Unit 5: Practitioner Standards and Tax Advice

Question 1

Written advice: A practitioner must:

Answer 1

• Base written advice on reasonable factual and legal assumptions
• Consider all relevant facts and circumstances that he knows or reasonably shows know
• Use reasonable efforts to identify and ascertain the facts relevant to written advice on each federal tax meeter
• Not rely upon representations, statements, findings, or agreements of the taxpayer or any other person if reliance on them would be unreasonable
• Relate applicable law and authority to facts

Question 2

Reliance is not reasonable when the practitioner knows or reasonably should know that:

Answer 2

• The opinion of the other person should not be relied on
• The other person is not competent or lacks the necessary qualifications to provide the advice
• The other person has a conflict of interest in violation of the rules described in this part

Question 3

A practitioner may not willfully sign a tax return or claim for refund that he knows (or reasonably should know) contains a position that:

Answer 3

• Lacks a reasonable basis
• Is an unreasonable position, as described in IRC 6694(a)(2)
• Is a willful attempt by the practitioner to understate the liability for tax or reflects a reckless or intentional disregard of rules or regulations

Question 4

Tax Position: More Likely Than Not

Answer 4

There is a greater than 50% likelihood that the tax treatment will be upheld if the IRS challenges it.

Question 5

Tax Position: Substantial Authority

Answer 5

The weight of authorities in support of a position is substantial in relation to the weight of authorities in opposition to the position; this is a higher level of certain than a “reasonable basis”

Question 6

Tax Position: Reasonable Basis

Answer 6

This is the minimum standard for all tax advice and preparation of tax returns. Reasonable basis is a relatively high standard of tax reporting, that is, significantly higher than not frivolous or not patently improper.

Question 7

Tax Position: Unreasonable Position

Answer 7

In general, this is either a position without substantial authority or an undisclosed position without a reasonable basis

Question 8

Tax Position: Frivolous Position

Answer 8

A position that is patently improper with no reasonable basis

Question 9

8275

Answer 9

Allows a preparer to disclose positions that do not have substantial authority, but still have reasonable basis, assuming the position is not otherwise already disclosed on the return

Question 10

8275 cannot be used to avoid the portion of the accuracy-related penalty attributable to certain types of misconduct, including the following:

Answer 10

• Negligence
• Disregard of regulations
• Any substantial understatement of income tax on a tax shelter item

Question 11

A practitioner may not advise a client to submit a document, affidavit, or other paper to the IRS:

Answer 11

• The purpose of which is to delay or impede the administration of the federal tax laws
• That is frivolous, or
• That contains or omits information in a manner that demonstrates an intentional disregard of a rule or regulation unless the practitioner also advises the client to submit a document that evidences a good faith challenge to the rule of regulation

Question 12

A practitioner may sign a return with a tax position that meets at least one of two standards:

Answer 12

• The position has a “reasonable basis” for most positions, or
• The position is “more likely than not” to be sustained on its merits for tax shelters and other uncommon types of positions

Question 13

A practitioner is required to inform a client of any penalties that are reasonably likely to apply to a position taken on a tax return if:

Answer 13

• The practitioner advised the client concerning the position, or
• The practitioner prepared or signed the tax return

Question 14

When preparing income tax returns, a practitioner is not required to verify all the information furnished by his clients. In general, a practitioner:

Answer 14

• May rely on, in good faith, the information that a client provides
• Should not ignore the implications of the information
• Should make reasonable inquiries if the information appears to be incorrect, inconsistent, or incomplete

Question 15

If a reportable transaction is not disclosed and results in an understatement of tax, an additional penalty equal to:

Answer 15

30% of the understatement may be assessed, In addition to the 30% understatement of tax penalty, a civil penalty of 75% of the reduction of tax associated with the reportable transaction may be imposed with a minimum penalty of$10,000 ($5,000 if the taxpayer is an individual) and a maximum penalty as high as $200,000 ($100,000 if the taxpayer is an individual)