R6M2: Professional Responsibilities and Tax Return Preparer Penalties
after investigation of professional misconduct by the state board, the state board can conduct a formal hearing for possible disciplinary action. the board must provide what level of proof that the accountant's actions constituted professional misconduct?
"more likely than not" (not "beyond a reasonable doubt" in criminal cases with the IRS)
Tax preparer penalty for: Failure to furnish identification number of preparer
$50 for each such failure (maximum penalty of $25,500 per calendar year).
Tax preparer penalty for: Failure to sign return
$50 for each such failure (maximum penalty of $25,500 per calendar year).
Tax preparer penalty for: Failure to be diligent in determining a client's eligibility for the Earned Income Credit
$510/per failure
what are some reasons that the SEC may use to censure, suspend, or permanently revoke an account's right to practice before the SEC?
(1) the accountant lacks qualifications, (2) the accountant lacks character or integrity, (3) the accountant acted unethically or unprofessionally, (4) the accountant was convicted of a felony or misdemeanor involving moral turpitude, (5) the accountant's license to practice was suspended or revoked by a state board
on which grounds, may the Joint Trial Board impose sanctions on members of the AICPA?
- Violation of the bylaws or any rule of the Code of Conduct. - Declaration by a court of having committed fraud. - Determination by the Joint Trial Board of guilt for any act discreditable to the profession, or conviction of a criminal offense that tends to discredit the profession. - Declaration by a court that the CPA is insane or incompetent. - Suspension or revocation of a member' s license to practice public accounting as a disciplinary measure by a government authority. - Failure to cooperate with any Professional Ethics Division disciplinary investigation. - Failure to comply with educational and remedial or corrective action determined to be necessary by the Professional Ethics Executive Committee within 30 days.
what type of penalty may the AICPA impose on a CPA?
- sanction members. - suspend or terminate "membership" for failure to pay dues or comply with membership retention requirements.
Tax preparer penalty for: Aiding and abetting understatement of tax liability
- this penalty applies to ANY person (not just the preparer). - IRS has the burden of proof (because its a criminal action). - penalty applies whether or not the understatement is with the knowledge or concent of the persons authorized or require to file the return or other doc(s). civil penalty = $1,000 on any person ($10,000 for corporations)
what are the characteristics of "willful or reckless" conduct?
- willful attempt to understate the tax liability, or - reckless or intentional disregard of tax rules and regulations in spite of his signed declaration on the return. (willful, reckless, intentional disregard)
a position is deemed unreasonable UNLESS:
1. Disclosed position & "reasonable basis" (>20%). 2. No disclosure & "substantial authority" (33-50%). 3. tax shelter or reportable transactions position exists & more-likely-than-not (>50%) "A position is unreasonable if there is not substantial authority for it. There is an exception to this rule if the position was disclosed and there is a reasonable basis for it."
who is not considered to be a tax preparer?
1. Merely furnish typing, reproducing or other mechanical assistance. 2. preparers a return for refund of the employer (or of an officer or employee of the employer). 3. preparers as a fiduciary (trustee, executor, etc.) a return or claim for refund for any other person
what are the 5 different type of penalties that a state board of accountancy may impose for professional misconduct?
1. Suspension or REVOCATION of license. 2. A monetary fine. 3. A reprimand or censure. 4. Probation. 5. Requirement for continuing professional education( CPE) courses (No jail time, only the actual state may prosecute you)
when is a penalty imposed on a tax preparer for an "unreasonable position" taken on a tax return?
1. a position is taken on the tax return and understates the tax liability if there is no reasonable belief that the position would be sustainable based on its merit; 2. the preparer had knowledge or should have known about the unreasonable position; 3. disclosure of the position was not made; and 4. the position lacks reasonable basis (< 20%).
when may a tax preparer disclose client information?
1. court order. 2. preparation of state and local tax returns and preparation of declaration of estimated tax). 3. quality and peer reviews and administrative orders. 4. consent of the client (may not disclose information in order to comply with an SEC requested audit)
what are the three broad categories of misconduct?
1. misconduct while performing accounting services (negligence, fraud, dishonesty). 2. misconduct outside the scope of the accounting services (intoxication, insanity). 3. criminal conviction (felony, failure to file returns, crimes relating to the practice of accounting)
when may the AICPA suspend or terminate a member WITHOUT a hearing?
1. proof of CONVICTION of a crime punishable by imprisonment for more than 1 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. 4. suspension or revocation of a member's license to practice public accounting as a disciplinary measure by a government authority.
the Professional Ethics Division of the AICPA investigates potential disciplinary matters and refers appropriate cases to the Joint Trial Board, which can expel a member by ____ vote.
2/3 (not majority vote)
what is the penalty for UNDERSTATEMENT due to "unreasonable position" (ordinary negligence)?
= GREATER of: (1) $1,000 or 50% of the income the preparer received for tax return preparation services.
what is the penalty for UNDERSTATEMENT due to willful or reckless conduct (fraud)?
= GREATER of: (1) $5,000 or 50% of the income the preparer received for tax return preparation services.
Tax preparer penalty for: Failure to provide copy to taxpayer
A preparer is required to provide to the taxpayer (client) a copy of the tax return or a copy of the refund claim no later than the time the preparer gives the taxpayer the completed return or claim. The penalty does not apply to the extent the failure is due to reasonable cause and not due to willful neglect and is: $50 for each such failure (maximum penalty of $25,500 per calendar year).
Tax preparer penalty for: Wrongful disclosure and/or use of tax return information
A tax return preparer who discloses or uses information for any purpose other than to prepare a tax return shall pay a CIVIL PENALTY of $250 per disclosure/use with a maximum annual penalty = $10,000 AND be guilty of a misdemeanor and FINED <or= $1,000 and/or be imprisoned for not more than one year, together with the costs of prosecution. (Note that a client may also bring civil suit against the tax preparer.)
Tax preparer penalty for: Failure to file correct information returns
Any person who employed a tax return preparer at any time during that return period must file an information return with the IRS by July 31 immediately following the end of the return period, containing: the name, taxpayer identification number, and place of work of each tax return preparer so employed by that person. $50 for each such failure (maximum penalty of $25,500 per calendar year).
nonsigning tax return preparer
Any tax return preparer who is not a signing tax return preparer but who prepares all or a SUBSTANTIAL PORTION of a return or claim for refund or offers advice (written or oral) to a taxpayer (or to another tax return preparer) when that advice leads to a position or entry that constitutes a substantial portion of the return.
IRS disciplinary actions: IRS imposes criminal penalties for any person, including a tax return preparer, who counsels or prepares a tax return in a fraudulent or false manner with regard to any material matter. what are the criminal and civil penalties that may be imposed?
CRIMINAL PENALTIES: - felony. - imprisoned <or= 3 years, and/or - fined <or= $100,000 ($500,000 for corporations) CIVIL PENALTIES: - prohibit an accountant from practicing before the IRS. - impose fines. ADDITIONAL: malpractice suit by the taxpayer (client)
signing tax return preparer
The individual tax return preparer who has the PRIMARY RESPONSIBILITY for the overall substantive accuracy of the preparation of such return or claim for refund.
Tax preparer penalty for: Failure to properly retain records
The tax return preparer is required to keep, for the three years following the last day of the return period, either: a copy of the return or claim or a listing of the name and ID of each taxpayer for whom the preparer prepared a return or claim. $50 for each such failure (maximum penalty of $25,500 per calendar year).
what is a tax return preparer?
any person who prepares for COMPENSATION, or who employs one or more persons to prepare for compensation, any tax return required under the IRC, or any claim for refund of tax imposed by the IRC.
Tax preparer penalty for: Negotiation of IRS refund check
any tax return preparer who endorses or otherwise negotiates an IRS refund check issued to a taxpayer other than the tax return preparer shall pay a penalty. the rule does NOT apply to banks if the bank deposits into the taxpayer's account at such bank the full amount of the IRS refund check $510/per check
reportable transactions
any transaction with respect to which information is required to be included with a return or statement because such transaction is of a type that has a potential for either tax avoidance (the legal reduction in the amount of tax due) or tax evasion (illegal means and methods to not pay taxes).
SEC displinary actions: the SEC may censure, suspend, or permanently revoke an accountant' s right to practice before the SEC, including the right to sign documents required by the Securities Act of 1933 and the Securities Exchange Act of 1934. what are the penalties?
fines <or= $100,000 ($500,000 for a firm). and SEC may issue cease and desist orders
generally, a preparer is NOT required to obtain supporting documentation. what is the exception to this rule
if the preparer has reason to suspect the accuracy (incorrect or incomplete) of the information provided by the client, then the preparer must make reasonable inquiries
negligence
includes any failure to make a REASONABLE ATTEMPT to comply with the provisions of the internal revenue laws or to exercise ordinary and reasonable care in the preparation of a tax return. also includes any failure by the taxpayer to keep adequate books and records or to substantiate items properly
reasonable basis
is a relatively high standard of tax reporting; this standard is significantly higher than not frivolous or not patently improper (>20%)
substantial authority standard
is an objective standard involving an analysis of the law and application of the law to relevant facts (33-50%)
listed transaction
means a reportable transaction which is the same as, or substantially similar to, a transaction specifically identified as a tax avoidance transaction
more-likely-than-not standard
met when there is a greater than 50 percent likelihood of a tax position being upheld by the courts (>50%)
is a CPA subject to a penalty for errors in calculating a tax liability?
no, there is not penalty for mistakes/errors if the CPA acted in good faith.
may the AICPA and state CPA societies suspend and/or revoke a CPA's license?
no, this is the job of the state board of accountancy
if CPA Firm #1 buys CPA Firm #2's tax practice, is CPA Firm #2 allowed to handover their client's information?
no, unless the client consents. note that CPA Firm #2 may show information (e.g., to show CPA Firm #1 how well #2 performed) but the client's information must be removed.
Joint Ethics Enforcement Program (JEEP)
objective is the promotion of uniformity in the code of conduct of the AICPA and state CPA societies and uniformity in enforcement and implementation of the codes of conduct
does a tax preparer or a tax practioner need to have a license?
only a tax practitioner needs to have a license. therefore, a tax practitioner may also be a tax preparer, however, a tax preparer may not be a tax practitioner (because a tax preparer does not need a license) (memory aid: I was able to get a PTIN without having a CPA. Also, someone who has a "practice" will have a license practice = practitioner))
under which circumstances may PTIN holders, who do NOT have a professional credential (license) and do NOT participate in the annual filing season program, represent clients before the IRS?
only regarding returns they prepared and filed December 31, 2015 or prior (anything afterwards is not allowed)
when does the taxpayer have "burden of proof"? IRS?
taxpayer = civil action (needs to establish "preponderance of evidence" (>50%) that the law and evidence do NOT support the position of the IRS). IRS = criminal action (needs to establish "beyond a reasonable doubt" that the taxpayer is guilty)
who can suspend or revoke a CPA's license?
the state board of accountancy
