Tax_Reg_Review Deck_3 Flashcards
(43 cards)
When IRS issues a Preliminary Notice (30 day Letter) to the tax payer?
If an individual taxpayer rejects the IRS examiner’s findings in an audit of the taxpayer’s tax return, the IRS will issue the taxpayer a 30-day letter (preliminary notice) notifying the taxpayer of the right to appeal.
The taxpayer has 30 days to request an administrative appeals conference with the IRS Office of Appeals.
Which are the Courts of Original Jurisdiction for Tax cases?
The courts of original jurisdiction for tax cases, i.e., the courts in which
a taxpayer would first bring a lawsuit against the IRS, are -
A. The Tax Court,
B. The U.S. District Court, and
C. The U.S. Court of Federal Claims.
True or False:
The U.S. Court of Federal Claims has jurisdiction over most claims for money damages against the United States.
TRUE!
True or False:
The U.S. Tax Court is a specialized trial court, not an appellate court. It hears only Federal tax cases, not Federal tax and other Federal cases.
TRUE!
What is tax payer’s action upon receipt of Notice of Deficiency from IRS?
Upon receipt of a notice of deficiency from the IRS, the taxpayer has 90 days to pay the deficiency or file a petition with the Tax Court for a redetermination of the deficiency.
Small Cases Division of the US Tax Court -
A taxpayer can file a petition in the Small Cases Division if the amount in dispute does not exceed $50,000 for any one tax year.
A decision of the Small Cases Division of the U.S. Tax Court cannot be relied on as precedent in any other court. The decision only applies to that particular taxpayer in that particular case.
Decisions of Small Cases Division are NOT APPEALABLE by either parties.
Civil Fraud Penalties -
Maintaining false records and reporting fictitious transactions is adequate to demonstrate civil fraud, a willful and deliberate attempt to evade taxes.
Civil Penalties - at least 75% of the understatement of tax due to fraud.
Criminal penalties are also applied in Fraud cases.
What is Private Letter Ruling (PLR)?
The IRS issues a private letter ruling (PLR) in response to a taxpayer’s request for guidance on the tax treatment of a proposed transaction, typically one with significant tax consequences.
A private letter ruling can be relied on by the taxpayer to whom it is issued, but cannot be relied on as precedent by other taxpayers.
True or False:
Interest on a tax deficiency begins to accrue on the date the original tax was due, even if an extension of time to file was filed.
TRUE!
General or Majority rule for the liability of a CPA or Tax Preparer
The majority rule (the law followed in the majority of the states) is that accountants are liable to anyone in a class (such as potential lenders or investors) of third parties whom
the CPA knows will rely on the opinion of the financial statements.
The CPA is liable to all possible foreseeable users of the CPA’s opinion.
KEY POINT TO REMEMBER IN MCQ CHOICES:
NEVER SELECT ANSWER WITH FOLLOWING WORDS:
All, Always, Never, Only and Must - these are wrong choices.
Ultramares or Minority rule for the liability of a CPA or Tax Preparer
Ultramares limits the accountant’s liability for negligence to:
(i) parties in privity and
(ii) intended third party beneficiaries.
Parties who are merely “foreseen” cannot recover.
What is Scienter and how this can turn as best defense to an accountant (CPA)?
Scienter is a one of the elements of Fraud case which means “AN INTENT TO DECEIVE”.
A suit for common law fraud may succeed only if the accountant
acted with scienter (knew that the statement was wrong or recklessly disregarded the truth).
Proving LACK OF SCIENTER (No Intention to Deceive) and taken reasonable Due Care will work as Defense in a Fraud case.
Define Constructive Fraud
Constructive Fraud = GROSS NEGLIGENCE.
Reckless departure from standards of due care constitutes gross
negligence, which is also called constructive fraud.
A CPA who commits constructive fraud is liable to all plaintiffs, not just those with whom the CPA dealt or of whom the CPA knew.
What are five elements of Fraud?
The five elements are:
(i) misrepresentation of a material fact
(ii) scienter (which is an intent to deceive)
(iii) actual and justifiable reliance
(iv) intent to induce reliance; and
(v) damages
Proving the LACK OF SCEINTER (NO INTENTION TO DECEIVE) is a good defense for a CPA in Fraud suit.
What are the elements of Negligence a Plaintiff MUST SHOW / PROVE?
Elements of Negligence, the plaintiff MUST SHOW / PROVE:
1. the defendant owed a Duty of Care to the plaintiff
2. the defendant breached that duty by failing to act with due care
3. the breached caused plaintiff’s injury
4. Damages.
A defence for a CPA in negligence would be -
A defense that the negligence was not the proximate cause of plaintiff’s losses would be a valid defense, as the third element would not exist.
True or False:
Under the majority position an accountant is liable for negligence only to third parties whom the accountant knows or should foresee will be relying on the accountant’s work.
TRUE!
Difference between Constructive Fraud and Actual Fraud -
Constructive fraud does not require intent. Constructive fraud only
requires reckless disregard for truth or falsity.
Actual fraud, on the other hand, requires intent in making a material
misstatement, upon which the plaintiff justifiably relies (and that the
plaintiff suffers damages).
Exception situations when a CPA can share their workpapers without the client permission -
An accountant is prohibited from showing the workpapers to anyone without the client’s permission, EXCEPT:
1. Lawful subpoena
2. Prospective purchasers, as long as the prospective purchasers do not disclose the confidential information
3. Quality control panel.
4. AICPA/State Trial Board.
5. Court proceedings.
6. When GAAP requires disclosure of such information in the financial statements.
Workpapers are owned by Accountant or Tax Preparer.
Accountants can share workpapers to his/her Attorney in defense lawsuit against them.
Dividend Received Deduction (DRD) for Corporations and it’s limitation :
The dividends-received deduction (DRD) is generally calculated as 50 percent of dividends received (where % holding of Corporation is less than 20%).
However, the deduction is limited to 50% × dividends-received deduction (DRD) modified taxable income.
DRD modified taxable income is calculated as taxable income before the dividends-received deduction, any NOL deduction, and capital loss carryback deduction
True or False:
Business gifts are deductible up to a maximum deduction of $25 per recipient per year.
TRUE!
True or False:
Alimony payments are deductible as Adjustment to Gross Income to arrive at Adjusted Gross Income (AGI).
TRUE!
Alimony payments are deductible to arrive at adjusted gross income (AGI) if the payments are made pursuant to a divorce settlement executed on or before December 31, 2018.
A claim will not be discharged in a bankruptcy proceeding if it_______________
Arises from an extension of credit based upon false representations by the debtor to the creditor.
When is the express warranty created with respect to a sale of goods?
An “express” warranty is created by the seller’s description of the goods which forms part of the basis of the bargain between the parties.
The “express” warranty does not require that the seller select goods knowing the buyer’s intended use.
True or False:
A Non-compensated surety will be discharged from liability if the principal debtor and the creditor modify the terms of the contract in any way.
TRUE!
A Surety will be discharged from the liability if the creditor failed to notify the surety of a partial surrender of the principal debtor’s collateral.
