M1 R4 REG CPA

Circular 230

Subpart A

Attorneys, CPA, enrolled agent = Unlimited representaiton rights; do not have to prepare/ sign return to represent client

Subpart B

Federal Tax Matter

Subpart C

Subpart D

Tax return preparer

any person who prepares for compensation, or employs one or more persons to prepare for compensation, all or a substantial portion of any tax return required under the Internal Revenue Code or any claim for refund of tax imposed by the Internal Revenue Code. The staff accountant prepared all of the tax refund claim, so he or she is a tax return preparer, even though the tax return is signed by another member of the firm.

anyone who prepares a substantial portion of a return

• Prepares all or a substantial portion of a tax return or refund claim,

• Does so for compensation, and

• Does not have to be the person who signs the return.

• does not include a person who prepares a tax return of an employer (or of an officer or employee of the employer),

must include the preparer's PTIN on any tax returns prepared for compensation.

Signing

Nonsigning

Unlimited Representation Rights

whether they prepare returns is irrelvant because of unlimited representation rights

Listed Transaction

Reportable Transaction

Referred to as tax shelter

• any transaction that the Secretary of the U.S. Treasury Department has determined as having a potential for either tax avoidance or tax evasion.

Ordinary Negligence

Reasonable Basis Standard

met when there is at least 20% likelihood of a tax position being upheld by courts

• Lowest standard ←- Merely arguable

Merely arguable

Less than 20% lieklihood of tax position being upheld by courts

Substantial Authority Standard

Met when there;s greater than 405 but less than 50% likelihood of a tax positon being upheld by court

• Objective standard (Medium standard)

More-Likely-Than-Not Standard

Associated t=with reportable transactions, listed transactions, tax shelter

• More stringent standards

Unreasonable Position

1. Position was idsclosed and less than 20% chance of winning (Merely arguable)

2. Postion was undisclosed and there’s less than 40% chance of winning

3. Reportable/ Listed transaaction or tax shelter and there’s less than 50% chance of winning

Penalties for not in compliance:

• Ordinary Negligence = Greater of $1000 or 50% of income received for services

• Willful or reckless conduct = $5000 or 75% of income received for services

Aiding and Abetting Understatment of Tax Liablity

burden of proof shifts to the IRS from the taxpayer. Unless the law expressly states otherwise, the taxpayer has the burden of proof to establish by the preponderance of the evidence that the law and the evidence do not support the position of the IRS. With respect to any criminal action, the government has the burden of proof to establish by evidence beyond a reasonable doubt that the taxpayer is guilty of the charges. Note that these burdens of proof are different; criminal (beyond a reasonable doubt) is considerably higher than civil (preponderance of the evidence).

• civil penalty for aiding and abetting an understatement of tax liability on a tax return is $1,000 for all taxpayers except corporations and $10,000 for corporations

• civil penalty for aiding and abetting an understatement of tax liability on a tax return is $1,000 for all taxpayers except corporations and $10,000 for corporations

State Board of Accountancy

have the sole power to license CPAs; thus, the only body to which the CPA must pay fees in order to maintain the CPA license is to the state board of accountancy for the state in which the CPA is licensed.

• sole responsibility for determining the continuing professional education requirements for certified public accountants practicing in their states

• three broad categories of misconduct are misconduct while performing accounting services, misconduct outside the scope of performing accounting services, and a criminal conviction (fail to file tax return)

requirements can include certain educational requirements, residency requirements, and experience requirements.

AICPA

Voluntary memebership

Due process/ judicial review is not required because they cannot impose fines/ revoke/ susepnd license

develops the CPA Exam and sets auditing standards and ethical standards for CPAs

Membership in the AICPA can be suspended or terminated without a hearing for certain offenses. These offenses include but are not limited to (1) proof of conviction of a crime punishable by imprisonment for more than one year, (2) proof of conviction for willful failure to file any income tax return, (3) proof of conviction for filing a false or fraudulent income tax return or aiding in the preparation of a false or fraudulent income tax return of a client.

professional organization that sets professional and ethical standards for the CPA profession. It also helps prepare and grade the Uniform CPA Examination. However, the AICPA does not determine whether a candidate is qualified to sit for the Uniform CPA Examination. Candidates must meet the requirements to sit for the exam, which are set forth by their state board of accountancy.

IRC Tax Return preparer Penalty

An Internal Revenue Code (IRC) tax return preparer penalty can be assessed by the IRS for failure to retain a completed copy of a taxpayer-client's tax return for the period ending three years after the close of the return period, not five years. The tax preparer can retain, on a list, the name and taxpayer identification number for the return prepared for the client, rather than a copy of the return itself.

Choice "A" is incorrect. An IRC tax return preparer penalty can be assessed by the IRS for failure to provide a copy of a tax return to the taxpayer-client no later than the time the return is presented for the taxpayer's signature.

Choice "B" is incorrect. An IRC tax return preparer penalty can be assessed by the IRS for failure to sign a tax return prepared for a taxpayer-client.

Choice "C" is incorrect. An IRC tax return preparer penalty can be assessed by the IRS for failure to furnish the tax preparer's tax identification number with a tax return prepared for a taxpayer-client.

provides a penalty of $65 for each failure of a preparer to sign a tax return (maximum penalty of $33,000 for the tax period) for 2026 tax returns filed in 2027.

NASBA

coordinates the state boards of accountancy in the licensing and regulation of CPAs.

Return (Audit)

Office Audit

Field Audit

Fast-Track Remediation

Selection of Returns

Correspondence Audit v

No formal meeting with the IRS

Form 870

Notice of Deficicneicy (90 Day Letter)

explains that the taxpayer has 90 days to either pay the deficiency or file a petition with the U.S. Tax Court. The taxpayer does not have to first pay the deficiency and file a claim for a refund with the IRS to file a petition with the U.S. Tax Court.

Burdern of Proof

Stare Decisis

Appeal Outcomes

US Tax Court

Small Case Division:

• A taxpayer may use the Small Cases Division only when the amount in dispute is $50,000 or less for one tax year.

• Neither the taxpayer nor the IRS may appeal the Small Cases Division’s decision.

• Its decision applies only to that taxpayer and case, so it cannot be used as precedent in other courts.

US District Court

US Court of Federal Claims

has jurisdiction over most claims for money damages against the United States, one type of which is tax refunds.

US COurt of Appeals

Form 8275

Used to avoid understatement penalty and disclose postions taken on tax retunr in contrary of revrulings, procedures, provisions (EXCEPT regulations)

Form 8275-R

Form 8886

If the IRS removes a transaction from its list of reportable transactions, taxpayers are no longer required to disclose that transaction on Form 8886. This is because the transaction no longer meets the criteria for being considered a reportable transaction requiring disclosure

Bank Secrecy Act (BSA)

Foreing Bank Account Reporting (FBAR)

alue of account exceeds $10,000 at any time during calendar year

File form 114

Accuracy-Related Penalties

2 penalties:

1. Negligence penalty with understand of tax

2. Penalty for Substantial Understatement of Tax

Can never get both penalties, only one

\b

Tax Defenses

Rreasonable basis standard involves a position that is arguable but fairly unlikely to prevail in court

• avoid the substantial underpayment penalty only if the taxpayer disclosed the tax return position for which the taxpayer has a reasonable basis. Reasonable basis will avoid the negligent understatement penalty that is not substantial even if the taxpayer does not disclose the tax return position for which the taxpayer has a reasonable basis

substantial authoory standard: more than 40% chnace of succeeding

• Reports issued by the U.S. Congress, IRS regulations, rules, and releases, and U.S. court case decisions, but not foreign court case decisions, constitute substantial authority for the substantial authority standard.

more-likely-than-not standard involves a position that has a more than 50 percent chance of succeeding.

30-day Letter (preliminary Notice)

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.

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.

• IRS's interpretation of the federal tax law as it applies to a specific taxpayer situation. A PLR is issued by the IRS in response to a taxpayer's request for guidance as to the federal tax consequences of a proposed transaction. It is binding for that specific taxpayer and transaction, but may not be relied on as precedent by other taxpayers or the IRS.

Technical Advice Memorandum (TAM) M

guidance provided by the IRS regarding the federal tax consequences of a specific taxpayer situation, but it is issued at the request of an IRS director or agent, typically during an IRS audit, and only on closed transactions. A TAM is binding for that specific taxpayer and transaction but may not be relied on as precedent by other taxpayers or the IRS.

Revenue Ruling

A revenue ruling is an official interpretation by the IRS of how the federal tax law applies to a specific set of facts. It may be relied on as precedent by other taxpayers and the IRS