Professional Responsibilities and Tax Return Preparer Penalties

Question 1

What is a tax return preparer?

Answer 1

someone who prepares for compensation any tax return required under the IRC, or any claim for refund of tax imposed by the IRC

they must prepare a substantial portion of the return or claim for refund; any tax professional with an IRS preparer tax identification number (PTIN) is authorized to prepare federal tax returns

**does not count if preparing a return or claim for refund for your employer

Question 2

What is a reportable transaction?

Answer 2

any transaction with respect to which info is required to be included with a return or statement because such transaction is of a type that has potential for tax avoidance (legal) or tax evasion (illegal)

Question 3

T/F: a preparer is not required to obtain supporting documentation unless the preparer has reason to suspect the accuracy of the info provided by the taxpayer

Answer 3

true

the preparer must make reasonable inquires if the info provided by the taxpayer appears incorrect or incomplete

Question 4

What are some reasons a tax return preparer can receive a penalty?

Answer 4

understatement due to an unreasonable position, understatement due to willful or reckless conduct, failure to provide a copy of the return to the taxpayer, failure to sign the return, failure to furnish the identification number of the preparer, failure to property retain records (3 years), failure to file correct information returns, failure to be diligent in determining a client’s eligibility for the earned income credit (eligibility checklists, computation worksheets, reasonable inquires to the taxpayer, and record retention), negotiation of the IRS refund check, aiding and abetting understatement of tax liability (applies to anyone), and wrongful disclosure and/or use of tax return info

Question 5

What are the exceptions to wrongful disclosure and/or use of tax return info?

Answer 5

pursuant to a court order, allowable uses (preparation state and local tax returns and preparation of declaration of estimated tax), quality and peer reviews and administrative orders

confidential client info may also be disclosed to any party if the client specifically consents to the release of the info

Question 6

What powers do the state boards have?

Answer 6

sole power to license/suspend/revoke CPAs

it can conduct a formal hearing for possible disciplinary action after investigation of professional misconduct (board must find it was more likely than not that the accountant’s actions constituted professional misconduct/the accountant is entitled to due process of law/all adverse state board decisions are subject to judicial review)

Question 7

What are the 3 broad categories of misconduct?

Answer 7

misconduct while performing accounting services (negligence/fraud/dishonesty), misconduct outside the scope of accounting services (under the influence/insanity), and criminal conviction (felony, failure to file tax returns, crimes relating to the practice of accounting)