Final Review 1

Question 1

Name some common penalties that apply to taxpayers

Answer 1

EIC penalty
Penalty for failure to make Estimated tax payments
Failure-to-file penalty
Failure-to-pay penalty
negligence
penalty for Substantial underpayment of tax
Penalty for substantial valuation misstatement

Question 2

What are the 4 defenses available to taxpayers?

Answer 2

Position that is not frivolous (less than 20% of succeeding)
Reasonable basis Standard (at least 20%)
Substantial Authority Standard (33-50%)
More-Likely-than Not Standard(50%+)

Question 3

What is the penalty for failure-to-pay penalty?

Answer 3

.5% of the tax due for each month the tax is not paid up to a maximum of 25% of the unpaid tax

Question 4

What are the 4 elements of liability to clients for negligence?

Answer 4

Duty of care - must owe duty to party harmed
Breach - accountant failed to act as reasonably prudent accountant
Damages - must be harmed suffered
Causation - damages must be caused by the accountants negligence

Question 5

What is the Third party beneficiary rule?

Answer 5

Accountant is liable to third parties for negligence if accountant had reason to know the third party would rely on the accountants work

Question 6

What is the Ultramares rule?

Answer 6

Accountant is liable to third parties for negligence only if there is privity of contract or the accountant knows name of TP who is relying on info

Question 7

What are the 2 types of fraud?

Answer 7

Actual fraud and constructive fraud(Gross negligence)

Question 8

What are the 5 elements in actual fraud?

Answer 8

Material representation
Actual reliance
Intent to induce reliance
Damages
Scienter (intent to deceive)

Question 9

What can a client win in a lawsuit against a CPA for?

Answer 9

Negligence, Gross negligence, or fraud. Negligence requires proof of the fraud.