Chapter 1 - Preparing Returns

What is the preparer penalty for unauthorized disclosure of or use of a taxpayer's information?

$250 for each disclosure, up to an annual maximum of $10,000

What is the penalty for failure to retain a copy of the return or a list with the name and ID number of taxpayers for whom returns have been filed?

$50 for each occurrence up to a maximum of $25,500/year

What is the penalty for a preparer who fails to sign a return for which he is required to sign?

$50 per incident up to a maximum of $25,500. Unless it is shown that such failure is due to reasonable cause and not due to willful neglect.

What is the penalty for a tax return preparer endorsing or otherwise negotiating a client's return check?

$510 per check

Penalty for not doing due diligence with regards to the EIC

$510 per incident

Which of the following current-year and timely completed tax returns can be e-filed?

1) A joint return where both taxpayers have a SSN. 2) A joint return where one spouse has a SSN and one spouse has an ITIN. 3) A return for a taxpayer who has adopted a child that has an ATIN, but who could not be provided with a SSN in time to file.

The four checklist sections of Form 8867 are:

1) All Taxpayers 2) Taxpayers with a Child 3) Taxpayers without a Qualifying Child 4) Due Diligence Requirements

What are the steps a preparer must to when completing an EIC return

1) Ask all the questions required on Form 8867, Paid Preparers' Earned Income Credit Checklist 2) Ask additional questions when information seems incorrect, inconsistent or incomplete. 3) The preparer must verify identity 4) Prepare an EIC computational checklist (Form 8867 or equivalent) 5) Meet a record keeping requirement.

Failures under Section 6695 include the following:

1) Failure to furnish a copy of return to taxpayer 2)Failure to sign return 3)Failure to furnish identifying number 4)Failure to retain copy or list 5) Failure to file correct information returns

What does it mean to take a "Reasonable Position"

1) To be reasonable there must be "substantial authority" for the position 2) Disclosed Position, there needs to be a reasonable basis for the treatment of such an item on the return

How many returns are you allowed to paper file before HAVING to e-file

10, if you file 11 or more returns, you need to e-file.

If an electronically filed return is rejected, how long does the preparer have to notify the client?

24 hours

How long must a preparer keep records relating to the EIC credit?

A return preparer must keep records for returns or claims which involve Earned Income Tax Credit for 3 years following the June 30th after the completion of the return or claim. These records must include Form 8867 and the EIC worksheets or equivalents.

What does an Electronic Return Originator (ERO) do?

An ERO electronically submits returns it collects from or prepares for taxpayers.

When filing a return electronically, who's signature is required?

Both the taxpayers and the preparer

What is the penalty for unreasonable positions shown on a return?

For unreasonable positions, the penalty is $1,000 or 50% of preparer's fee, whichever is greater.

What is the penalty for willful or reckless conduct on a return?

For willful or reckless conduct the penalty is $5,000 or 75% of preparer's fee, whichever is greater.

What form should a taxpayer fill out if their social security number becomes compromised?

Form 14039, Identity Theft Affidavit. Fax or mail completed form to the IRS according to the instructions.

What is Form 8453

Form 8453, U.S. Individual Income Tax Transmittal for an IRS e-file Return does not require anyone's signature. Form must be kept until the end of the calendar year in which the associated return was filed.

Which of the following forms provides questions for a tax preparer completing an Earned Income Tax Credit (EITC) claim?

Form 8867

If an ERO did not use the Practitioner PIN method. And his client will enter his own PIN. Does a Form 8879 need to be completed?

If the ERO is not using the Practitioner PIN method and the taxpayer enters his or her own PIN, then a Form 8879 does not need to be completed.

What is Form 4852 used for?

If the taxpayer is unable to secure and provide a correct Form W-2, W-2G, or 1099-R, the ERO may electronically file the return after the taxpayer completes Form 4852, Substitute for Form W-2, Wage and Tax Statement, in accordance with the use of that form. If Form 4852 is used, the non-standard W-2 indicator must be included in the record, and the ERO must maintain Form 4852 in the same manner required for Forms W-2, W-2G and 1099-R.

When must a tax preparer mail From 8453 to the IRS?

If you are an ERO, you must mail Form 8453 to the IRS within 3 business days after receiving acknowledgement that the IRS has accepted the electronically filed tax return.

When should you submit your application to become an Authorized IRS E-File Provider?

No later than 45 days prior to the date you intend to begin filing returns electronically.

When does a tax preparer have to furnish a complete copy of the return or claim to the taxpayer?

No later than the time it is presented for the taxpayer's signature.

Can a taxpayer amend an e-filed return to change his direct deposit selection or election?

No, it is not permitted. Once the IRS e-file return is accepted, information pertaining to the payment, such as the account information, payment date or amount, cannot be changed.

In general, for what period of time is a written consent to disclose taxpayer information effective?

One year from the date the taxpayer signs the consent.

A taxpayer who timely filed a return wants to claim a loss for worthless securities. Until when can he do so?

Seven years from the due date of the return.

What is the Declaration of a Taxpayer?

The Declaration of Taxpayer includes the taxpayer's declaration under penalties and perjury that the return is true, correct and complete, as well as the taxpayer's Consent to Discloser.

A tax return preparer must complete the paid preparer's area of the return if:

The individual was paid to prepare, assist in preparing, or review the tax return and has the primary responsibility for the overall accuracy of the preparation of the return.

More Likely than not

The standard is met when there is a more than 50% likelihood of the position being withheld

Can a client electronically sign the consent to use information?

Yes

What is the penalty for failure to use a PTIN?

a preparer is subject to a $50 penalty per instance, up to $25,500 per year.

How can a preparer contest a penalty imposed by IRC Sec 6694

by paying 15% of the penalty and then filing a claim for a refund. If the claim for a refund is denied, the tax preparer must commence a proceeding in district court within thirty days from the date of the denial.