Ethics, Professional Responsibilities and Federal Tax Procedures Flashcards
What contains the IRS’s rules of practice governing CPAs and others who practice before the agency?
Circular 230
A violation of Circular 230 results in what…
Censure, Fine, Suspension, and/or Disbarment from practice before the IRS
Who may practice before the IRS?
Attorneys, CPAs, Enrolled Agents, Enrolled Actuaries, and Enrolled Retirement Plan Agents
Define “practice” before the IRS?
Matters connected with a presentation to the IRS or matters related to a taxpayer’s rights, privileges, or liabilities under laws or regulations under the IRS
What are “presentations” before the IRS?
- Preparing documents
- Filing documents
- Corresponding and communicating with the IRS
- Rendering written advice with regard to transactions
having a potential for tax avoidance or evasion - Representing a client at conferences, hearings, and
meetings
True or False:
A CPA can charge a contingent fee
False, CPAs can’t charge contingent fees.
What are the exceptions for a contingent fee to be charged to a client by the CPA?
- Services rendered in connection with an IRS
examination or challenge to either (i) an original tax
return or (ii) an amended or claim for a refund - Where a claim for refund is filed solely in connection
with determination of statutory interest or penalties - When the accountant is representing the client in
judicial proceedings
True or False:
Can a CPA hold a client’s records?
False if the client needs the records to comply with federal tax obligations.
When can a CPA represent a client if there is a conflict of interests?
- Reasonably believe that they can provide competent
and diligent representation to the client; - The representation is not prohibited by law; and
- The affected client gives informed consent in writing.
Consent must be held in record for 3 years.
What are the Tax Return Standards on a tax position?
- Lacks a reasonable basis
- Unreasonable position defined by IRC
- Willful attempt to understate tax liability or reckless
/intentional disregard of the IRC rules
Define a “Tax Return Preparer”?
“any person who prepares for compensation, or who employs one or more persons to prepare for compensation, all or a substantial portion of any return of tax or any claims for refund of tax”
What are the licensing requirements to be a CPA?
- Education: BA + 30 units, Profession ethics course,
and CPE - Examination: pass the Uniform CPA exam
- Experience: 1 yr of experience/2,000 work hours in
accounting, attest, financial advisory, tax, or
consulting areas
True or False:
A accountant must have a CPA to do attest related engagements.
True
When does an accountant not need a CPA to do certain engagements?
- Preparation of tax returns
- Management advisory services (consulting)
- Preparing financial statements without issuing a
report thereon
When does the IRC impose a 20% penalty (Section 6662) for various types of underpayments?
- Underpayments due to negligence or disregard of
rules - Any substantial understatement of income tax
When is an item of “substantial understatement” reduced?
- Disclosure of relevant facts
- Reasonable basis of tax position (≥20% chance of
being sustained)
How much of a % must an undisclosed position must be supported?
40%, Must have substantial authority
What is the Reasonable Cause and Good Faith Defense (Section 6664)?
No Section 6662 penalty is imposed if (a) there was “reasonable cause” for the underpayment and (b) the taxpayer acted with “good faith.”
What are the IRC Section 6651 penalties for late filing or failure to file?
- Penalty for late filing is 5% of the net tax due per
month (up to 25% of unpaid taxes).
2. Penalty for failure to file is fraudulent, then it a is 15% per month (up to 75% of unpaid taxes).
What is the penalty for late payment of tax?
Penalty is 0.5% of the net tax due per month (up to 25%).
What is the penalty for Understatement Penalties as a result of negligence or disregard of rules/regulations?
20%
What is the a Substantial Understatement of Income Tax?
- For individuals, a “substantial understatement” is
one that exceeds the greater of: 10% of tax or $5,000 - For non–Subchapter S corporations, a “substantial
understatement” is one that exceeds the lesser of:
10% of the tax (or, if greater, $10,000) or $10 million
Tax Positions
- Undisclosed position—“Substantial authority” (≥40%
chance) - Disclosed position—“Reasonable basis” (≥ 20%
chance) - Tax shelter position—“More likely than not” (>50%
chance)
When must a taxpayer file an income tax return?
All taxpayers who have income in excess of a predetermined limit must file an income tax return.