R5 - Ethics Flashcards
What governs those individuals who prepare federal tax returns for a fee?
- IRC
- related US Treasury regulations
What is defined as a transaction specifically identified by the Secretary of the US Treasury Department as a tax avoidance transaction?
Listed transaction
How is the “more likely than not” standard met?
Greater than 50% likelihood of a tax position being upheld by the courts
Which standard is more stringent?
“More likely than not” OR “Substantial authority”
More likely than not
Are IRS publications considered primary authoritative sources?
NO
What term describes any failure to make a reasonable attempt to comply with the provisions of the internal revenue laws?
Negligence
What term describes any failure to exercise ordinary and reasonable care in the preparation of a tax return?
Negligence
What term describes any failure by the taxpayer to keep adequate books and records or to substantiate items properly?
Negligence
How is the reasonable basis standard met?
Greater than 20% likelihood of a tax position being upheld
What is defined as the legal use and application of tax laws and cases in order to reduce the amount of tax due?
tax avoidance
What is defined as efforts, by illegal means and methods, to not pay taxes?
tax evasion
When would you have substantial authority?
> 33% but less than 50% likelihood tax position upheld
What is defined as an objective standard involving an analysis of the law and application of the law to relevant facts?
Substantial authority
What is defined as any person who prepares for compensation, or who employs persons to prepare for compensation, any tax return required under the IRC or any claim for refund of tax imposed by the IRC?
tax return preparer
Does a tax return preparer include a person who prepares as a fiduciary a return or claim for refund for any other person?
NO
True or false.
A tax practitioner is any of the following individuals who practice before the IRS: attorneys, CPAs, enrolled agents, enrolled actuaries, and enrolled retirement plan agents.
True
A tax shelter means any plan or arrangement if a significant purpose is the avoidance or _______ of federal income tax.
Evasion
A position is deemed unreasonable UNLESS there is ______ _______ for the position and the position does not involve either a tax shelter or a reportable transaction.
Substantial authority (>33% but less than 50%)
A position is deemed unreasonable UNLESS the position is disclosed, there is a _____ _____ for the position, and the position does not involve either a tax shelter or a reportable transaction
Reasonable basis (>20%)
A position is deemed unreasonable UNLESS with respect to a tax shelter or a reportable transaction, it is reasonable to believe that the position would ____ _____ _____ ____ be sustained on its merits.
More likely than not (>50%)
Circular 230 applies to tax _____.
practitioners
Is the following a best practice for tax advisors?
Communicating with the client regarding the terms of the engagement to determine the client’s purpose and use for the advice
Yes
Is the following a best practice for tax advisors?
Establishing the facts and arriving at a conclusion supported by the law and the facts
YES
Is the following a best practice for tax advisors?
Acting fairly and with integrity in practice before the IRS
YES
May a tax practitioner endorse or otherwise negotiate any check (including directing or accepting payment by any means into an account owned or controlled by the practitioner) issued to a client by the government in respect of a federal tax liability?
NO
May a tax practitioner willfully or recklessly sign a tax return?
NO
May a tax practitioner advise a client to take a tax position that the practitioner knows or should know lacks a reasonable basis?
NO
May a tax practitioner advise a client to take a tax return position that is frivolous?
NO
ABC Corp. retained Walter, CPA, to prepare its Year 6 income tax return. During the engagement, Walter discovered that ABC had failed to file its Year 2 income tax return. What is Walter’s professional responsibility regarding ABC’s unfiled Year 2 income tax return?
Consider withdrawing from prep of ABC’s Year 6 income tax return until the error is corrected
All written tax advice is covered by paragraph 10.37 of Circular ____.
230
True or false.
In giving written advice, a tax practitioner must base the written advice on reasonable factual and legal assumptions (including assumptions as to future events).
True
True or false.
In giving written advice, a tax practitioner must reasonably consider all relevant facts and circumstances.
True
True or false.
In giving written advice, the tax practitioner must use reasonable efforts to id and ascertain the facts relevant to written advice on each federal tax matter (solicit info.).
True
A tax practitioner may only rely on the advice of another if the advice was reasonable and the reliance is in ____ _____ considering all the facts and circumstances.
Good faith
A practitioner must possess the necessary ______ to engage in practice before the IRS.
Competence
What are three procedures to ensure compliance with Circular 230?
Disseminate, educate, test
Who may sanction a practitioner practicing before the IRS for being incompetent or disreputable?
Secretary of the Treasury
The state board of accountancy has the power to do what two things?
Give and revoke license
Who has the sole power to license CPAs?
State board of accountancy
Title I of SOX provides for a PCAOB composed of how many members?
5 members (2 CPAs, 3 non)
The PCAOB is subject to oversight by whom?
SEC
Is the following a duty of the PCAOB?
Register public accounting firms
YEs
Is the following a duty of the PCAOB?
Est. rules relating to the preparation of audit reports for issuers
YES
Is the following a duty of the PCAOB?
Conduct inspections, investigations, and disciplinary proceedings concerning registered public accounting firms
YES
Only what type of firms can audit an SEC issuer?
Registered public accounting firm
Audit workpapers must be maintained for how many years?
7 years
How often must the PCAOB inspect registered public accounting firms that regularly audit 100+ issuers?
Annually
How often must the PCAOB inspect registered accounting firms that perform fewer audits?
At least once every 3 years
The lead audit partner must be rotated every _____ years.
5
Public companies are responsible for establishing an audit committee that is directly responsible for what?
Appointment, compensation, and oversight of the work of the public accounting firm employed by that public company
Most tax legislation begins in the House of Representatives, more specifically, which committee?
House Ways and Means Committee
Upon approval by the Ways and Means Committee, the bill is voted on and approved by whom?
the full House
From the House, the bill then goes to whom?
Senate Finance Committee
Upon approval by the Senate Finance Committee, the bill then goes to whom?
Voted on and approved by the full Senate
Differences between the House approved bill and the Senate approved bill is resolved by what committee?
Joint Conference Committee
The compromise bill must then be approved by both the ________ and the ________.
House and the Senate
The compromise bill must then be approved by both the ________ and the ________.
House and the Senate
What statistical model does the IRS utilize to select tax returns for audit?
DIF (Discriminant Inventory Function System)
True or false.
If an individual’s itemized deductions are in excess of norms established for certain income levels, the return may be selected for audit.
True
In a direct correspondence audit, is there a need for a formal meeting with an IRS rep?
NO
If the revenue agent and the taxpayer cannot come to an agreement, what is the next step?
Administrative appeals process
Can the taxpayer take a case to the US Tax Court before the IRS sends a notice of deficiency?
NO
True or false.
The Appeals Division is authorized to settle all tax disputes based on the hazards of litigation.
True
If an agreement is reached with the Appeals Division, what form does the taxpayer sign?
Form 870-AD
If there is no agreement after the appeals conference, the taxpayer is entitled to take the case to where?
1) US Tax Court
2) US Court of Federal Claims
3) US District Court
In most civil cases, who has the burden of proof?
Taxpayer
The US Tax Court is a specialized trial court that hears only what type of cases?
Federal tax cases
The US Tax Court is a specialized trial court that hears only what type of cases?
Federal tax cases
True or false.
The US Tax Court is the only forum in which taxpayers may litigate w/o first having paid the disputed tax in full.
True
What makes the US District Courts unique?
jury trial
The US Court of Appeals is a _____ judge panel (no jury).
3
The US Court of Appeals is a _____ judge panel (no jury).
3
How much is the failure-to-pay penalty(GR)?
1/2 of 1% per month of the unpaid tax
How much is the failure-to-pay penalty(GR)?
1/2 of 1% per month of the unpaid tax
What must the IRS prove in a criminal case?
Beyond a reasonable doubt
What must the IRS prove in a criminal case?
Beyond a reasonable doubt
True or false.
US District Court cases are heard before one judge, not a panel of judges.
True
