Mod 23 Professional And Legal Responsibilities remaining text Flashcards Preview

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Flashcards in Mod 23 Professional And Legal Responsibilities remaining text Deck (226):
0

Accountant's civil liability arises primarily from...5 laws

1 contract law
2 the law of negligence
3 fraud
4 Securities Act of 1933
5 Securities Exchange Act of 1934

1

1 contract law
2 the law of negligence
3 fraud
What kind of laws are these?

Common law and largely judge-made law

2

Securities Act of 1933
Securities Exchange Act of 1934

What kind of laws are these?

Federal statutory law

3

The accountant has a duty to conduct his or her work with...

The same reasonable care as an average accountant

4

The CPA's work papers are retained and confidential and the CPA can't release information in the work papers...

Without the client's consent

5

Workpapers are retained as...

Evidence by the accountant of the work they performed

6

In general privileged communication between a CPA and the client are...

Not sanctioned under federal statutory or common law

7

Privileged communications between CPA and client exist in...

Such states that passed statute granting the right

8

The requirements for education and experience set by the state boards...

Vary across states

9

To audit public companies, the CPA in charge of the engagement must have...

A license to practice issued by the state board of accountancy

10

To audit public companies, the individual's firm must...2

1 have a permit to practice issued by the appropriate state board of accountancy

2 be registered with the PCAOB

11

State boards have their own codes of...

2) However state boards generally follow...

Professional ethics

2) the AICPA Code of Professional Conduct

12

Violation of an AICPA rule generally involves violation of...

A state board rule

13

The AICPA Code of Professional Conduct provides minimum levels of acceptable conduct relating to...

All services performed by CPA's, unless wording of a standard specifically excludes some members

14

The AICPA has developed the Uniform Accountancy Act (UAA) to provide state jurisdictions a...

Model act to regulate CPAs

15

Key Provisions of the Uniform Accountancy Act (UAA) include:

State board of accountancy of the state will issue the "certified public accountant" credential to individuals meeting the...3

Experience, education and examination requirements

16

Key Provisions of the Uniform Accountancy Act (UAA) include:

A bachelors degree is required for...

The first 5 years after the act becomes effective

17

Key Provisions of the Uniform Accountancy Act (UAA) include:

After 5 years, how many semester hours are required with a bachelors degree or higher?

150 semester hours

18

The only professional services for which licensing is required are...2

1 attest services

2 compilation of financial statements under SSARS

19

The only professional services for which licensing is required are:

4 types of attest services

1 audits
2 reviews
3 examination of prospective FS
4 PCAOB engagements

20

The only professional services for which licensing is required are attest services of:

Audits of financial statements performed in accordance with...

AICPA Statements on Auditing Standards (SAS)

21

The only professional services for which licensing is required are attest services of:

Reviews of financial statements performed in accordance with...

AICPA Statements on Standards for Accounting and Review
Services (SSARS)

22

The only professional services for which licensing is required are attest services of:

An examination of prospective financial statements performed in accordance with the...

AICPA Statements on Standards for Attestation Engagements
(SSAE)

23

The only professional services for which licensing is required are attest services of:

An engagement performed in accordance with the standards of the...

Public Company Accounting Oversight Board (PCAOB)

24


To renew licenses and permits the Uniform Accountancy Act (UAA) includes...

Periodic peer review and continuing education requirements

25

To facilitate interstate practice and free movement of CPAs between states, the UAA provides that...

Individuals that have met "substantial equivalency" shall be allowed
To be licensed in the state

26

The state board will regulate and enforce the...

Practice of accountancy In the state

27

The UAA has ethical provisions that are typically included in the...

Code of ethics of state societies and AICPA

28

The UAA has ethical provisions that are typically included in the code of ethics of state societies and the AICPA such as the requirements of...2

1 confidentiality

2 working papers

29

The AICPA Code of Professional Conduct is interpreted and enforced by the...

2) What are they?

Professional Ethics Executive Committee (PEEC)

2) a senior technical committee of the AICPA

30

State accountancy boards ethics rules are enforced by the...

Various state boards of accountancy

31

The codes of state societies of CPA's are very similar to the...

AICPA Code of professional conduct

32

Virtually all state societies have agreements with AICPA to allow...

Joint enforcement of ethics complaints through the Joint Ethics Enforcement Program (JEEP)

33

Virtually all state societies have agreements with AICPA to allow join enforcement of ethics complaints through the Joint Ethics Enforcement Program (JEEP). This means a...2

1 Single investigation and if warranted

2 a single settlement agreement or joint trial board hearing

34

Enforcement of rules regarding competitive bidding is...

Excluded from the JEEP process

35

Joint trial board may discipline CPAs, 5 possible results

1 no violation/dismissal
2 admonishment
3 corrective action required
4 suspension for up to 2 years
5 expulsion from AICPA

36

Admonishment, what is mandatory?

Publication of admonishment is mandatory

37

Corrective action required, example

Addition continuing professional education

38

Violation of state board code can result in...

Revocation of CPA Certificate and loss of ability to practice public accounting

39

Any member who departs from rulings or interpretations has...

Burden justifying it in any disciplinary proceedings

40

The SEC can penalize accountants with...2

1 civil fines and

2 mandates to pay profits gained from violations of securities laws
And regulations

41

When investigations lead to alleged violations...

A hearing will be held by the PCAOB

42

Disciplinary actions:

A PCAOB hearing may result in...4

1 sanctions being imposed on the firm or the individuals involved
2 suspension or revocation of firm's registration
3 suspension or bar of individual from associating w/registered
Public accounting firm
4 civil monetary penalties

43

The PCAOB may also impose other remedial measures such as...2

1 improvements in firm's quality control or training

2 independent monitoring of audit work of firm or individual within
A firm

44

Common law is law that has historically been derived from...

Court interpretations of what is fair and equitable

45

Most of common law has now been...

Codified to state statutes

46

CPAs have responsibilities to their clients that are...

Codified in common law

47

Liability to clients for breach of contract

CPA may be held liable to a client if the CPA fails to perform substantially as agreed under contract (engagement letter)

48

Duties under contract may be either...

Implied or expressed

49

Implied duties under contract

CPA owes duty in contract to perform in nonnegligent manner

50

Express duties under contract

CPA owes duty to perform under terms of the contract

51

4 Terms expressed in the engagement letter that are expressed clearly in writing

1 nature + scope of engagement
2 procedures and tests to be used
3 engagement will not necessarily uncover fraud or error
4 engagement should at least be signed by client

52

Engagement letter:

The nature and scope of the engagement are expressed to...

Avoid misunderstandings between the CPA and client

53

Engagement letter:

The engagement will not necessarily uncover fraud, defalcations, errors or illegal acts, unless the CPA...

Agrees to greater responsibility

54

The CPA will typically sign the engagement letter but...

Oral contract for audit is still enforceable without engagement
Letter

55

A CPA is said to be in privity of contract with client when...

Contract exists between them

56

The reverse is true, when a contract exists between them, the client is...

In privity of contract with CPA

57

An accountant is not normally liable for failure to...

Detect fraud

58

A CPA is liable for failure to detect fraud if...3

1 normal audit or review would have detected it

2 CPA has undertaken greater responsibility such as fraud audit

3 wording of audit report indicates greater responsibility

59

In an audit or review of financial statements, the CPA is under duty to investigate when...

He discovers/becomes aware of suspicious items

60

A CPA firm issues its opinion a few days late because of a client's failure to supply needed info. The CPA firm is...

Entitled to full agreed upon fee under contract

61

When a breach of contract occurs the CPA is...

Not entitled to compensation if breach is major

62

Breach of contract:

The CPA is entitled to compensation if there are...

2) what may the client do?

Minor errors

2) client may deduct from fees any damages caused by breach

63

Breach of contract:

The client may recover any damages caused by breach even if CPA is...

Not entitled to fee

64

In general punitive damages are not awarded for...

Breach of contract

65

The accountant has the duty to perform with same degree of skill and judgment possessed by average (reasonable) accountant. This is the standard used in cases involving...

Ordinary negligence

66

Standard for accountants is guided by...5

1 state and federal statutes
2 court decisions
3 contract with client
4 GAAS and GAAP
5 customs of the profession

67

Failure to follow GAAS virtually establishes a...

Lack of due care

68

Following GAAS does not...

Automatically preclude negligence

But is strong evidence for presence of due care

69

GAAS and GAAP and customs of the profession are both...

Persuasive but not conclusive

70

If a CPA issues an unqualified opinion, when included in assets was inventory stated at cost, when market was materially below cost.

What is this an example of?

A violation of GAAP that can be used to establish that auditor was negligent

71

Liability to clients is based on a CPA breaching a duty owed of...

An average reasonable accountant

72

Damages or losses that resulted from a breach:

Damages are limited to...

Actual losses that use of reasonable care would have avoided

73

Damages or losses that resulted from a breach:

Punitive damages are...

Not normally allowed for ordinary negligence

74

Damages or losses that resulted from a breach:

Defense of CPA

Contributory negligence

75

Contributory negligence may be a complete defense by CPA in many states if...

Client's own negligence substantially contributed to the CPA's
failure to perform audit adequately

76

A CPA failed to detect a material fraud in an audit of the client's financial statements. However the CPA had communicated to the client for a number of years a significant deficiency in internal control that allowed the fraud to occur. The client ignored the recommendations and failed to correct the deficiency in internal control. The client's contributory negligence...2

1 In some states may prevent client from recovering losses from CPA
For negligence

2 In other states it will reduce liability for CPA

77

A causal relationship must exist between...

2) the cause must be...

Fault of accountant and damages of plaintiff

2) proximate (foreseeable)

78

If items are stolen during the audit and not detected...

The CPA may be held liable for those items

79

CPA will only be held liable for items taken before an audit if it is shown that...

The CPA's detection of stolen items would have resulted in their recovery

80

The accountant's liability is not based solely on...

2) liability requires at least...

Honest errors of judgment

2) negligence under common law

81

Constructive fraud is also known as...

Gross negligence

82

Constructive fraud (gross negligence) when proving four elements and...

Reckless disregard of truth is established instead of knowledge of falsity

83

Contributory negligence of client is not a defense available for CPA in cases of...2

1 Fraud or

2 constructive fraud/gross negligence

84

For a plaintiff to prove fraud, constructive fraud or gross negligence...

Privity of contract is not required

85

Fraud, constructive fraud or gross negligence:

Punitive damages

Punitive damages may be added to actual damages for these
Types of cases

86

Privity of contract:

In typical accountant-client relationship, there usually is...

No privity of contract between CPA and third parties who rely on financial statements

87

Traditionally accountant's could use the defense of no privity against third parties in...

Contract and negligence cases

88

Ultramares decision is a leading case in which accountants are...

Held liable for ordinary negligence only to parties who primarily
benefit from the audit or audited FS

89

Ultramares example:
First Bank requested Goodman Company to obtain an audit to receive a needed loan. Adam CPA audited the FS of Goodman, knowing Goodman was obtaining the audit to satisfy the request of First Bank. In this case, First Bank would be considered...

A primary beneficiary of the audit

90

A primary beneficiary of an audit would have...

The same rights as the client under common law

91

Under Ultramares, a third party who can prove...

2) this is a significant...

Fraud or constructive fraud (gross negligence) may recover from
CPA

2) minority rule today

92

For a foreseeable party to be awarded damages, they must prove...3

1 Losses

2 negligence by CPA (either ordinary or gross depending on state)

3 proximate cause

93

Proximate cause..

Reliance on work of CPA caused losses

94

Both accountants and managements are normally...

Named as defendants in cases

95

Joint liability:

In a state that applies joint liability both...

Accountant and management are liable to full amount of the
obligation

96

Joint liability:

If management has no funds...

The entire amount may be collected from the accountant

97

What is another name for several liability?

Proportionate liability

98

In a state that applies several (proportionate liability) the accountant and management are...

Only obligated to pay their respective share of damages based on
Degree of responsibility for losses

99

Several liability is included in the...

AICPA Uniform Accountancy Act

100

In a state that applies joint and several liability...2

1 Each of the parties are responsible for the full amount of the
obligation

2 but may seek reimbursement from other parties

101

Most state courts apply...

Joint and several liability

102

1933 Act requires...2

1 Registration of initial issuances of securities with SEC and

2 makes it unlawful for registration statement to contain untrue
material fact or omit material fact

103

Material fact

One about which average prudent investor should be informed

104

Most potential account at liability occurs because registration statement (and prospectus) includes...

Audited financial statements

105

1933 act:

CPAs legal liability arises for...2

1 untrue material fact or

2 omission of material fact in registration statement (or prospectus)

106

Periodic reports to SEC or annual reports to stockholders are...

In the 1934 Act

107

1933 Act:

Parties that may sue 2

1 purchaser of registered securities

2 third parties without privity of contract

108

1933 Act:

Any purchaser of registered securities 2

1 plaintiff need not be initial purchaser

2 purchaser generally must prove that specific security was offered through registration statement

109

Exchange and issuance of stock based on a merger...

Counts as a sale

110

Third parties can sue without having privity of contract with accountant under the...

Federal Securities Act

111

Liability under Section 11 of the 1933 Act:

This imposes liability on auditors and other experts for...2

1 Misstatements or omissions of material fact in certified financial statements

2 or other info provided in registration statements

112

The registration statement is the document that is used to...

Sell securities

113

The registration statement includes:

A description of the company's...

Properties and business

114

The registration statement includes:

A description of the...

Security to be offered for sale

115

The registration statement includes:

Information about the...

Management of the company

116

The registration statement includes:

Financial statements certified by...

Independent accountants

117

CPAs defenses against 1933 act

1 due diligence
2 plaintiff knew FS were misstated
3 lack of causation
4 followed GAAS

118

Lack of causation

Loss was due to factors other than the misstatement or omission
in the financial statements

119

For the 1933 Act, the plaintiff need not prove reliance on financial statements unless...

Security was purchased at least 12 months after effective date
Of registration statement

120

Under the 1933 Act, the plaintiff need not prove...

Negligence or fraud

121

1933 Act damages:

Difference between...

Amount paid and market value at time of suit

122

1933 Act damages:

If sold, difference between...

Amount paid and sales price

123

1933 Act damages:

Damages cannot exceed...

Price security was offered to the public

124

1933 Act damages:

Plaintiff can't recover...

Decrease in value after the suit is brought

125

1933 Act damages:

Accountant is given...

The benefit of any increase in market value during the suit

126

The securities Exchange Act of 1934 regulates...

Securities sold on national stock exchanges

127

Securities act of 1934:

Includes securities traded over the counter and other equity securities where the corporation has more than...

1 $10 million in total assets and

2 security is held by over 500 persons at end of fiscal year

128

1934 act section 10 makes it unlawful to...3

1 employ any device, scheme or artifice to defraud

2 make untrue statement of material fact or omit material fact

3 engage in fraud or deceit in connection w/purchase/sale of security

129

Securities act of 1934:

Section 18 makes it unlawful to make false or misleading statement with respect to...

Material statement unless done in good faith

130

Under the 1934 Act, the plaintiff can't recover if he or she is...

Reckless or fraudulent

131

Proof requirement section 10, rule 10b-5, under the 1934 act:

Plaintiff purchaser must prove damages resulted in connection with...

Purchase or sale of registered security in interstate commerce

132

Proof requirement section 10, rule 10b-5, under the 1934 act:

Plaintiff must prove there was a...

Material misstatement or omission from issuer's (public company's) statements

133

Proof requirement section 10, rule 10b-5, under the 1934 act:

Plaintiff must prove justifiable...

Reliance on financial info

134

Proof requirement section 10, rule 10b-5, under the 1934 act:

Plaintiff must prove existence of...

Scienter

135

Scienter includes...2

1 Reckless disregard of truth or knowledge of falsity

2 lack of good faith

136

Proof requirement section 10, rule 10b-5, under the 1934 act:

Negligence alone will not...

Subject accountant to liability

137

Proof requirement section 18 under the 1934 act:

Plaintiff purchaser must prove 3

1 damages were incurred

2 material misstatement or omission on report filed with SEC

3 plaintiff read and relied on defective report

138

Proof requirement section 10, rule 10b-5, under the 1934 act:

The burden of proof is shifted to the accountant who may escape liability by proving he...

Acted in good faith

139

Under the 1934 Act, an accountant who has been grossly negligent typically will...

Not be able to establish good faith

140

Under the 1934 act, an accountant who has only been negligent will...

Probably be able to establish good faith

141

1934 act:

damages are calculated as the...

Difference between amount paid by plaintiff and market value at
Time of suit

142

1934 act:

If sold, damages are calculated as the...

Difference between amount paid and sale price

143

Due diligence is a defense for...

The 33' act only, not 34

144

CPAs ownership of work papers has the purpose of...

Preserving confidentiality of client info

145

Accountant must provide work papers if agreeing to provide access to working papers to a...

Government agency is part of the agreement with the client

146

For presenting work papers subpoenas should be...

Limited in scope and for specific purpose

147

The accountant may challenge a subpoena as being...

Too broad or unreasonably burdensome

148

Privileged communications between accountant and client is...

Generally not provided by state or federal laws

149

Federal laws do not recognize...

Privileged communications

150

If an accountant is acting as an agent for an attorney, their communication...

Is privileged

151

If part of privileged communication is allowed...

All of privilege is lost

152

AICPA Code of Professional Conduct prohibits disclosure of confidential client data unless:

The client...

Consents

153

AICPA Code of Professional Conduct prohibits disclosure of confidential client data unless:

The client consents. If the client is a partner...

Each partner is actually a client and therefore must give consent

154

AICPA Code of Professional Conduct prohibits disclosure of confidential client data unless:

To comply with...

GAAS and GAAP

155

AICPA Code of Professional Conduct prohibits disclosure of confidential client data unless:

To comply with enforceable...

Subpoena (courts where privilege is not recognized)

156

AICPA Code of Professional Conduct prohibits disclosure of confidential client data unless:

Disclosure is made in conjunction with...

A quality (peer) review of CPA firm's practice

157

AICPA Code of Professional Conduct prohibits disclosure of confidential client data unless:

The AICPA is responding...

An investigation by the AICPA ethics division or trial board

158

An interpretation of the Code of Professional Conduct allows a CPA to provide confidential client information to a third party service provider (eg tax preparer)...

Without the client's permission

159

The CPA must enter into a contractual agreement with the service provider to...2

1 Maintain confidentiality of info
And
2 be reasonably assured 3rd party service provider has appropriate procedures in place to prevent unauthorized release of confidential
Info

160

US Supreme Court has held that tax accrual files are...

Not protected by accountant-client privilege

161

Privacy is defined as the...

Rights and obligations of individuals and organizations with respect
to collection, use retention and disclosure of personal info

162

Accountants that prepare individual tax returns or provide nonbusiness tax or financial advice must be familiar with the provisions of the...

Gramm-Leach Bliley (Financial Modernization) Act of 1999

163

Gramm-Leach Bliley (Financial Modernization) Act of 1999:

CPAs are prohibited from disclosing to...

No affiliated third party any Nonpublic personal information about
Their clients

164

Gramm-Leach Bliley (Financial Modernization) Act of 1999:

Related to FTC regulations require CPAs to...

Develop, implement, maintain a comprehensive info security
program that outlines ways to protect client info

165

Gramm-Leach Bliley (Financial Modernization) Act of 1999:

CPAs are responsible for maintaining the confidentiality of...

Information that is outsourced for processing

Ex. outsourced tax return preparation to a firm in a foreign country

166

The IRC prohibits tax prepares from knowingly or recklessly disclosing or using...

Tax related info other than in connection with preparation of a
Return

167

Situations in which there may be a duty to notify parties outside the client:

When a form 8-K is disclosed about a change in auditor's, securities laws require that...2

1 The client must disclose reason for change and

2 auditor must indicate if they agree or how they disagree

168

Situations in which there may be a duty to notify parties outside the client:

Disclosure to...

Successor auditor from predecessor auditor after client consent

169

Situations in which there may be a duty to notify parties outside the client:

Disclosure in response to...

Subpoena

170

Situations in which there may be a duty to notify parties outside the client:

Disclosure to funding...

Funding agency for entities receiving governmental financial
assistance

171

Accountant is liable for acts of...

Employees in course of employment

172

Professional liability insurance typically is used to cover such losses:

Client's insurance company is...

Subrogate to client's rights

Ex. Has same rights to recover loss against CPA as client had

173


Portions of debts incurred in violation of securities laws not covered by insurance are not...

Dischargeable in bankruptcy by the accountant

174

Principal auditor is still liable for all work unless...

The audit report indicates a division of responsibility

175

Principal auditor cannot rely on unaudited financial data must...

Disclaim or qualify opinion

176

The accountant may be held liable in subsequently discovered facts that existed at report date indicate statements that were misleading unless...3

1 immediate investigation is conducted

2 prompt revision of statements is possible

3 SEC and persons known to be relying on statements are notified
By client or CPA

177

Accountant may be liable for compilation and review engagements if:

Failure to mark each page...

"Unaudited" or "See Accountant's Compilation Report"

178

Accountant may be liable for compilation and review engagements if:

Failure to issue...

A disclaimer of opinion or an appropriately worded compilation or review report

179

Accountant may be liable for compilation and review engagements if:

Failure to follow appropriate...

AICPA Statements on Standards for Accounting and Review
Services

180

Accountant may be liable for compilation and review engagements if:

Failure to inform client of any...

Discovery of major issues

181

Securities act of 1933 and 1934:

An accountant can be held criminally liable for...

Willful illegal conduct

182

2 examples of willful illegal conduct by CPA

1 intentional misleading omission of material facts

2 putting false information in registration statement

183

Criminal punishments for willful misconduct, subject to fine of up to...

$10,000 and up to 5 years in prison

184

Criminal violations of IRC 2

1 willfully preparing false return

2 willfully assisting in tax evasion

185

Perjury

Willfully preparing false return

186

RICO Act

Racketeer Influenced and Corrupt Organizations Act

187

Criminal liability under RICO:

Covers individuals affiliated with businesses or associations involved...

In a pattern of racketeering

188

Racketeering includes organized crime, but also includes...2

1 fraud under federal securities laws

2 mail fraud

189

Accountants are subject to criminal penalty through affiliation with...

Accounting firm or business involved in racketeering

190

Pattern of racketeering means...

At least 2 illegal acts of racketeering in previous 10 years

191

RICO has been expanded to allow...

Civil suit by private parties

192

RICO has been expanded to allow civil suit by private parties...2

1 Trebel damages allowed

2 it has been applied against CPAs even without criminal indictment
Or conviction

193

Private Securities Reform Act creates a...

Safe harbor from legal liability for preparation of forward looking statements

194

Private Securities Reform Act safe harbor includes...2

1 projections of income, revenues, EPS and

2 company plans for products and services

195

To fall within safe harbor, written or oral forward looking statement should include...

Cautions and identify assumptions and conditions that may cause projections to vary

196

The Purpose of the Private Securities Reform Act safe harbor is to encourage...

Company to give investors more information without fear of lawsuits

197

Discouragement of frivolous class action lawsuits relieves accountants for...

Being deep pockets beyond their proportional fault

198

Joint and several liability is imposed if...

Defendant knowingly caused harm

199

Under joint and several liability CPAs may be held liable for the proportionate share of damages they actually and knowing caused plus...

An additional 50% if principal defendant is insolvent

200

PCAOB may regulate the nature and extent of...

Nonaudit services that CPA firms may perform for issuer audit
Clients

201

The PCAOB may enforce compliance with...2

1 Professional standards

2 securities laws relating to accountants and audits

202

Material services must receive...

2) fees for those services must be...

Preapproval by audit committee

2) disclosed to investors

203

SOX prohibits the audit partner from having...

Primary responsibility over the issuer's audits

204

SOX prohibits the audit partner who reviews audits from...

Serving more than 5 years, audit partners must be rotated every
5 years

205

The SEC in disciplining a CPA may censure, temporarily bar or permanently bar him for...3

1 lack of qualifications needed

2 improper professional conduct

3 willful violation of helping another violate securities laws or regulations

206

Blackout periods were established for issuer's of certain security transactions types that limit companies'...

Purchase, sale or transfer of funds in individual accounts

207

SOX requires stiffer fines for other white collar crimes including federal law covering...2

Mail fraud and wire fraud

208

If taxing authority has no written standard, the following should be applied:

For undisclosed positions...

Realistic possibility of success

209

If taxing authority has no written standard, the following should be applied:

For disclosed positions...

Reasonable basis

210

If taxing authority has no written standard, the following should be applied:

In regards to tax shelters...

Inform client of risks in taking those shelters

211

When reasonable grounds for omitting an answer exist, the CPA is not required to...

Provide an explanation on the return of reason for omission

212

Reasonable grounds for omission on a tax return include...3

1 info is not readily available and not significant to taxable income
Or liability
2 uncertainty as to meaning of question
3 answer is voluminous and return states data will be supplied
Upon examination

213

An error on return preparation includes position, omission or method of accounting that...

At the time return is filed fails to meet standards as outlined

214

An error (in return preparation) does not include an...

Item that has insignificant effect on client's tax liability

215

A practitioner may not willfully, recklessly or through gross incompetence sign a tax return or claim for refund that the practitioner reasonably should know contains...

A position that lacks a reasonable basis

216

Written advice is generally considered to be a covered opinion if it involves...2

1 a listed transactions or a

2 place or arrangement where the principal purpose is tax avoidance

217

Advice that does not constitute a covered opinion is subject to...

More relaxed standards

218

Written advice is a reliance opinion if the advice concludes that...

It is more likely than not that one or more significant federal tax
Issues would be resolved in the taxpayer's favor

219

Written advice is not treated as a reliance opinion if practitioner prominently discloses I the written advice that it...

2) for purpose of avoiding...

Not intended or written by practitioner to be used by tax payer


2) avoiding penalties that may be imposed on tax payer

220

A preparer is subject to a penalty equal to the greater of $1,000 or 50% of income derived by the preparer with respect to the return or refund claiming any part of an understatement of liability with respect to the return or claim is due to...

An undisclosed position on the return where there is no substantial authority

221

Substantial authority exists if the weight of authorities supporting the position is...

Substantial in relation to weight of those contrary to position

222

Penalty can be avoided by...

Adequate disclosure of questionable position on return or refund
Claim

223

Penalty can be avoided through a...

Showing that there was a reasonable basis for the position

224

For avoiding penalty A higher more likely than not standard applies if the position is...

With respect to a tax shelter or reportable transaction

225

A penalty can also be avoided if the preparer can show there was a...2

1 Reasonable cause for understatement

2 and preparer acted in good faith

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