CPA - Regulation

The IRS considers a full-time employee who is the bookkeeper of the company to be the tax return preparer for his or her company.

False

The IRS does not notify state authorities if a CPA is suspended from practicing before the IRS.

False IRS NOTIFIES STATE AUTHORITIES

A frivolous return is a return that is based solely on the taxpayer's desire to impede the collection of tax, not the omission of information necessary to determine the taxpayer's tax liability.

False IT OMITS INFORMATION

According to Treasury Department Circular 230, preparing less than all or substantially all of a tax return is practicing before the IRS.

False PREPARING ALL OR SUBSTANTIALLY ALL

The AICPA licenses accountants to use the designation "Certified Public Accountant."

False STATE BOARDS OF ACCOUNTANCY LICENSES

State CPA societies have authority to issue CPA licenses.

False STATE BOARDS OF ACCOUNTANCY LICENSES : CPA societies are voluntary, private entities that can admonish, suspend, or expel members.

A CPA must be disbarred from practice before the IRS for willful violations of any of the regulations contained in Circular 230.

False ANY PRACTITIONER

The confidentiality privilege given to nonattorney tax providers may be asserted to prevent disclosure of information to any regulatory body.

False EXTENDED TO CERTAIN NONATTORNEYS. THE PRIVILEGE MAY NOT BE ASSERTED

Each state board sends its most serious ethical infractions before the Joint Ethics Enforcement Program (JEEP).

False The Joint Ethics Enforcement Program (JEEP) is an AICPA and state society disciplinary mechanism. The AICPA and most state societies have agreements that permit referral of an ethics complaint either to the AICPA or to a state society. The AICPA handles matters of national concern, those involving two or more states, and those in litigation.

The SEC can only take action against an individual, not an accounting firm.

False The SEC may prohibit a firm from appearing before the SEC if it engages in unethical or improper professional conduct. Proceedings have prohibited not only individuals but also accounting firms from accepting SEC clients.

A practitioner must return a client's records on request, regardless of any fee dispute.

True

A tax return preparer may rely, if in good faith, upon information furnished by the taxpayer without having to obtain third-party verification.

True

Any tax return preparer who operates a check cashing agency that cashes, endorses, or negotiates tax refund checks for returns prepared is also subject to a penalty.

True

In providing written tax advice, a practitioner must base the advice on reasonable assumptions.

True

A portion of any return or claim for refund is deemed substantial UNLESS

a condition for unsubstantiality is satisfied

Persons who are tax return preparers (provide they are compensated) include the following:

-a person who provides information and advice to the taxpayer or other preparer so that completion of the return is a mechanical matter AND -a nonsigning tax return preparer who prepares all or substantially all of a return or claim for refund EXAMPLE: preparers who provide advice that constitutes a substantial portion of the return

Tax Return Preparer

-any person who prepares for compensation -any person who employs one or more persons to prepare for compensation ALL OR SUBSTANTIALLY ALL of any return of tax or claim for refund under the IRC

A penalty may be assessed on any preparer or (a) Any person who prepares and signs a tax return or claim for refund and the individual with overall supervisory responsibility for the advice given by the firm with respect to the return or claim. (b) Any person who prepares and signs a tax return or claim for refund. (c) Any member of a firm who gives advice (written or oral) to a taxpayer or to a preparer not associated with the same firm. (d) The individual with overall supervisory responsibility for the advice given by the firm with respect to the return or claim.

(a) Any person who prepares and signs a tax return or claim for refund and the individual with overall supervisory responsibility for the advice given by the firm with respect to the return or claim.

If a tax return preparer discloses taxpayer information without the taxpayer's consent, the preparer can incur a penalty of: i. A $250 fine per disclosure up to $10,000 per year ii. Up to 1 year in prison and up to a $1,000 fine iii. Up to 3 years in prison and up to a $250,000 fine iv. A fine of 50% of income to be derived from the taxpayer (a) I and II. (b) I, II, and IV. (c) II and IV. (d) I and III.

(a) I and II.

Which of the following statements is correct concerning a penalty for a tax return preparer who understates a taxpayer's liability? (a) No penalty is imposed if it is shown that there is reasonable cause for the understatement and the tax return preparer acted in good faith. (b) In general, the penalty does not apply unless the understatement of the tax liability is at least $10,000. (c) No penalty is imposed if the understatement of tax liability is related to a tax shelter and was properly disclosed, and if there was substantial authority for the position. (d) If there is a final judicial decision that there was no understatement of liability, the related tax preparer penalty paid earlier is not refundable.

(a) No penalty is imposed if it is shown that there is reasonable cause for the understatement and the tax return preparer acted in good faith.

A CPA prepares a client's tax return containing business travel expenses without inquiring about the existence of documentation for the expenses. Which statement best describes the consequence of the CPA's lack of inquiry? (a) The CPA may be assessed a tax return preparer penalty. (b) The CPA may be charged with preparing a fraudulent return. (c) The client will not owe an understatement penalty if the return is audited and the expenses disallowed. (d) The client will not be subject to a fraud penalty.

(a) The CPA may be assessed a tax return preparer penalty.

The Securities and Exchange Commission (SEC) may discipline accountants. Under its disciplinary powers, the SEC may suspend an accountant's right to practice before it. What is a basis for suspension? (a) Conviction of any misdemeanor. (b) Being subject to a temporary restraining order regarding securities practice. (c) Conviction of a felony. (d) Intentional or unintentional violation of SEC regulations.

(c) Conviction of a felony.

Starr, CPA, prepared and signed Cox's current-year federal income tax return. Cox informed Starr that Cox had paid doctors' bills of $20,000 although Cox actually had paid only $7,000 in doctors' bills during the year. Based on Cox's representations, Starr computed the medical expense deduction that resulted in an understatement of tax liability. Starr had no reason to doubt the accuracy of Cox's figures and did not ask Cox to submit documentation of the expenses claimed. Cox orally assured Starr that sufficient evidence of the expenses existed. In connection with the preparation of Cox's tax return, Starr is (a) Not liable to the IRS for any penalty but is liable to the IRS for interest on the underpayment of tax. (b) Liable to Cox for interest on the underpayment of tax. (c) Not liable to the IRS for any penalty or interest. (d) Liable to the IRS for negligently preparing the return.

(c) Not liable to the IRS for any penalty or interest.

A husband prepared his own tax return as married filing separately. His wife hired a CPA to prepare her tax return as married filing separately and asked the CPA not to disclose the information to anyone. The CPA was not retained by the husband for any tax work. The husband believed that his wife's tax return was negligently prepared and that he was financially harmed. He hired an attorney, without his wife's consent, to pursue a negligence claim against the CPA. The CPA hired an attorney to defend against the negligence claim. To which party, if any, may the CPA disclose the wife's tax return information without the wife's consent? (a) No one, because all disclosures must be made with the wife's consent. (b) The husband's attorney, for the evaluation of the negligence claim. (c) The CPA's attorney, for the evaluation of the negligence claim. (d) The husband, for the evaluation of the negligence claim.

(c) The CPA's attorney, for the evaluation of the negligence claim.

Which of the following situations describes a disclosure of tax information by an income tax preparer that would subject the preparer to a penalty? (a) Glade informed the proper federal officials of actions he mistakenly believed to be illegal. (b) In the course of preparing a return for Duck Company, Jan obtained information indicating the existence of illegal kickbacks. Jan gave the information to Bill, an auditor in her firm, who was performing a financial audit of the company. Bill confirmed illegal kickbacks were occurring and brought the information to the attention of Duck Company officers. (c) Les, a return preparer, obtained information from Tom while selling Tom life insurance. The information was identical to tax return information that had been furnished to him previously. Les discussed this information with Mary, his wife, who was not an employee of any of his businesses. (d) Ron died after furnishing tax return information to his tax return preparer. Ron's tax return preparer disclosed the information to Jerry, Ron's nephew, who is not the fiduciary of Ron's estate.

(d) Ron died after furnishing tax return information to his tax return preparer. Ron's tax return preparer disclosed the information to Jerry, Ron's nephew, who is not the fiduciary of Ron's estate.

Which of the following is not a tax return preparer? (a) The preparer of another return with entries directly related to a substantial portion of this second return. (b) Someone who employs one or more persons to prepare for compensation, other than for the employer, all or a substantial portion of any tax return under Title 26 of the Code. (c) Someone who prepares a substantial portion of a return or claim for refund under Title 26 of the Code. (d) Someone who prepares, as a fiduciary, a return or claim for refund for any person.

(d) Someone who prepares, as a fiduciary, a return or claim for refund for any person.

An unsubstantial portion is either:

-less than $10,000 OR -less than $400,000 AND also less than 20% of the gross income on the return or claim

Persons who are not tax return preparers include the following:

1. an employee who prepares a return for the employer 2. a fiduciary who prepares a return or refund claim for any person (the trust) 3. a person who prepares a refund claim in response to a notice of deficiency issued to another 4. a person who provides typing, reproducing, or other mechanical assistance 5. a person who gives an opinion about events that have not happened (planning)

Significant aspects of return preparation require:

1. making factual inquiries to ensure clients' accuracy and truthfulness AND 2. assessing the scenario and appropriately applying tax law to the facts