Test 1 - Tax
What are some of the potential pitfalls in the first step of the tax research process
1) Client will omit info that is vital 2) in some cases facts that initially may seem irrelevant may be important 3)Researcher must be aware of non-tax considerations that are pertinent to clients situations
The tax researcher must find the facts as the first step in tax research. Give examples of the kind of information that a tax practitioner might want to obtain.
1) Clients tax entity 2) family status 3) past, present, and projected marginal rates 4) clients place of legal domicile & citizenship 5) motivation for the transaction 6) relationships among client and other parties who are involved in the transaction 7) whether special tax rules apply
Under the Confidential Client Information Rule of the AICPA Code of Professional Conduct, a CPA in public practice must not disclose confidential client data without the specific consent of the client. Under what conditions might a disclosure of confidential information without the client s consent be appropriate?
1) Conflicts with the compliance with standards rule or accounting principle rule 2) enforced via subpoena or summons 3) under review, inquiry, or investigation by AICPA, state society authorization, or disciplinary body of a recognized society
According to SSTS No. 2, a tax return should be signed by a member only after reasonable effort has been made to answer all questions on the return that apply to the taxpayer. What are some of the reasonable grounds under which a member may sign a return as the preparer even though some of the pertinent questions remain unanswered?
1) Data is not readily available and is not significant to taxable income or liability 2) taxpayer or member are uncertain as to the meaning of the question 3) answer to the question is too lengthy. should be assurance on the return that the data can be supplied upon examination
What are the six basic steps in conducting tax research? Briefly discuss each step in the tax research process
1) Establish the Facts 2)Identify the Issues 3)Locate Authority 4)Evaluate Authority 5) Develop Conclusions & Recommendations 6) Communicate Recommendations
A CPA in public practice must meet certain general standards under § 1.300.001 (the General Standards Rule). Discuss the four general standards of this rule.
1) Professional Competence 2) Due Professional Care 3) Planning & Supervision 4) Sufficient Relevant Data
Regular full-time employees are allowed to represent certain organizations before the IRS without being a Circular 230 practitioner. Name the organizations that can be represented by full-time employees, and cite where you found that authority in Circular 230.
1. Representing a member of their immediate family 2. regular full-time employee 3. represent any individual or org outside of US
Should prevailing interest rates bear on tax decision making in either or both of the following situations? a. The taxpayer is contemplating litigation in either the Tax Court or the Court of Federal Claims. b. An understatement of estimated tax payments is discovered late in the tax year.
1A) shouldn't take into account interest rates in this case because interest rates are always higher for the underpayment of taxes than the interest on a bank account 1B) interest will only continue to go up so the taxpayer should be quickly
Identify and briefly describe the two major types of tax research issues.
A) Fact Issues: info having an objective reality such as the date of transactions, amounts involved, intent, and purpose B) Law Issues: facts are well established but not clear because of a conflict among code sections because of uncertainty
What is deemed to be substantial authority under the IRC § 6662 regulations? Why is this important?
A) IRC B) Regulations C)Revenue Rulings & Procedures D)Tax Treaties E)Court Cases F)Congressional Committee Reports G)Blue Book H)Private Letter Rulings I)Technical Advice Memo J)General Counsel Memo K)IRS info and Press Releases
What specific tax-related situations may result in a conflict of interest for members in public practice under the Integrity and Objectivity Rule of the AICPA Code of Professional Conduct?
A) Providing tax or personal financial services to family members who have opposing interest, B) Referring a personal financial planning or a tax client to an insurance agent or other service provider, which refers clients to the member under an exclusive arrangement
CPAs must follow the rules of Circular 230. In addition, CPAs in tax practice are subject to two other sets of ethical rules. Give the name and the issuer of both these sets of rules.
AICPA Code of Professional Conduct & AICPA Statement on Standards for Tax Services (SSTS)
Briefly list and discuss the general writing tips introduced in the chapter
Be organized consider the reader be professional and courteous use correct grammar be brief write in direct active voice
What is joint and several liability?
Joint- both parties responsible for the full amount Several- only responsible for their portion
What are the rules for equitable relief?
Marital status Economic hardship Knowledge of the underpayment Legal obligations of the non-requesting spouse Benefits for the requesting spouse Compliance with income tax laws
In the tax research process, the researcher has an obligation to the client to evaluate authority. Do the precedents in all tax authority carry the same value? Explain.
NO. Researcher must evaluate authorities and decide which recommendation to make. Admin regulations carry more value than letter rulings. Different level of courts also carry different value
Tax planning falls into two major categories, the open transaction and the closed transaction. Discuss each type of transaction and describe how each affects tax planning.
Open Trans- no complete. provides ability to plan the open trans in a way that will minimize tax liability once closed Closed Trans- completed. info needs to be reported accurately & completely
What is tax planning? Explain the difference between tax evasion and tax avoidance and the role of each in professional tax planning
Process of arranging one's financial affairs to minimize any tax liability. Tax evasion constitutes illegal nonpayment of tax. Tax Avoidance is okay as long as taxpayer remains within legal bounds
Identify the major elements of a client letter and briefly discuss the difference between a letter to a sophisticated client and to an unsophisticated client.
Salutation Scope of Research General Summary Statement of Facts Summary of critical sources of law Implications of Results Assumptions and Limitations Closing difference: degree of sophistication that is possessed by the receiving party
Primary tax authority can be classified as statutory, administrative, or judicial. Briefly describe each
Statutory: Constitution, IRC, tax treaties. presumption of correctness. Admin: Federal tax law. subject to taxpayer challenge. Regulations, Rulings, Revenue Procedures Judicial: federal court decision that have the force of the statue in constructing the federal law.
List and discuss the primary parts of a tax research memo
Summary of Facts Summary of Issues Conclusion A List of Authorities relied upon Analysis & Summary
The elements of tax practice fall into what major categories in addition to tax research?
Tax Compliance, Tax Planning, Tax Litigation
What is tax compliance as practiced in the United States? Give several examples of activities that can be classified as tax compliance.
Tax Prep and Tax Filing. Client Representation if the IRS decides to audit them
Several groups of individuals do most of the tax compliance work in the United States. Identify these groups and briefly describe the kind of work that each group does. In this regard, be sure to define the term enrolled agent
Tax Preparers, Enrolled Agents, Attorneys, CPAs. Enrolled Agent either passed IRS exam or worked for IRS >5 years. CPA, attorneys, and enrolled agents usual prepare more complex returns
What are the two chief tax research skills, as identified in this text? Explain the importance of each basic skill.
The first is the ability to use certain mechanical skills to identify and locate tax authorities. Gained through knowledge and experience. the second is a combination or creativity and reasoning. Creativity is to explore the relevant relationship among circumstances and problems at hand and to find solutions.
Who issues Circular 230? Which tax practitioners are regulated by it?
Treasury Department issues Circular 230. Attorneys, CPAs, Ea, enrolled actuaries, enrolled retirement plan agents and registered tax return preparers
May a tax practitioner who is a CPA form a CPA partnership with a former IRS agent who is also a CPA? What limits (if any) would be placed on such a partnership
Yes, but the former IRS agent may not represent any client that assigned to the former IRS agent in the past
It has been said that the tax research process is more circular than linear. Do you agree with this statement? Explain your answer.
Yes, fact generates issue that may turn into answer and it may cause new issue
Briefly discuss the three ways that a spouse can request relief from joint and several liability.
a. Request "Innocent Spouse" relief under § 6015(b): The requesting spouse must show / prove that a joint return has been filed, there is an understatement of tax attributable to the erroneous items of one individual filing the joint return, that the other individual didn't know or have reason to know there was an understatement and it is inequitable to hold the other person liable for the deficiency. b. Request and allocation of liability between spouses under § 6015(c) and § 6015(d): This relief is made available § 6015 (c) provides relief if taxpayers are no longer married, non-requesting spouse is dead, are separated from the date of filing the return, or are not living together. The requesting spouse has the burden of showing the deficiency attributable to him or her. § 6015 (d) allows apportionment of taxes as if no joint return was filed and each taxpayer will be responsible for his or her respective taxes. c. Request equitable relief under § 6015(f): Based on facts and circumstances IRS grants relief to taxpayers to whom relief was not available under § 6015 (b) or (c). In addition to understatement, § 6015(f) provides relief from under payment of tax as well. The innocent spouse can be relieved of all the year's liability or a pro rata percentage, as decided appropriate by the IRS
Define tax research. Briefly describe the tax research process
analyze and determine answers to tax problems Step 1: Identify issues Step 2: Determine authorities relating to issues Step 3: Evaluate authorities Step 4: Apply specific fact specific from authority
What is a research memo designed to do?
analyze facts, issues & conclusions facilitate a review of the research activities by the supervisors allow for examinationation of the issue by original researcher or by sucessor
May Circular 230 practitioners advertise on television? On the Internet? If so, what standards are applied to the advertisements?
as long as its not misleading, false, or deceptive there are no essentially no restrictions on the type of advertisement (1.600.001)
What are the purpose(s) of tax research?
assist in finding solution to tax problems
Is a tax practitioner required to adhere to the best-practices standard under Circular 230 § 10.33? Explain
clients should be provided with the highest quality representation regarding tax issues. includes clear communication, establishment of facts and determination and evaluation of pertinent facts, advising clients on the the importance of the conclusions and acting with integrity while practicing before the IRS
Tax practitioners use the term tax service regularly. What is a tax service?
coordinated set of the source material that classifies the tax authority.
In tax litigation, what is usually the role of a certified public accountant
handle initial research, preparation, and filing of tax docs. CPA may assist in a support role during resolution of legal dispute
Discuss some of the key points that the tax researcher must consider with respect to evaluating court cases as part of a research project.
hierarchy of the court, similarity of the fact situation and the date of the court decisions. in addition relevant info may be discovered in dissenting and concurring opinions in a court case
A practitioner cannot give written advice under Circular 230 § 10.37 in which situations
if he or she relies on erroneous, insufficient, or varying information related to the matter in question. This includes "unreasonable reliance on representations, statements, findings, or agreements" is important to note that matters being addressed during an educational presentation or as a government submission is not regarded as written advice related to Circular 230 § 10.37 Moreover, a practitioner cannot depend on the advice of other practitioners to provide written advice related to Circular 230 § 10.37 if the practitioner providing the advice is: · Unreliable · Incompetent · Unqualified · Conflicted To ensure practitioners adhere to standards pertaining to Circular 230 § 10.37, there are professional standards in place for IRS compliance.
What is the purpose of citing relevant authority in research memos?
letting reader know that your analysis are supported by law, regulations, rulings, etc.
Give some examples of why gathering pertinent facts can be a challenging task for tax researchers
likely to be incomplete due to taxpayers only seeing the issue from their side so that facts may be hidden or forgotten.
What is collateral estoppel? How does it affect tax research and planning
limits ones judicial exposure related to a disputed item to one series of court hearings. can present hardship for taxpayer who wishes to raise additional issues during the course of a judicial proceeding
What threshold does SSTS No. 1 provide for a tax practitioner regarding tax return positions? Could disclosure of the position influence that threshold
mandates a practitioner to prepare or sign a tax return only if it has a reasonable basis and a certain possibility of success. If another taxing authority has a lower standard then, use standard 1. Disclosure will not influence the threshold since it is the tax practitioners responsibility to disclose the position a taxpayer will make
Step 5 in the tax research process is concerned with reaching a conclusion or making a recommendation. If one has not found a clear answer to a tax research problem, how is a conclusion or recommendation to be reached
must use professional judgment as to the proper conveyance of the research results to the client. The client might be informed of the alternative possible outcomes of the disputed transaction and the best recommendation
Tax law provisions tend to change over time. Explain how this might affect tax research and planning.
pertinent facts or laws may be subject to changes that will cause different conclusions an recommendations depending on the tax year.
What is tax litigation? What type of tax practitioner typically handles tax litigation on a taxpayer s behalf?
process of settling a dispute between taxpayer & taxing entity.
You are preparing for an audit with an IRS agent for an important client. Your research has uncovered several favorable rulings and court decisions. What are the key points that should guide you in evaluating sources of the law
recency of court decision hierarchy of the court decision hierarchy of admin ruling
Discuss some of the key points that the tax researcher must consider with respect to evaluating administrative sources of law as part of a research project
the hierarchy of the admin sources of law particulary with regards to revenue rulings and revenue procedures compared to regulations
What are the statutes of limitations for the IRS and taxpayers? Why did Congress create them? When can they be shortened, extended, or suspended
time period all taxes must be assessed and collected and all refund claims must be made. congress created rules because of the right to be free of state claims must prevail over the governments to pursue them. extended beyond 3 years if there is substantial omission of income 6 years or fraud indefinitely. can be shortened 18 months. suspend- 150 days
Describe an online tax research system. What are the primary advantages of such a system
updated frequently & connects associated documents so the user need not use multiple print sources
When must a member tax practitioner follow SSTS when preparing or signing a return?
when one suspects that info provided by the client appears to be incorrect, incomplete, or inconsistent. should obtain additional information from the client. should also determine if the conditions for required statues are met
Specific items of tax authority have different values in helping the tax researcher to solve his or her problem. Explain this statement and describe how it applies to the tax research process
while evaluating the tax authority, there will often be unnoticed problems or conflicts that can arise. These new issues may require additional info and comparisons between values