REG 5 ETHICS BK

Question 1

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How long must audit records be kept for?

Answer 1

Seven years

Question 2

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Disciplinary powers of AICPA?

Answer 2

They can impose sanctions, but they cannot suspend or revoke a CPA’s license. They can suspend or revoke a CPA’s membership. They cannot impose monetary or criminal sanctions.

Question 3

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For how long must an accountant maintain taxpayer records?

Answer 3

3 years.

Question 4

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Are Treasury regulations an authoritative source?

Answer 4

Yes.

Question 5

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Are IRS publications an authoritative source?

Answer 5

No.

Question 6

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What % owners must report to the SEC?

Answer 6

5 % + owners

Question 7

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Rule 504 dollar limit? Rule 505 dollar limit? Rule 506 dollar limit?

Answer 7

$1 million, $5 million, unlimited

Question 8

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Standard required if tax position is disclosed for a substantial understatement of tax?

Answer 8

Reasonable basis.

Question 9

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Standard required if tax position is not disclosed for substantial understatement of tax?

Answer 9

Substantial authority.

Question 10

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Standard that must be met for an accountant to be punished by the board?

Answer 10

More likely than not.

Question 11

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What is the nature of the Ultramares decision?

Answer 11

Limits CPA liability to those in privity of contract and named 3rd party beneficiaries.

Question 12

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What is the standard for greater than 33% but less than 50% chance of a tax position being upheld by the courts?

Answer 12

Substantial authority.

Question 13

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What is a listed transaction?

Answer 13

A tax avoidance transaction

Question 14

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Define the reasonable basis standard.

Answer 14

Greater than 20% chance of a tax position being upheld.

Question 15

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What is the difference between a “tax practicioner” and a “tax preparer?”

Answer 15

Tax practicioner– individuals who practice before the IRS: attorneys, enrolled agents, CPA’s. A tax return preparer prepares returns for compensation.

Question 16

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When can a preparer be fined for a negligent understatement of tax liability? How much is the fine?

Answer 16

When the understatement is due to an unreasonable position that lacks reasonable basis. Penalty is 20% of the understatement of the tax liability.

Question 17

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How much is the fine for fraud on the preparer’s part?

Answer 17

$5,000

Question 18

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Who has the burden of proof when a third party aids and abets understatement of tax liability?

Answer 18

In this case alone, the burden of proof shifts from the taxpayer to the IRS.

Question 19

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Who may not negotiate or endorse a tax refund issued to a taxpayer?

Answer 19

The tax return preparer.

Question 20

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What is a “reportable transaction?”

Answer 20

Any transaction with respect to which information is required to be included with a return because the transaction has potential for tax avoidance or tax evasion.

Question 21

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What may a tax return preparer maintain for 3 years instead of a copy of the return?

Answer 21

A listing of the name and ID of each taxpayer.

Question 22

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Who may endorse or otherwise negotiate an IRS refund check?

Answer 22

Only the taxpayer.

Question 23

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What are the due diligence requirements for the earned income credit?

Answer 23

1. eligibility checklists 2. computation worksheets 3. reasonable inquiries to the taxpayer 4. record retention

Question 24

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May the tax return preparer disclose information to 3rd parties?

Answer 24

No, not without consent of client, unless the disclosure meets one of the allowed exceptions.

Question 25

# Getting Strong Now Who can be penalized for aiding and abetting understatement of tax liability?

Answer 25

Anybody.

Question 26

# Getting Strong Now What is Circular 230?

Answer 26

Contains the rules for practice before the IRS of tax practicioners

Question 27

# Getting Strong Now If you worked for government and were substantially involved in a matter with respect to specific parties, when can you represent those parties in private practice regarding said matter?

Answer 27

Never.

Question 28

# Getting Strong Now If an individual, while a gov't employee, had official responsibility for a matter involving specific parties, when can the individual represent those parties in said matter?

Answer 28

2 years after leaving government employment.

Question 29

# Getting Strong Now When may a practicioner charge a contingent fee?

Answer 29

1. w/ IRS examination or audit 2. w/ a claim solely for refund of interest and/or penalties 3. In a judicial proceeding arising under Internal Revenue Code

Question 30

# Getting Strong Now Best practices for tax advisors?

Answer 30

1. Communicating with the client regarding the "terms of the engagement" 2. Establishing the facts and arriving at a conclusion supported by the law and the facts 3. Advising the client about the importance of the conclusions reached (ie whether or not client can avoid penalties)

Question 31

# Getting Strong Now 3 types of covered opinions?

Answer 31

Any written or electronic advice by a practicioner concerning federal tax issues arising from: 1. a listed transaction 2. any arrangement having as the prinicipal purpose federal tax avoidance or evasion (tax shelter) 3. a) a reliance opinion or b) a marketed opinion that pertains to a tax shelter. Covered opinions are tax advice that is part of Circular 230.

Question 32

# Getting Strong Now What is a reliance opinion?

Answer 32

Concludes at confidence level of at least more likely than not that the tax issue will be resolved in the favor of the taxpayer.

Question 33

# Getting Strong Now What is a marketed opinion?

Answer 33

Advice that will be used to "promote, market, or sell" a partnership, investment plan, or arrangement.

Question 34

# Getting Strong Now What must a marketed opinion relate to?

Answer 34

Can relate only to listed transactions and arrangements the principal purpose of which is federal tax evasion or avoidance.

Question 35

# Getting Strong Now What are the requirements for a covered opinion?

Answer 35

1. It must reach a conclusion, and if not, state why. 2. Cannot be based on unreasonable factual assumptions 3. Must relate applicable law to the facts 4. Must state the likelihood that the taxpayer will prevail on the merits with respect to each significant federal tax issue.

Question 36

# Getting Strong Now What is a limited scope opinion?

Answer 36

An opinion that considers less than all of the significant federal tax issues. Practicioner and taxpayer must agree that the scope of the opinion and the taxpayer's reliance on it are limited to the issues addressed in the opinion.

Question 37

# Getting Strong Now What is the only agency that can suspend or revoke a CPA's license?

Answer 37

The state board.

Question 38

# Getting Strong Now What is the standard that must be met for the state board to prove professional misconduct on the part of a CPA?

Answer 38

More likely than not. Beyond a reasonable doubt is not necessary, because it is not a criminal case.

Question 39

# Getting Strong Now What are the five penalties that a state board may impose for professional misconduct?

Answer 39

1. suspension or revocation of license 2. monetary fine 3. censure 4. probation 5. continuing professional education courses

Question 40

# Getting Strong Now Disciplinary powers of the IRS?

Answer 40

Criminal and civil.

Question 41

# Getting Strong Now What are the disciplinary powers of the SEC?

Answer 41

To suspend or permanently revoke an accountant's right to practice before the SEC

Question 42

# Getting Strong Now How many members are on the PCAOB?

Answer 42

5

Question 43

# Getting Strong Now Duties of PCAOB?

Answer 43

1. to register public accounting firms 2. to establish rules relating to the preparation of audit reports. 3. to conduct inspections and investigations of registered public accounting firms.

Question 44

# Getting Strong Now How often must PCAOB audit registered public accounting firms?

Answer 44

Firms that perform 100+ audits per year-- annually. Firms that perform < 100 audits per year-- once every 3 years.

Question 45

# Getting Strong Now What sanctions can PCAOB impose?

Answer 45

Sanction or revocation of PCAOB registration, monetary penalties, censure, and professional education requirements. Similar to powers of state board.

Question 46

# Getting Strong Now What services may a public accounting firm provide to its audit client?

Answer 46

Tax services only, if pre-approved by audit committee.

Question 47

# Getting Strong Now Can an audit firm employ a big wig (CEO/CFO) of the issuer?

Answer 47

Not in the one-year period preceding the audit.

Question 48

# Getting Strong Now What people comprise the audit committee?

Answer 48

Members of the issuer's board of directors who are otherwise independent.

Question 49

# Getting Strong Now What are the responsibilities of the CEO and CFO with regards to the audit report?

Answer 49

They must review it, assert that it does not contain untrue statements or omit material information, and that the financial statements fairly present the financial condition and results of operations of the issuer. They also assert that internal controls are sound.

Question 50

# Getting Strong Now Who must file a report indicating how many shares they own? When must they file it?

Answer 50

An officer, director, or 10% + owner must file the report within 10 days of becoming an officer, director, or 10% + owner.

Question 51

# Getting Strong Now What must be included in 10K and 10Q reports regarding internal controls?

Answer 51

A statement that management is responsible for setting up internal controls and an assessment of the effectiveness of the internal control structure.

Question 52

# Getting Strong Now What standards are covered by the code of ethics?

Answer 52

Honest and ethical conduct, full, fair and timely disclosures and compliance with laws, rules and regulations.

Question 53

# Getting Strong Now What knowledge should an audit committee expert have?

Answer 53

Understanding of GAAP, application of GAAP, experience with internal controls

Question 54

# Getting Strong Now What does the SOX Act establish?

Answer 54

PCAOB, the audit committee, internal control monitoring, SEC review of issuer documents (including Form 10-K), Criminal Penalties for altering documents and securities fraud, and whistle-blower protection.

Question 55

# Getting Strong Now How can a presidential veto be overriden?

Answer 55

By a vote of 2/3 of both the House and the Senate.

Question 56

# Getting Strong Now What 3 groups of taxpayers are more likely to be selected for an audit?

Answer 56

individuals with gross income over $100,000, self-employed individuals and cash businesses

Question 57

# Getting Strong Now What is a Form 870?

Answer 57

The taxpayer signs this if he is in agreement after an IRS audit. By signing Form 870, the taxpayer waives the right to receive certain statutory notices and to petition the US Tax Court and waives the right to the appeal process.

Question 58

# Getting Strong Now If the taxpayer is not in agreement with an IRS audit, how long does he have to appeal?

Answer 58

Up to 30 days

Question 59

# Getting Strong Now If the taxpayer does not agree with an IRS audit after an appeal, what are his further rights of appeal?

Answer 59

He may take the case to the US Tax Court, the US Court of Federal Claims, or a US District Court.

Question 60

# Getting Strong Now General rule for who has the burden of proof with litigation? Who has the burden of proof with most civil tax cases?

Answer 60

The party bringing the suit. Accordingly, the taxpayer has the burden of proof for most civil cases.

Question 61

# Getting Strong Now What is required of the taxpayer in cases where the IRS has the burden of proof?

Answer 61

The taxpayer must introduce credible evidence and maintain books and records.

Question 62

# Getting Strong Now What is the one court where taxpayers may litigate without first having paid the disputed tax in full?

Answer 62

The US tax court

Question 63

# Getting Strong Now What must happen in all cases before a tax case will be heard?

Answer 63

IRS must send out a Notice of Deficiency. Taxpayer must pay the amount and then sue the IRS for a refund.

Question 64

# Getting Strong Now What kinds of cases will the US tax court hear?

Answer 64

Federal only.

Question 65

# Getting Strong Now When are you exempt from a penalty for failure to make estimated income tax payments?

Answer 65

When current year's tax minus the sum of withholdings and timely payment of estimated tax is no more than $1,000. When withholdings and timely payment of est tax are at least 90% of current year's tax or at least 100% of previous year's tax.

Question 66

# Getting Strong Now How much is the failure-to-file penalty? How much is the failure-to-pay penalty?

Answer 66

Failure to file is 5% per month and failure to pay is 1/2% per month.

Question 67

# Getting Strong Now What is the negligence penalty for a taxpayer with respect to an "understatement of tax"? What is the taxpayer's best defense to this?

Answer 67

Penalty is 20%. Best defense is that the taxpayer had a reasonable basis for the opinion.

Question 68

# Getting Strong Now When does the IRS issue a civil penalty?

Answer 68

When there is a 75% + understatement of tax.

Question 69

# Getting Strong Now What is the standard of proof for the IRS for a civil penalty? For a criminal penalty?

Answer 69

Civil-- preponderance of the evidence Criminal-- beyond a reasonable doubt

Question 70

What are the limitations to an individual within one year after leaving IRS employment?

Answer 70

They can't appear before the IRS to influence any US Treasury Department employee regarding any rule if they ever a) participated in the development of the rule or b) within the one year period prior to leaving government employment, had "official responsibility" with regard to the rule.