Chapter 5 Section 1: Ethics and Professional Responsibilities in Tax Services Flashcards Preview

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Flashcards in Chapter 5 Section 1: Ethics and Professional Responsibilities in Tax Services Deck (56)
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1

Who falls under the authority of the standard-setters for tax law?

People who prepare returns for a fee

2

What are the four primary authoritative sources?

IRC and statutory provisions
Regulations
Revenue rulings and procedures
Court cases

3

Are IRS publications a primary authority?

No

4

Define disregard in the context of malpractice?

Any careless, reckless, or intentional disregard of rules or regulations

5

Define listed transaction

Reportable transaction that is (basically) the same as a transaction specifically identified by the Secretary of the US Treasury Department as a tax avoidance transaction.

6

Define more likely than not

Greater than 50% chance of a position being upheld by the courts

7

Define negligence

Any failure to make a reasonable attempt to comply with the provisions of the internal revenue laws or to exercise ordinary and reasonable care in the preparation of a tax return. Includes failure by the taxpayer to keep adequate books and records or to substantiate items properly

8

What is the difference between ordinary negligence and fraud?

Fraud is willful and reckless

9

Define reasonable basis

Greater than a 20% chance of a position being upheld by the courts

10

Define reportable transaction

A transaction for which information is required to be included with a return or statement because it has potential to b used for tax avoidance or evasion.

11

What is the difference between tax avoidance and tax evasion?

Tax avoidance is legal, and CPAs should do it
Tax evasion is illegal and punishable by law

12

Define substantial authority

Between a 33% and 50% chance of being upheld by the courts

13

Define tax return preparer

Someone who prepares for compensation

14

What is the difference between a tax preparer and tax practitioner?

A practitioner is more - they practice before the IRS

15

Give examples of tax practitioners

CPAs
Attorneys
Enrolled agents
Enrolled actuaries
Enrolled retirement plan agents

16

Define tax shelter

Anything that has a significant purpose to avoid or evade federal income tax

17

What are the exceptions to a position being deemed unreasonable?

If undisclosed, there is substantial authority backing it up
If disclosed, there is a reasonable basis for the position
If it's a tax shelter or reportable transaction, it needs to be more likely than not

18

Who can be punished for the understatement of taxpayer liability?

The preparer

19

Is there a penalty if an error was made in calculation in good faith?

No

20

Define willful or reckless conduct

Basically, fraud
Willful attempt to understate the liability or reckless disregard of the rules

21

Do preparers need to obtain supporting documents?
What is the exception?
Give an example of a good exception

Usually, no
Unless the preparer has reason (or should know they have reason) to doubt the taxpayer
Business/travel related expenses

22

What is the penalty for understatement of a liability due to an unreasonable position?
Due to willful or reckless conduct?

Greater of $1,000 or 50% of fees earned
Greater of $5,000 or 50% of fees earned

23

Give 7 additional examples of things we can be penalized for

Failure to:
1. Provide client with a completed copy of the return
2. Sign return
3. Give tax ID number of preparer
4. Retain records properly
5. File correct information returns
6. Diligently determine eligibility for EIC
7. If you negotiate a refund check

24

How long do you need to keep records?
What do you need to keep?

3 years
Either a copy of the return or a listing of the name and ID of each taxpayer

25

What are the 4 requirements for determining eligibility for the EIC?

Checklists
Computation worksheets
Inquiries to taxpayer
Record retention

26

Who can be held liable for aiding and abetting evasion?

ANYONE

27

Who has the burden of proof for establishing aiding and abetting?

The IRS

28

What are the exceptions to the duty of confidentiality?

Subpoena/court order
Allowable uses like preparing other returns and estimates
Quality and peer reviews
Computer processing
Admin
Anytime the client specifically says you can

29

What is Circular #230?

It addresses practitioners

30

What if you, while a gov't employee, personally and substantially participated in a matter involving specific parties?

You can never again represent or assist those parties with that matter

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