unit 4

circular 230 components

ADS rules

authority, duty, sanctions, rules for disciplinary hearings

unlimited vs. limited rep rights

licensed practitioners or other registers

duties before IRS

give unprivileged info (or let them know who has it)

notify client of errors + inform of penalties

reasonable care

prompt disposition of pending matters

no assistance from disbarred or former govt. employees (none, 1, 2 year limits)

cannot double task as notary

reasonable fees (contingent allowed)

return of client records (for anything tax law)

reasonable/transparent conflict of interest

clean advertising

no endorsement/negotiation of checks

govt employee limits

none for substantial participation

1 year for participating in development

2 years for official responsibility

contingent fees only for…

IRS exam of original tax return, claim for refund of interest/penalties, judicial proceeding

clean advertising requirements

no false info, fee info retained for 36 months, written schedule advertised upheld for >30 days

best practices

HEFAIR

highest quality rep

communicate terms of Engagement

facts and conclusions supported by law

advise client of consequences

act fairly and with Integrity

take Reasonable steps for firm to follow procedures

requirements for reliance on others

in good faith; person must be qualified, competent, conflict free

sanctions vs. reinstatement

sanction: incompetence, noncompliance, willfully mislead

reinstatement: after 5 years (similar to s corp election), if promise not to engage in misconduct/not harmful to public

tax return preparer requirements

doesn’t need a license, just PTIN (IRS website)

signing (responsible for overall accuracy) or nonsigning (useless intern)

4 standards of tax reporting

frivolous (<20%)

reasonable basis (20-40%)

substantial authority (40-50%)

more likely than not (>50%)

reasonable basis used for

disclosed substantial position, NOT tax shelter/fraud

substantial authority used for

undisclosed substantial position, NOT tax shelter/fraud. based on authoritative sources

more likely than not used for

reportable and listed transactions, maybe fraud/tax shelters

disclosure forms

8275 (not contrary to treasury regulations)

8275-R (contrary to regulations)

TRP failures (each $65)

provide copy to taxpayer, sign, include PTIN, retain records (>3 years), not negotiating/endorsing check, determine client eligibility of earned income credit, NOT aiding/abetting understatement of tax (1K, 10K fine), not wrongful disclosure ($250 each, up to 10K)

allowable disclosure

enforceable subpoena, SALT returns/declaration of estimated tax, quality reviews by state board, consent of client prior, defense of lawsuit by client, prospective purchaser (but purchaser cannot disclose)

understatement penalties for TRP

negligence/unreasonable position = max [1K, 50% of income]

willful reckless conduct/fraud = max [5K, 75% of income]

state board of accountancy rights

give/revoke licensure, impose penalties (fine, censure, probation, CPE)

3 categories of misconduct

performing accounting services, outside of accounting services, criminal conviction

elements of formal hearing by state board

preponderance of evidence, due process, adverse decisions subject to judicial review

AICPA/state CPA societies rights

suspend membership without hearing

SEC rights

only civil, can suspend CPA from practicing before the SEC

3 options after tax audit

issue resolved (no change report and pay deficiency)

issue unresolved (30 day for admin appeal)

fast track remediation (office of appeals finishes within 60 days, only for small businesses)

unresolved issue process

audit —> 30 day letter for admin appeal —> office of appeals —> 90 day letter “notice of deficiency” —> choose court —> circuit/court of appeals —> Supreme Court (only judges past facts)

tax vs. district vs. court of federal claims

tax: no jury, no prepayment, NOT held as precedent

district: jury, with prepayment

federal claims: no jury, with prepayment, for money damages (moves to circuit court)

taxpayer failures

pay (0.5% per month —> 25%)

file (5% —>25%)

pay and file

insufficient payments (safe harbor rule — defended by “annualization” method)

accuracy related penalties for taxpayerss

negligence/disregard (based on intent) OR substantial understatement (based on magnitude)

substantial valuation misstatement (based on basis valuation)

all 20% of underpayment

fraud penalties for taxpayer

civil: 75% of understatement

criminal: 100K, 500K

authoritative sources for defense (for substantial authority standard)

IRC provisions (not publications/articles)

treasury regulations

revenue rulings

tax treaties

analyses and reports from court

when does interest accrue?

underpayment of tax: at original deadline

payment of tax: at extension

FBAR (foreign bank accounts) rules

applicable to US citizen/resident, aggregate value >10K at any time (but the amount will be converted as of YE exchange rate)

NOT for consolidated entity or beneficiaries

file form 114 by 4/15 or extension

disclosures for FBAR

name, account #, name/address of foreign bank, type of account, max value

breach vs. tort

breach: engagement not fulfilled, can only get compensatory damages, based on privity (only between direct legal connection or 3rd party beneficiary)

tort: 4 proofs needed, intentional/unintentional

4 proofs

TRP owed duty to beneficiary (ultramares exception for minority of states that limits duty contact)

breach of duty

plaintiff suffered injury

breach of duty caused injury

intentional vs. unintentional tort

unintentional: ordinary negligence, only compensatory damages

intentional: constructive fraud/gross negligence, no defense of privity — defend with lack of scienter

5 components of fraud

misrep of material fact

justifiable reliance on misrep

intent to induce plaintiff reliance

damages

scienter

confidentiality elements

privileged comm for CPAs (attorney - client, work product)

privileges comm for taxpayers (federally authorized tax practitioner - taxpayer)

work papers (owned by CPA but cannot show anyone without client consent)