Module 2: Professional Responsibilities and Tax Return Preparer Penalties Flashcards
(28 cards)
Tax Return Preparer
Any person who prepares for compensation, or who employs 1+ persons to prepare for compensation, any tax return required under the IRC, or any claim for refund of tax imposed by the IRC
Who can prepare federal tax returns?
Any tax preparer with an IRS preparer tax identification number (PTIN)
What is not included under “tax return preparer”?
Person who (i) merely furnishes typing, reproducing, or other mechanical assistance; (ii) prepares a return or claim for refund of the employer; or (iii) prepares as a fiduciary a return or claim for refund for any other person
Who does not have authority to represent clients before the IRS?
PTIN holders who do not hold a professional credential and do not participate in the annual filing season program
Signing Tax Return Preparer
Indiv. tax return preparer who has the primary responsibility for overall substantive accuracy of preparation of return/claim for refund
Nonsigning Tax Return Preparer
Any tax return preparer who is not a signing tax return preparer but who prepares all/substantial portion of return/claim or offers advice
Assists
What are the primary authority sources?
- Applicable provisions of IRC/other statutory provisions
- Proposed, temporary, and final regulations construing such statutes
- Rev. rulings and rev. procedures
- Court cases
Non-primary authority sources
- Congressional intent as reflected in committee reports
- “General explanations” of tax legislation prepared by joint committee on taxation
- Private letter rulings and technical advice memos
- Actions on decisions and general counsel memoranda
- IRS info and press releases and notices/announcements/other admin pronouncements in Internal Revenue Bulletin
Disregard
Any careless, reckless, or intentional disregard of rules or regulations
Listed transaction
Reportable transaction which is the same, or substantially similar to, a transaction specifically identified by Secretary of US Treasury Dept. as a tax avoidance transaction
More-Likely-Than-Not Standard
When there is > 50% likelihood of tax position being upheld
(Ordinary) 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 prep of return
Failure by taxpayer to keep adequate books and records or to sub. items properly
Reasonable Basis
> 20% tax position upheld
Reportable transaction
Any transaction w/respect to which information is required to be included w/return or statement b/c such transaction is of type that the Secretary of US Treas. Dept. has determined having potential for either tax avoidance or tax evasion
Substantial authority standard
> 33% but < 50% tax position being upheld
A position is deemed unreasonable unless:
- Substantial authority for position exists (33-50%)
- Reasonable basis for disclosed position exists (>20%)
- Reasonable to believe that a “tax shelter or reportable transaction” position would meet the more-likely-than-not standard (>50%)
“Willful or Reckless” Conduct
Conduct that is either:
- willful attempt to understate the tax liability; or
- reckless/intentional disregard of tax rules/regulations in spite of signed declaration of return
General Rule for supporting documentation
Preparer not required to obtain supporting documentation unless preparer has reason to suspect accuracy of info provided by taxpayer/client
Preparer must make reasonable inquiries if the info provided by taxpayer appears incorrect/incomplete
Tax return preparer penalties for unethical behavior
Failure to provide copy to taxpayer - $50
Failure to sign - $50
Failure to furnish PTIN - $50
Failure to properly retain records (3 years) - $50
MAX - $25,500
Negotiation of IRS Refund Check - $510
Failure to be diligent - $510
Due Diligence Requirements
Address:
- eligibility checklists
- computation worksheets
- reasonable inquiries to taxpayer
- record retention
Burden of proof rules
In civil action, taxpayer has burden of proof to establish by a preponderance of the evidence (>50%) that law/evidence do not support position of IRS concerning matter (excepts for aiding/abetting understatement – IRS)
In criminal action, gov’t has burden of proof to establish beyond a reasonable doubt that taxpayer is guilty of charges
Wrongful disclosure penalty
If tax return preparer discloses/uses info for any purposes other than to prepare tax return - $250
Exceptions:
- Disclosure allowed
- Allowable uses
- Disclosures permitted for quality/peer reviews
Who has the sole power to license and revoke CPAs?
State Boards of Accountancy
3 categories of misconduct by CPA
- While performing accounting services
- Outside the scope of accounting services
- Criminal conviction
