services
Misconduct outside the scope of accting services (such as intoxication that impairs the acct’s ability to perform his duties)
Criminal conviction including felony or crimes involving accounting (fraud)
What are the 5 penalties that a state board can impose for professional misconduct?
Requirement for additional CPE
Censure or reprimand
Suspension or revocation of license
True / False: The AICPA can suspend a CPA’s license
The AICPA can sanction their members, or suspend, revoke or expell their AICPA membership
True / False: The SEC can suspend a CPA’s license
The SEC can censure, suspend, or permanently revoke an accountant’s right to practice before the SEC
the SEC can impose fines of up to $100,000 per individual or $500,000 per firm.
When determining the tax treatment of an item, such as should or shouldn’t the item be included as income, or used as a deduction, what documentation can be used as a substantial authority?
The following are PRIMARY authorities:
Internal Revenue Code and statuatory provisions
Regulations construing such statutes
Revenue rulings and procedures
Items from the U.S Treasury
Any other official documentation is NOT PRIMARY
What is the difference between negligence and fraud?
Negligence is a non-purposeful failure to comply with the provisions of the tax law (an error).
Fraud is the purposeful failure to comply with the tax law.
You are selling your practice to Brandon. Brandon wants to see the workpapers. Are you allowed to disclose those workpapers to the potential buyer?
You can show them only if (a) all confidential info is redacted, or (2) you have written permission from the client to disclose the confidential information.
True / False: The state board finds you have committed fraud. The state board can revoke your license and commit you to serving a jail sentence.
The state board can revoke your license, but it cannot prosecute you.
What are the monetary penalties for each of the following: (1) failure to sign a return, (2) failure to provide the PTIN, (3) taking an unreasonable position due to negligence or error, (4) endorsing a client’s refund check
(1) $50 per instance
(2) $50 per instance
(3) The greater of $1,000 or 50% of the income made on the return
(4) $510 per instance
What are the monetary penalties for each of the following: (1) failure to provide the client with a copy of the tax return, (2) failure to retain a copy of the client’s tax return, (3) understatement of the tax liability due to willful misconduct
(1) $50 per instance
(2) $50 per instance
(3) The greater of $5,000 or 50% of the income made on the return
What are the monetary penalties for each of the following: (1) failure for due diligence on the earned income credit, (2) wrongful disclosure of client confidential information