REG 1

Subpart A of Circular 230 sets forth rules governing authority to practice before the IRS. Most importantly, Section 10.3 provides that

"[a]ny certified public accountant who is not currently under suspension or disbarment from practice before the Internal Revenue Service may practice before the Internal Revenue Service by filing with the Internal Revenue Service a written declaration that he or she is currently qualified as a certified public accountant and is authorized to represent the party or parties."

A TRP, generally speaking, is...

"any person who prepares for compensation, or who employs one or more persons to prepare for compensation, all or a substantial portion of any return of tax or any claims for refund of tax" under the IRC

*Tax Return Standards* practitioners should not advise clients to take _______ positions on documents filed with the IRS

"frivolous"

The maximum civil fine per violation under Subsection 6694(a) is the greater of...

$1,000 or 50% of the income derived by the TRP with respect to the return.

*6694(b)* imposes harsher punishments for willful or reckless understatements. The penalty for a willful or reckless understatement is the greater of...

$5,000 or 75% of the income derived by the TRP with respect to the claim (per violation) Example—TRP fabricates deductions or ignores information provided by taxpayer

*Tax Return Standards* Section 10.34 instructs practitioners not to willfully, recklessly, or through gross incompetence sign a tax return or claim for refund that the practitioner knows or reasonably should know contains a position that:

(1) lacks a reasonable basis; (2) is an unreasonable position as defined by the Internal Revenue Code (Section 6694(a)(2)); or (3) is a willful attempt to understate the tax liability or a reckless or intentional disregard of IRC rules. Nor should a practitioner advise a client to take such unreasonable positions.

*Compliance procedures* Section 10.36 provides that practitioners who have or share principal authority and responsibility for overseeing a firm's tax practice may be sanctioned if they either:

(a) *willfully, recklessly, or through gross incompetence* fail to take reasonable steps to assure that the firm has adequate procedures in place to ensure that all members and employees are complying with Circular 230 or (b) *know or should know* that a member or employee is not complying with Circular 230, but through willfulness, recklessness, or gross incompetence fail to take prompt corrective action. **The obvious purpose of this provision is to prevent those officials at the top of an accounting firm from placing all the blame for inappropriate tax shelter or other activity on lower-ranking members of the firm. *The provision is an exception to Section 10.22's provision that allows a practitioner to rely on the work product of others if the practitioner used reasonable care in engaging, supervising, training, and evaluating them.*

*Reasonable Cause and Good Faith Defense (Section 6664)* No Section 6662 penalty is imposed if:

(a) there was "reasonable cause" for the underpayment and (b) the taxpayer acted with "good faith." **This defense obviously overlaps with the provision in Section 6662 that reduces an understatement where facts are disclosed and there is a reasonable basis for the tax treatment.

Licensing—To qualify to be licensed as a "certified public accountant," one must meet several requirements. In most states, three steps are the key and may be accomplished in any order:

1. *Education* - "BA + 30" (150 hours of college education, including a bachelor's degree); - Professional ethics course (required by many states); and - Continuing professional education—Once certification is gained, there are also continuing professional education requirements. 2. *Examination* - Pass the Uniform CPA exam 3. *Experience* - How long? One year of professional experience (but *at least 2,000 hours*). - In what areas? In accounting, attest, management advisory, financial advisory, tax or consulting areas and may be while working for any employer (accounting firm, corporation, government agency, etc.).

Roles of the AICPA:

1. *Professional Ethics Division* - investigates violations of AICPA code and sanctions minor cases 2. Joint Trial Board 3. Automatic explusion 4. Revocation of certificate 5. JEEP (Joint Ethics Enforcement Program)

*reasonable cause* standards of belief:

1. *Undisclosed position*—"Substantial authority" (≥40% chance of being sustained) 2. *Disclosed position*—"Reasonable basis" (≥20% chance of being sustained) 3. *Tax shelter position*—"More likely than not" (>50% chance)

*Aiding and Abetting the Understatement of Tax Liabilities*—TRPs and others can be liable under 26 U.S.C. 6701 for aiding and abetting an understatement of tax liability. In order to be liable, the TRP must:

1. Aid, assist, procure, or advise in preparation or presentation of any portion of any return or other document; 2. Know or have reason to know that it will be used in matters arising under tax law; and 3. Know that if the return or document is so used, an understatement of the tax liability of another person will result.

*Tax Evasion* To secure a conviction, the government must prove:

1. An affirmative act constituting an attempt to evade or defeat payment of a tax; 2. Willfulness; and 3. Existence of a tax deficiency.

One needs a CPA license to perform attest-related functions:

1. Any audit or other engagement to be performed in accordance with SAS (Statements on Auditing Standards) 2. Any review of a financial statement to be performed in accordance with SSARS (Statements on Standards on Accounting and Review Services) 3. Any examination of prospective financial information to be performed in accordance with SSAE (Statements on Standards for Attest Engagements) 4. Any engagement to be performed in accordance with the standards of the PCAOB

People are TRPs if they:

1. Are paid 2. To prepare, or retain employees to prepare, 3. A substantial portion 4. Of any federal tax return or refund claim.

Who may practice before the IRS? As long as they are not under suspension or disbarment:

1. Attorneys 2. CPAs 3. Enrolled agents 4. Enrolled actuaries (enrolled by the Joint Board for the Enrollment of Actuaries), but their practice is generally limited to issues related to qualified retirement plans 5. Enrolled retirement plan agents, but their practice is limited to issues related to employee plans and to IRS forms in the 5300 and 5500 series

*Other written advice* Section 10.37 provides that tax practitioners may give written advice if the practitioners:

1. Base the advice on reasonable factual and legal assumptions; 2. Reasonably consider all relevant facts and circumstances that the practitioners know or reasonably should know; 3. Use reasonable efforts to identify and ascertain relevant facts; 4. Do not rely on others' representations if to do so would be unreasonable; 5. Relate applicable law and authorities to facts; and 6. Do not take into account the possibility that a tax return will not be audited, that an issue will not be raised on audit, or that an issue will be settled.

*Automatic expulsion* from the AICPA without a hearing results when a member has been convicted or received an adverse judgment for:

1. Committing a felony; 2. Willfully failing to file a tax return; 3. Filing a fraudulent tax return on own or client's behalf; or 4. Aiding in preparing a fraudulent tax return for a client. 5. *Revocation of certificate by a state board* of accountancy also leads to automatic expulsion.

Best Practices—Section 10.33 sets forth best practices for tax advisers, including:

1. Communicating clearly with the client regarding the terms of the engagement, including the purpose, use, scope, and form of the advice 2. Establishing the facts, determining which facts are relevant, evaluating the reasonableness of assumptions or representations, relating the applicable law to the relevant facts, and arriving at a conclusion supported by the law and the facts 3. Advising the client regarding the import of the conclusions reached, including whether taxpayers may avoid accuracy-related penalties if they rely on the advice; 4. Acting fairly and with integrity when practicing before the IRS 5. Exercising any firm supervisory powers to ensure that firm employees act in accordance with best practices

*Penalties and Procedures* Section 10.51 lists numerous acts of incompetence or disreputable conduct that are sanctionable under Section 10.50, including:

1. Conviction of any crime under federal tax laws 2. Conviction of any crime involving dishonesty or breach of trust 3. Conviction of any state or federal felony that would render one unfit to practice before the IRS 4. Giving false or misleading information to tax officials 5. Soliciting employment in violation of Section 10.30 6. Willfully evading taxes 7. Being disbarred or suspended from practice as a CPA or an attorney; 8. Contemptuous conduct before the IRS

*Confidentiality*—Subject to obvious exceptions for court orders, peer reviews, and the like, 26 U.S.C. 6713 penalizes TRPs if they:

1. Disclose any information furnished to them in connection with preparation of a return, or 2. Use any such information for any purpose other than to prepare the return.

*Tax Evasion*—26 U.S.C. Section 7201 punishes tax evasion and is applied very broadly. This provision has been used to prosecute, among other wrongs:

1. Failure to file a return 2. Falsifying income 3. Falsifying amounts that reduce taxable income

Disclosure Provisions—Section 6695 punishes TRPs for, among other things:

1. Failure to furnish copy of return to taxpayer 2. Failure to sign return and show own identity 3. Failure to furnish identifying number to the IRS 4. Failure to keep a copy of the return 5. Failure to file correct information returns 6. Negotiation of check made out to the taxpayer (other than to deposit the full amount into the taxpayer's bank account) 7. Failure to be diligent in determining eligibility for the earned income tax credit and the child tax credit

*Contingent fees* The rest of Section 10.27 relates to contingent fees, providing that a practitioner *may not charge a contingent fee* for providing services before the IRS, with *three exceptions.* A contingent fee may be charged:

1. For services rendered in connection with an IRS examination or challenge to either (i) an original tax return or (ii) an amended return or claim for refund when they were filed within 120 days of receiving a written notice of examination or written challenge to the original exam 2. Where a claim for refund is filed solely in connection with determination of statutory interest or penalties 3. When the accountant is representing the client in judicial proceedings In these three situations, the threat that the tax practitioner and client will play the "audit lottery" (taking an aggressive position because it is unlikely that the Service will substantively examine it) is small.

Discipline—State boards may revoke CPA licenses and impose other penalties (such as fines) for such acts as:

1. Fraud or deceit in obtaining a certificate 2. Cancellation of a certificate in any other state for disciplinary reasons 3. Failure to comply with requirements for renewal 4. Revocation of the right to practice before any state or federal agency, including the PCAOB 5. Dishonesty, fraud, or gross negligence in performance of services or failure to file one's own income tax returns 6. Violation of professional standards 7. Conviction of a felony or any crime involving fraud or dishonesty

*Not a TRP*—People are not TRPs merely because they:

1. Furnish typing, reproducing, or other mechanical assistance 2. Prepare as a fiduciary a return or claim for refund or any person 3. Prepare taxes as part of a Volunteer Income Tax 4. Assistance (VITA) or a Low Income Tax Clinic (LITC) program, but only for returns prepared as part of that program 5. Prepare a return with no explicit or implicit agreement for compensation, even if the person receives an insubstantial gift, return service, or favor 6. Prepare a return or claim for refund of the employer (or of an officer or employee of the employer) by whom he or she is regularly and continuously employed

AICPA joint trial board (hint....what do they do?)

1. Hears more serious cases than the Professional Ethics Division 2. Has power to acquit, admonish, suspend, or expel 3. Initial decisions are made by a panel whose actions are reviewable by the full trial board, whose decisions are conclusive

*Substantial Portion*—The signing TRP is always responsible for a substantial portion of the return. But what about nonsigning TRPs? If Kahn (to return to our example) evaluates a corporate taxpayer's just-completed transaction and concludes that it entitles the taxpayer to take a large deduction, he has prepared a "substantial portion" unless the deduction involves either:

1. Less than $10,000, or 2. Less than $400,000, which is also less than 20% of the gross income indicated on the return.

*JEEP* Typically, the AICPA handles:

1. Matters of national concern 2. Matters involving more than one state 3. Matters in litigation **The individual states handle the rest.**

Abusive Tax Shelters—Section 6700 punishes TRPs and others who promote abusive tax shelters when they:

1. Organize or participate in the sale of a shelter; and 2. Either: A. Knowingly or recklessly make a materially false statement that affects tax liability, or B. Engage in a gross overvaluation (2X actual value) of property.

One does not need a CPA license to perform such nonattest services as:

1. Preparation of tax returns 2. Management advisory services (consulting) 3. Preparing financial statements without issuing a report thereon

Practice before the IRS includes all matters connected with a presentation to the IRS or any of its officers or employees related to a taxpayer's rights, privileges, or liabilities under laws or regulations administered by the IRS. These presentations include, but are not limited to:

1. Preparing documents 2. Filing documents 3. Corresponding and communicating with the IRS 4. Rendering written advice with regard to transactions having a potential for tax avoidance or evasion 5. Representing a client at conferences, hearings, and meetings

Notwithstanding the existence of a conflict of interest, however, practitioners may represent a client if they:

1. Reasonably believe that they can provide competent and diligent representation to the client; 2. The representation is not prohibited by law; and 3. The affected client gives informed consent in writing. Practitioners should keep the consents on file for at least three years.

examples of good faith:

1. Reliance on erroneous W-2, with no red flags to indicate its inaccuracy. 2. Reliance on erroneous advice of tax adviser where: - Adviser was given all facts and circumstances; - Advice was not based on unreasonable assumptions; and - If the advice was that a regulation was invalid, the position was *adequately disclosed.*

examples of reasonable cause:

1. Reliance on tax adviser and/or 2. Reliance on advice of IRS employee 3. Death or illness of taxpayer or close family member 4. Unavoidable destruction of records or place of business

reliance on erroneous advice of tax adviser example: A taxpayer, being unfamiliar with tax law, hired and followed the advice of a practicing attorney in the area. The attorney's advice was erroneous, and the court disallowed a business expense deduction. However, the court did not impose a penalty because the taxpayer was able to establish:

1. The adviser was a competent professional; 2. Taxpayer provided necessary and accurate information;and 3. Taxpayer actually relied in good faith on adviser's judgment. *Notice again the *important role that disclosure plays in this defense.*

The IRC imposes (in Section 6662) a 20% penalty on various types of underpayments, including: 1. Underpayments attributable to negligence or disregard of rules or regulations. 2. Any substantial *understatement* of income tax. An "understatement" in this category is reduced by the amount attributable to any item where:

1. The relevant facts affecting the tax treatment are *adequately disclosed* (typically on a Form 8275 or 8275R), and 2. There is a *"reasonable basis"* (≥20% chance of being sustained) for the tax treatment. **Disclosure is important here because *an undisclosed position must be supported by "substantial authority," which requires a ≥40% chance of being sustained.*

The IRC imposes (in Section 6662) a *20% penalty* on various types of underpayments, including:

1. Underpayments attributable to negligence or disregard of rules or regulations. 2. Any substantial understatement of income tax.

*Injunctions*—In addition to civil fines, Section 7407 authorizes the IRS to enjoin TRPs from violating the Internal Revenue Code. TRPs may be enjoined from:

1. Violating Section 6694 (understatement of tax liability) and 6695 (disclosure requirements); 2. Misrepresenting education or experience as a TRP, or eligibility to practice before the IRS; 3. Guaranteeing payment of any tax refund or allowance of any tax credit; or 4. Engaging in any other fraudulent or deceptive conduct that substantially interferes with the proper administration of tax laws.

Most criminal tax prosecutions are brought under Sections 7201 or 7206, but other criminal provisions include:

1. Willful failure to file a return, supply information, or pay a tax (Section 7203) 2. Willful failure to collect or pay over a tax (Section 7202) 3. Fraudulent returns, statements, or other documents (Section 7207) 4. Attempts to interfere with the administration of Internal Revenue laws, such as by threatening or misleading IRS agents (Section 7212) 5. Unauthorized disclosure of taxpayer information (with obvious exceptions for court orders, peer reviews, etc.) (Section 7213) 6. Willful disclosure or use of confidential information learned while preparing a tax return (Section 7216) 7. Conspiracy to commit any offense or fraud against the United States, including tax offenses (18 U.S.C. Section 371) 8. Aiding and abetting tax fraud (18 U.S.C. Section 2)

*Tax Fraud*—26 U.S.C. 7206 punishes fraud and false statements by TRPs and others, criminalizing (among other wrongs):

1. Willfully making and subscribing to any document made under penalty of perjury that the CPA does not believe to be true as to every material matter 2. Willfully aiding the preparation of any tax-related matter that is fraudulent as to any material matter 3. Removing or concealing a client's property with intent to defeat taxes

While the AICPA and state societies of CPAs cannot grant or take away CPA licenses, they can....

1. grant membership, 2. take away membership, and 3. punish members by suspensions, etc.

*Penalties and Procedures* Subpart C of Circular 230 sets forth the rules and penalties for disciplinary proceedings As a general notion, Circular 230 authorizes the IRS to punish any tax professional who is...

1. incompetent, 2. disreputable, 3. violates the Treasury Department's rules of practice or 4. with intent to defraud willfully and knowingly misleads or threatens the person being represented.

Circular 230 contains the IRS's rules of practice governing CPAs and others who practice before the agency. The government may censure, fine, suspend, or disbar tax advisors from practice before the IRS if they violate Circular 230's standards of conduct. "Practicing" entails...

1. primarily preparing and filing documents, and 2. communicating and meeting with IRS representatives on behalf of a taxpayer.

Substantive Provisions *Client's Omission* What if you learn that your client has not complied with the laws or made an error or omission on a tax return? Consistent with AICPA ethics guidelines, Section 10.21 requires the practitioner to...

1. promptly notify the client of the error and its potential consequences, 2. but the practitioner need not notify the IRS of the error and may not do so without the client's permission.

*return of client records* The rule specifies that the existence of a fee dispute does not change this obligation but recognizes that *if applicable state law permits retention in the case of a fee dispute,* the practitioner need return only those records that must be attached to the taxpayer's return. However, the rule further provides that the practitioner "must provide the client with reasonable access to review and copy any additional records of the client retained by the practitioner under state law that are necessary for the client to comply with his or her Federal tax obligations." The rule broadly defines "records of the client," but states that" [t]he term does not include any...

1. return, 2. claim for refund, 3. schedule, 4. affidavit, 5. appraisal or 5. other document prepared by the practitioner . . . if the practitioner is withholding such documents pending the client's performance of its contractual obligation to pay fees with respect to such document."

Assume Smith is preparing an income tax return for a client and brings in his partner, Kahn, who is an expert whose advice Smith uses to complete a major portion of the return. Smith signs the return. He is a __________________. Although Kahn contributed substantially to completion of the return, he did not sign it and is therefore a _______________________.

1. signing TRP 2. nonsigning TRP

*Conflicts of Interest* Section 10.29 provides that practitioners should not represent a client before the IRS if to do so would create a conflict of interest. Such a conflict exists if...

1. the representation of one client would be *adverse to that of another*, or 2. there is a significant risk that the representation of one client would be *materially limited* by the practitioner's responsibilities to another client.

*Penalties and Procedures* Section 10.50 empowers the IRS to impose a monetary penalty on practitioners who have violated practice rules. The maximum penalty equals...

100% of the gross income derived from the conduct and may be added to other penalties, such as suspensions and censures. It may also be added to the 50% penalty of gross income authorized by 26 U.S.C. Section 6694, meaning that the penalty could theoretically be up to 150% of the income derived from an engagement.

Section ______ of the IRC imposes civil penalties on TRPs for understatement of their clients' taxes.

6694

Tax practitioners tend to think of a position as having "no reasonable basis" if there is ________ chance of it being sustained if challenged.

<20%

Tax practitioners tend to think of "no substantial authority" as there being _____ chance of the position being sustained in challenged before the IRS.

<40%

*Check Negotiation* A practitioner who prepares tax returns may not endorse or otherwise negotiate any check issued to a client by the _______, according to Section 10.31.

IRS

rationale for AICPA automatic expulsion:

If a member has already been convicted or received an adverse judgment, then there has already been an opportunity for the member to have a full-blown criminal or civil trial. Consequently, it would be a waste of resources to have a second hearing, and summary punishment is justified.

Not a TRP example: Accountant Nguyen intends to electronically submit Company B's tax return on its behalf. However, Company B asks Nguyen whether it should treat a substantial number of its workers as employees or as independent contractors. Nguyen renders her advice and is paid for it. Nguyen then receives employment tax information from B and files B's return using that information. Here, Nguyen is a...

TRP, which she would not have been had she not rendered the advice but only transmitted the return electronically on B's behalf.

The AICPA has developed the _________________________ to provide states with a model to regulate CPAs. Most states have adopted some or all of the _____________, ensuring that most state rules for CPAs are identical or at least similar to AICPA rules. The rules of state societies of CPAs also, naturally, substantially follow AICPA rules.

Uniform Accountancy Act (UAA)

TRP example: Joe is the sole TRP of a partnership income return for the ABC Partnership. Tim is a partner, and the partnership revenue from ABC constitutes 80% of his income most years. Joe is...

a TRP regarding Tim's individual return.`

*Injunctions* These narrow injunctions for specific violations can pave the way for...

a broad injunction that bars people from serving as TRPs at all if they have continually or repeatedly violated these rules.

*Criminal Provisions*—The IRC also contains criminal provisions to punish TRPs and others for various tax-related wrongs. In a criminal case, the burden of proof is on the government to establish the crime beyond a reasonable doubt, whereas the burden of proof in civil cases is...

a mere preponderance of the evidence

Because disclosure calls the IRS's attention to the position and makes it clear that the taxpayer is not trying to "sneak" it by....

a more lenient standard is applied in determining "unreasonableness."

Practice before the IRS includes all matters connected with a presentation to the IRS or any of its officers or employees related to...

a taxpayer's 1. rights, 2. privileges, or 3. liabilities under laws or regulations administered by the IRS.

*Solicitation* Section 10.30 contains several limitations on solicitation of clients. Among others, false advertising is, of course, prohibited. But practitioners may publish...

accurate written schedules of fees and hourly rates.

"Substantial authority" (def)

an objective standard requiring that the weight of authorities supporting the claimed position is substantial in relation to the weight of authorities opposing it.

6694(b) *Good faith defense applies*—For example, the taxpayer might provide false information to the TRP which...

appears to be genuine and accurate.

Circular 230 & PCAOB overlap: PCAOB Remember that the PCAOB believes that a public company auditor is not independent from an audit client if it offers that client any services on a _______________________ basis

contingent fee

example Juan's tax preparer tells Juan that he can make a plausible claim to a particular deduction that will greatly reduce his taxes this year. A landmark case provides precedent for the claim, though the facts of the case are sufficiently different from Juan's that there's only a one-third chance that the position will be sustained. Juan and his TRP should...

disclose the position on Form 8275. Even if it is rejected, the 20% understatement penalty will not be incurred because there's more than a 20% chance of approval. Therefore, the amount of understatement will be reduced by the amount at stake in this deduction. Absent disclosure, the 20% penalty would have been applied once the deduction was rejected because it was not supported by substantial authority (≥40% chance of approval).

*Aiding and Abetting the Understatement of Tax Liabilities* Merely furnishing typing, reproducing, or other mechanical assistance with respect to a document...

does not constitute having aided and abetted the preparation of that document.

TRP substantial portion example: Sal prepares a schedule for Max's Form 1040, reporting $4,000 in dividend income, and gives written advice about Schedule A, which results in a claim of a medical expense deduction totaling $5,000. Sal....

does not sign the tax return, so she is not a signing TRP. Nor is she a nonsigning TRP, because the total amount of the deductions is less than $10,000.

good faith (def)

honesty of purpose (judged *subjectively*)

*Tax Return Standards* Practitioners may generally rely in good faith on information provided by their clients but may not...

ignore inconsistent information in their personal knowledge or other red flags that might appear.

Signing TRPs (def)

individual TRPs who bear "primary responsibility" for the overall accuracy of the return or claim for refund (Smith in our example).

If the position relates to a tax shelter, it is "unreasonable" unless....

it is more likely than not (MLTN) (>50% chance) that the position will be sustained.

*Practice by Former IRS Agents* The IRS is concerned about abuses by former IRS agents who might try to exploit their former position when they leave the Service. Therefore, Section 10.25 contains extensive rules meant to prevent conflicts of interest, such as IRS employees going into private practice and working on cases they had knowledge of when they worked for the government. For example, if IRS agent Fred worked on a matter involving taxpayer Stan within one year before he left the IRS, he could not...

join an accounting firm and represent Stan in that matter within two years of leaving the Service. Fred should not use his knowledge or influence in assisting or representing Stan in IRS proceedings during that two-year period.

*Notaries* A practitioner must not act as a notary public with respect to...

matters before the IRS in which he or she is involved or interested (Section 10.26).

TRP example: Assume that Company A has just completed a major transaction and hires attorney Al to provide legal advice that is directly relevant to a determination of a significant entry on Company A's tax return. If Al does not prepare any other portion of the return and is not the signing TRP, he would be considered a...

nonsigning TRP.

TRP substantial portion example: Kahn opines that the taxpayer may take a deduction of $300,000 on a return reflecting $26 million in gross income. Kahn would...

not be a nonsigning TRP because, although $300,000 is a lot of money in most settings, it is not a "substantial portion" of a return featuring $26 million in gross revenue.

*Assistance from the Disbarred* What if your former partner violated regulations and has been disbarred by the IRS? She still needs a job and wants to continue to do the same work as before, but have you sign off on everything since you are still in good standing. Section 10.24 provides that a practitioner should...

not knowingly accept *even indirect assistance* from any person disbarred or suspended from practice by the IRS

*Reciprocity*—Most states are now an active part of the "UAA Mobility" project supported by the AICPA and the National Association of State Boards of Accountancy (NASBA). When fully implemented, accountants from one state will be able to represent clients in another state without...

obtaining a license from or paying a fee to the latter state's accountancy board

If it is unclear who is responsible, the person with ________________________________ will be the TRP.

overall supervisory responsibility for the return or for the position

*Tax Return Standards* Practitioners must inform clients of penalties reasonably likely to be imposed with respect to...

positions taken.

*Competence* Practitioners must be competent, meaning that they...

possess "the appropriate level of knowledge, skill, thoroughness, and preparation necessary." Section 10.35 indicates that they may acquire competence by studying the relevant law or consulting with experts.

A ____________________ is required for an individual to represent a taxpayer before the IRS.

power of attorney (Form 2848)

When there are multiple people working on a return, the one who is _________________________________________ is the TRP punishable under these provisions.

primarily responsible for the position giving rise to an understatement

*Return of Client Records* What if you have fired the client, or the client has fired you? You still have the client's tax records, but perhaps the client has not paid you. You don't want to give the client's records back until you are paid. Section 10.28 instructs the practitioner to....

promptly return any and all records needed for the client to comply with federal tax obligations. The practitioner may keep a copy.

It is only __________ that can grant CPA licenses and only ___________ that can take them away.

state boards

Public accounting firms and their members are heavily regulated by the Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB). Among many other requirements, these agencies require accountants to have...

state-issued CPA licenses in order to be authorized to audit public companies.

*Delays* Practitioners may not unreasonably delay the prompt disposition of any matters before the Service. Stalling tactics are...

strongly discouraged by Section 10.23.

Reasonable cause defense—No penalty applies if....

the TRP had 1. "reasonable cause" (an objective standard) for the position and 2. acted in "good faith" (a subjective standard).

A TRP with respect to one return is not considered a TRP with respect to another return merely because entries on the first return affected the second return unless...

the entry reported on the first return is directly reflected on the second return and constitutes a substantial portion of it.

reasonable cause is...

the exercise of ordinary business care and prudence (judged *objectively*)

Substantive Provisions *Furnishing Information* A practitioner must promptly submit to the IRS any records or information that its agents and officers request properly and lawfully, "unless...

the practitioner believes in good faith and on reasonable grounds that the records or information are privileged." In other words, Section 10.20 requires prompt cooperation with all IRS requests for information.

*Due Diligence and Reliance on Others* Practitioners must exercise due diligence in all aspects of their tax practice, including preparing tax returns and making representations to the IRS. Section 10.22 allows a practitioner to rely on the work product of others, if...

the practitioner used *reasonable care* in 1. engaging, 2. supervising, 3. training, and 4. evaluating them, although Sections 10.34 and 10.37 contain a couple of slight limitations on this reliance.

*Aiding and Abetting the Understatement of Tax Liabilities* Liability can be imposed even if...

the taxpayer does not have knowledge of or consent to the understatement.

If a position is disclosed, then it is "unreasonable" if...

there is no reasonable basis for the position

An undisclosed position is "unreasonable" if...

there is no substantial authority (<40% chance of being sustained) for the position

Nonsigning TRPs (def)

those other than the signing TRP who prepare all or a substantial portion of a return or claim for refund (Kahn in our example).

*fees* No practitioner may charge an _________________ for representing a client before the IRS.

unconscionable fee

AICPA - *JEEP:* The AICPA and most state CPA societies have agreements to split the handling of ethics complaints. The JEEP can handle...

violations across state lines with a single investigation, hearing, and punishment.

*Injunctions* Section 7408 provides similar injunctive authority relating to...

wrongdoing in connection with tax shelters and reportable transactions.