Chapter 1 - Ethics, Professional Responsibilities and Federal Tax Procedures

Question 1

In what circumstance may a tax preparer charge a contingent fee?

Answer 1

• in representing a client in connection with an IRS examination of an original return, or an amended return/claim for refund or credit
• for services rendered in connection with any judicial proceeding arising under the Code

Question 2

What amount is a substantial understatement of tax for INDIVIDUALS? and what penalty percentage does one have to pay?

Answer 2

the greater of

• $5,000
• 10% of the total tax due

20% penalty

Question 3

what amount is a substantial understatement of tax for CORPORATIONS? and what % penalty?

Answer 3

the lesser of:

• 10% of the tax due (or, if greater, $10k) or
• 10

20% penalty

Question 4

what amount is more likely than not (for a tax shelter position)?

Answer 4

> 50%

Question 5

what is a 90 day letter?

Answer 5

sent after a 30 day letter.

The time a TP has to file a petition with the tax court once this letter is received

Question 6

There is no underpayment penalty for INDIVIDUALS if the total tax payments are at least how much?

Answer 6

the lower of:

• 90% of the CY tax due
• 100% of PY tax

No penalty is tax amount is under $1,000

Question 7

Individuals must make quarterly tax payments to the IRS if their tax amount due (after credits/withholdings) is at least how much?

Answer 7

$1,000

Question 8

Corporations must make quarterly tax payments to the IRS if their tax amount due (after credits/withholdings) is at least how much?

Answer 8

$500

Question 9

There is no underpayment penalty for CORPORATIONS if the total tax payments are at least how much?

Answer 9

the lower of:

• 100% of CY tax due
• 100% of PY tax due

Question 10

For individuals, a non-FILING penalty is imposed if the return is not filed by the due date. How much of a penalty is imposed? max?

Answer 10

5% of the tax due for every month not filed

maximum of 25% of tax due

Question 11

For individuals, a non-FILING penalty is imposed if the return is not filed by the due date. How much of a penalty is imposed IF IT IS FRAUDULENT? max?

Answer 11

15% of tax due per month.

maximum of 75% of tax due

Question 12

For individuals, a non-PAYING penalty is imposed if the return is not filed by the due date. How much of a penalty is imposed? max?

Answer 12

0.5% of tax due per month.

maximum of 25%

Question 13

a self-employed TP must file an income tax return if net earnings from self-employment are at least how much?

Answer 13

$400

Question 14

scienter

Answer 14

intent or knowledge of wrongdoing. purposely deceitful

Question 15

will a tax return preparer have to pay punitive damages?

Answer 15

no. only if they gave RECKLESS tax advice (not careless tax advice)

Question 16

A client in privity of a contract with the accountant must prove what in their case against the accountant?

Answer 16

at least ordinary negligence

Question 17

what 4 elements are needed to establish fraud against an accountant?

Answer 17

• misrepresentation of the accountants expert opinion
• scienter shown by either the accountants knowledge of falsity or reckless disregard for the truth
• reasonable reliance by injured party
• actual damages

Question 18

lawsuits by clients for negligence are under which portion of the law?

Answer 18

Common Law

Question 19

can a mere foreseeable party recover in most states?

Answer 19

no

Question 20

what is an acct - client privilege and who has recognized it?

Answer 20

approx. 15 states
(not federal or state courts)
Privilege belongs to the client
An accountant is prohibited from sharing work papers with anyone without the client’s permission (except in certain situations) and may not disclose information obtained during work performed in testimonials unless subpoenaed and relevant to a court case.

Question 21

can a CPA share client documents with another CPA who has purchased the CPA’s practice?

Answer 21

no, not without client permission

Question 22

Special agent definition

Answer 22

an agent who is limited in time/scope of agency. could be agent for a specific task

Question 23

What is a power of attorney

Answer 23

a name for a written document that creates an agency relationship

Question 24

what are the requirements for the creation of an agency relationship?

Answer 24

the principal with capacity, and if the agent’s contracts must be evidenced by a record, a record of creation

Question 25

when is an agent liable to a third party?

Answer 25

when the principal is either undisclosed or partially disclosed.

Question 26

when is an employer also liable to an injured customer for a negligent employee?

Answer 26

if the employee was acting within the scope of his employment

Question 27

does the principal have the right to control the method and manner of the agent’s work?

Answer 27

• yes, if master/servant relationship exists (principal has resp for agent’s torts)
• no, if independent contractor relationship exists

Question 28

in what circumstances does the principal have liability for the torts of their agent?

Answer 28

• if principal directs the tort
• failure to properly supervision
• negligent hiring/retention
• scope of employment

Question 29

Express contract

Answer 29

a contract formed wholly by oral and/or written words

Question 30

implied in fact contract

Answer 30

a contract formed at least in part based on the conduct of the parties

Question 31

Unilateral contract

Answer 31

a promise in exchange for an act.

Ex. Mow my yard and I’ll pay you $20

Question 32

bilateral contract

Answer 32

a promise in exchange for a promise
Ex. car dealership offers you car in exchange for you promise to pay monthly pmts. Mortgage from bank in exchange for promise to make pmts

Question 33

Executory contract

Answer 33

a contract not fully performed by both sides

Question 34

Void contract

Answer 34

a contract that violates the law, or lacks an element necessary for a court to enforce the agreement.
Ex. a contract entered into by a party that has been declared incompetent

Question 35

Voidable contract

Answer 35

a valid contract in which a party has the option to avoid liability

Question 36

Unenforceable contract

Answer 36

a valid contract that cannot be enforced due to a legal defense

Question 37

Quasi contract

Answer 37

a contract imposed by law, even when no contract was formed, to prevent unjust enrichment

Question 38

Common Law

Answer 38

Real Estate, Services

Question 39

UCC

Answer 39

Goods

Question 40

What is the sale of a mobile home governed under?

Answer 40

Even though it appears as real estate, it is a good, and therefore governed under UCC

Question 41

HOW TO FIX SLOW WEBSITE

Answer 41

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Question 42

what are the methods of perfection

Answer 42

• attachment (auto upon creation of a security interest)
• possession - control
• filing
• automatic
• temporary

Question 43

When does a creditor have temporary perfection

Answer 43

when the debtor has moved to another state, the creditor has four months of perfection in the new state, which can be continued with filing a financing statement in the debtors new state

Question 44

List the two situations in which perfection by attachment is automatic upon creation of a security interest.

Answer 44

• Purchase money security interest in consumer goods

- Security interest created by assignment of a beneficial interest in a decedent’s estate

Question 45

what types of buyers take precendence over perfected secured interests

Answer 45

buyers in the ordinary course of business

Question 46

The statute of frauds only requires a writing for contracts for

Answer 46

sale of goods of $500 or more, real estate, contracts impossible to perform in one year, a promise to answer the debt of another, and an executor’s promise to be personally liable for the debt of an estate. An agency to purchase land would require a writing.

Question 47

what must a client suing a CPA for negligence prove?

Answer 47

breach of duty of care
proximate cause
injury