2.1 Tax Preparers

Question 1

does a tax return preparer have to be a practioner in order to prepare

Answer 1

No

Question 2

is a tax preparer who is not a practioner subject to circular 230

Answer 2

No

Question 3

are tax return preparers subject to preparer penalties

Answer 3

yes ALL tax return preparers

Question 4

what do preparer penalties inlcude?

Answer 4

penalties include penalties for understatement of a taxpayers liability due to unreasonable positions or willful or reckless conduct, for disclosing a taxpayers information and for promoting abusive tax shelters

Question 5

all tax practioners are

Answer 5

tax preparers

Question 6

but not all tax preparers are

Answer 6

tax practioners

Question 7

what is a tax return preparer

Answer 7

a tax return preparer is any person who prepares for compensation, or employs one or more persons to prepare for compensation, all or a substantial portion of any return of tax or claim for refund under the IRC

NOT MONEY

Compensation can include barter and exchange - so its not all monetary . Compensation has to be on the engagement letter so if they receive a random gift like a coffee this is not compensation and they are therefore not a tax preparer. An implicit or explicit agreement needs to exist - if it doesn’t the definition of a tax preparer does not exist.

Question 8

what is the definition of preparation

Answer 8

a person who furnishes to a taxpayer or other preparer sufficient information and advice so that completion of the return is simply a mechanical matter is considered a tax return preparer

Question 9

what is the definition of substantial portion?

Answer 9

1. length and complexity of the portion are compared to the overall return
2. substantial portion is not satisfied if
   - the overall gross income, deduction, or amounts on the basis of which credits are determined are less than
   - $10,000 or $400,000 and less than 20% of the AGI
   - the person may only give advice on specific issues
3. a tax return preparer of one return is not considered to be a preparer of another return because entries reported on the first may affect an entry on the second unless the entries
   - are directly reflected or represent a substantial portion of the second return
   - gross income greater than $400,000 or greater than 20% of the GI of the return

Question 10

what is the definition of primary responsibility

Answer 10

If more than one tax return preparer is involved in preparing a return or claim for refund, the one with the primary responsibility for the overall substantive accuracy is considered the preparer for purposes of the signing requirement.

Question 11

who are specifically not tax return preparers?

Answer 11

1. an employee who prepared a return for the employer by whom be is regularly and continuously employed
2. a fiduciary who prepared a return or refund claim for any person (the trust)
3. a person who prepares a refund claim in response to a notice of deficiency issued to another
4. a person who furnishes typing, reproducing or other mechanical assistance
5. a person who merely gives an opinion about events that have not happened - THIS IS NOT TAX ADVICE

ESSENTIALLY THOSE WHO ARE NOT COMMERICALLY HIRED ARE NOT TAX RETURN PREPARERS

Question 12

can a person be a tax return preparer without regard to educational qualifications or professional status?

Answer 12

YES

Question 13

What are significant aspects of a tax return preparation?

Answer 13

1. making factual inquiries
2. taking a position relative to tax law

Question 14

inquiry of client financials

Answer 14

1. a tax return preparer may rely, in good faith, upon information furnished by the taxpayer without having to obtain third party verification.
   - the preparer may not ignore the implications of the information furnished
   - the preparer must make reasonable inquiries if the information appears to be accurate or incomplete
2. deductions
   - the preparer should make appropriate inquiries of the taxpayer to determine the existence of facts and circumstances required by an IRC section or regulation incidental to a deduction even if for a minimal amount

Question 15

preparers position on law

Answer 15

1. a tax return preparer may not adopt a position without substantial authority for the position
   - there is substantial authority for the tax treatment of an item only if the weight of the authorities supporting the treatment is substantial in relation to the weight of the authorities supporting contrary treatment
2. A penalty will not apply if the position was disclosed and there is a reasonable basis for the position

Question 16

for tax shelters, tax preparers are required to have…

Answer 16

both substantial authority and a reasonable belief that their position and this belief must be “more likely than not” the proper treatment

Question 17

the penalty for unreasonable undisclosed positions is..

Answer 17

an amount equal to greater of $1000 or 50% of the income derived from the position

Question 18

procedures - signing

Answer 18

a tax return preparer is required to sign the return or claim for a refund after it has been completed and before it is presented to the taxpayer

Question 19

what is the preparer is unavailable for signature

Answer 19

another preparer must review the entire preparation of the return and then must sign on it

Question 20

what if more than one preparer is involved

Answer 20

the preparer with primary responsibility for the overall accuracy of the return or claim is considered by the preparer for the purposes of the signing requirement

Question 21

what if a preparer physically is unable to manually sign returns

Answer 21

they must indicate “unable to sign” as the signture

Question 22

what if there is a situation where one or more persons are employed as tax return preparers?

Answer 22

the employer is considered to be a tax return preparer

Question 23

procedures - PTIN and copies

Answer 23

a return or refund claim prepared by a tax return preparer and filed with the IRS must include the preparer’s identifying number. The identifying number of an individual is his or her preparer tax identification number (PTIN). the identifying number of the partnership or employer (EIN) also must be included if applicable. the preparers address of place of business must be included. a tax return preparer is required to furnish a completed copy of the return or refund claim to the taxpayer no later than the time it is presented for the taxpayers signature

Question 24

procedures - Employer or preparers

Answer 24

a person who employs one or more tax return preparers is required to file a return setting forth the name, identifying number, and principal place of work of each employed tax return preparers.

Question 25

procedures - records

Answer 25

1. a tax return preparer is required to retain a completed copy of each return or claim prepared for 3 years after the close of the return period 2. records relating to employment tax and federal withholding taxes must be maintained for at least 4 years after the later of the due date of the tax or the date such tax was paid. 3. alternatively, a list may be kept that includes, for returns and claims prepared, the following info: - the taxpayers names - taxpayer identification number - the taxpayers tax years - types of returns or claims prepared 4. the return period means the 12 month period beginning July 1 each year.

Question 26

procedures - error correction

Answer 26

the IRS will send the employer/payer a form 4598, form W-2, form 1098 or form 1099, not received, incorrect or lost, when a taxpayer reports difficulty securing proper forms, wrong amounts, or other lack of cooperation from an employer. the taxpayer will also receive a copy of this form 4598. form 8082, Notice of inconsistent treatment or administrative adjustment request, is used to report situations where an S Corporation shareholders return was going to be inconsistent with the corporate return or a partners return inconsistent with the partnership return.

Question 27

what is the threshold for the free file option?

Answer 27

its a way to prepare and e-file federal taxes through brand name software or online fillable forms. individuals or families with 2024 adjusted gross income of $84,000 or less can use free file software

Question 28

a tax preparer must obtain...

Answer 28

a PTIN

Question 29

practioners should not ignore evidence of a cyber crime such as...

Answer 29

1. clients receive unexpected letters, refunds or notice from the IRS 2. clients responding to emails that the practioner never sent 3. computers or networks locking out practioners 4. computers or network acting slower than usual 5. the number of returns filed with the tax practioners EFIN exceeds the number of clients.

Question 30

what level of evidence must a tax return preparer have in order to take position?

Answer 30

Substantial authority

Question 31

a penalty may be assessed on any preparer or ...

Answer 31

any person who prepares and signs the tax return or claim for refund and the individual with overall supervisory responsibility for the advice given by the firm with respect to the return or claim

Question 32

who can use free file through the IRS

Answer 32

individuals with adjusted gross income less than $84,000

Question 33

when will a preparer not be subject to preparer penalties?

Answer 33

1. the position of the return has a reasonable belief of being sustained on the merits 2. there is substantial authority to sustain the position taken on the return 3. the position of the return had a more likely than not chance of being sustained on its merits if these arent met the penalty is $1,000 or 50% of the income derived from the position.

Question 34

in a situation where one or more persons are employed as tax return preparers, only the employer is...

Answer 34

considered to be a tax return preparer. thus the employer incurs the penalties.