Tax Research Test One

Enrolled Agent

the application of tax legislation to specific accounting situations.
-Compliance
-Planning
-Litigation

Gathering of pertinent information, evaluation and classification of such information, and the filing of necessary tax returns. Commercial tax preparers, EAs, attorneys, and CPAs all perform compliance.

The process of arranging one's financial affairs to optimize tax liabilities.
-Open Transactions
-Closed Transactions

Legit

Not Legit

Tax practitioner maintains some degree of control over the attendant tax liability because the transaction is not yet completed

All pertinent actions have been completed.

The process of arranging one's financial affairs to optimize tax liabilities.
-Open Transactions
-Closed Transactions

Legit

Not Legit

Tax practitioner maintains some degree of control over the attendant tax liability because the transaction is not yet completed

All pertinent actions have been completed.

1- Identification of pertinent issues
2- Determination of proper authorities
3- Evaluation of the appropriateness of these authorities
4- Application of these authorities to specific facts

All practitioners are regulated by it. CPAs, Attorneys, EAs, Enrolled Actuaries, and Appraisers before the IRS.

It constitutes Part 31 of the Treasury Department Regulations, is designed to provide protection to taxpayers and the IRS by requiring tax preparers to be technically competent and to adhere to ethical standards.

States who may conduct such a practice and sets forth the disciplinary procedures that apply.

American Bar Association. Model code of professional responsibility.

American Institute of Certified Public Accountants. Code of professional conduct.

matters connected with presentation to the IRS or any of its officers or employees relating to a client's rights, privileges, or liabilities under laws or regulations administered by the IRS.

Includes preparation and filing of necessary documents, correspondence with the communications to the IRS, and the representation of a client at conferences, hearings and meetings.

Does not include preparation of tax returns or the furnishing of information to the IRS in response to a request for such information.

Attorneys
CPAs
Enrolled Agents
Enrolled Actuaries

Not an attorney or CPA. has passed a special IRS examination, or worked for the IRS for five years. Procedures for becoming one in Circular 230. Same rights as attorneys and CPAs to represent clients, must renew his or her enrollment card on a three year cycle.

Can practice nationally.

Individuals with proper identification and authorization:
-member of his/her immediate family
-regular full time employee represent employer
-General partner or regular full time employee of partnership
Bona fide officer or regular full-time ee of corporation, an association or organized group may represent...
-Trustee, receiver, guardian, personal representative, administrator, executor, or regular full time employee of a trust, receivership, guardianship, or estate ....
-Officer or regular employee of a governmental unit, agency, or authority may represent in the course of his official duties
-an individual may represent any individual or entity before personnel of the IRS who are outside the US

if they signed tax return, limited practice (in examination division only)

-Must furnish requested information to IRS unless information is privileged or request is illegal.
-Must notify client of any noncompliance, error, or omission with regard to tax laws.
-Must not unreasonably delay matters before IRS
-Must not act as a notary public for clients
-Fees cannot be contingent or unconscionable
-Upon client request, must promptly return client records (Can keep a copy)
-Cannot represent conflicting interests without the express consent of parties

Must exercise due diligence in preparing tax returns and other documents submitted to IRS
-tax preparer must be honest with client in connection with all IRS-related matters.
-Failure to exercise due diligence involves conduct that is more than a simple error, but less than willful and reckless misconduct. IRS Coursebook Training, 994-102, Dec 1992.

Cannot be charged on original returns, can be charged on amended returns and refund claims.
Practitioner must reasonably anticipate, at the time of the fee arrangement, that the amended return will receive a substantive review by the IRS.

Okay as long as it is tasteful and not false or misleading

Aspirational

Tax return positions
Client advocates
-“More likely than not” standard
-Primary authority only
-If more likely than not standard is not met, can still take position as long as it is disclosed on tax return and is not frivolous.

•Communicate clearly with client about terms of engagement and scope of work to be done
•Establish relevant facts and evaluate the reasonableness of assumptions and representations
•Relate applicable law to the facts
•Generate conclusion supported by law and facts
•Advise client of conclusion reached
•Act fairly and with integrity before IRS

Strict requirements on tax-avoidance schemes

Reliance opinion is written advice that concludes at a confidence level of greater than 50% likelihood that one or more significant Federal tax issues would be resolved in the taxpayer's favor

Strict requirements on tax-avoidance schemes

Reliance opinion is written advice that concludes at a confidence level of greater than 50% likelihood that one or more significant Federal tax issues would be resolved in the taxpayer's favor

•Strict requirements on tax-avoidance schemes
•Must be reasonable
•Must rely on all relevant facts
•Must not play the “audit game”

•Applies to members of AICPA only
•Principles
oProvide a foundation for the rules
•Rules
oEnforceable ethical standards (suspension or expulsion from membership in AICPA)
oApply to member’s employees and partners as well
•Interpretations of Rules
oAdditional detailed guidelines of the Rules.
o Enforceable
• Ethics Rulings
o Explain the application and interpretation of the Rules
o Not enforceable, but member must explain departures.

•Applies to members of AICPA only
•Principles
oProvide a foundation for the rules
•Rules
oEnforceable ethical standards (suspension or expulsion from membership in AICPA)
oApply to member’s employees and partners as well
•Interpretations of Rules
oAdditional detailed guidelines of the Rules.
o Enforceable
• Ethics Rulings
o Explain the application and interpretation of the Rules
o Not enforceable, but member must explain departures.

oImpaired if CPA has
Any direct or material indirect financial interest in client’s enterprise
Joint-held material investment with client, shareholders, or officers
Loan to or from client, except for loans like mortgages, obtained in normal lending procedures
Is and officer, director or employee of client during the engagement
oApplies to CPA doing tax work if CPA’s partners do the audit work

Avoid conflict of interest
Do not knowingly misrepresent facts
May not subordinate judgment to others

Complete all professional services with competence
Exercise due professional care
Adequately plan and supervise
Obtain sufficient data to make reasonable decisions

Must comply with all standards

Must keep client information confidential unless
It conflicts with Rules 202 and 203,
CPA receives an enforceable subpoena or summons, or
AICPA or State society reviews CPA’s work

Examples: committing a felony, failure to return client records after client requests them, signing a false return

oNo false, misleading or deceptive advertising allowed.
oNo coercion, overreaching or harassing conduct allowed.
oExamples disallowed:
 Unjustified expectations of favorable results
Implied ability to influence court or regulatory agency
Unrealistic promised future fees

Cannot receive from a client for which the CPA or partner does audit, review or compilation work
If received or paid, it must be disclosed to the client or other party

Firm name cannot be misleading
Can only say “Members of AICPA” if all partners are members.

Statements on Standards for Tax Services.

CPA's responsibilities to his or her clients, the public, the govn't and the profession.
Enforcible.

Supplement rather than replace AICPA Code of Professional Conduct and Circular 230

Must comply with standards imposed by taxing authority

If no written standards from taxing authority – taxpayer advocates

-Realistic possibility of client’s position being upheld

-Can be based on other than primary authority

-If no realistic possibility, can still take position as long as it is disclosed on tax return and is not frivolous.

Must notify taxpayer of potential penalties

Self-assessed tax system works only if tax returns are true, correct, and complete

Must make reasonable effort to get answers from client. i.e., cannot simply leave answers blank because it is advantageous to client to do so.

Can leave answers blank if:
-Data is not readily available and not significant to calculating tax liability
-Genuine uncertainty of the answer
-Answer is voluminous (won’t always work)

May rely on information from client without verifying as long as it does not appear incorrect or incomplete
If tax law requires that certain conditions have been met, the CPA should confirm, by inquiry, that they have been
CPA should use last year’s tax return

Can use estimates if impractical to obtain exact data and estimates appear reasonable.

Estimated information must come from client, but CPA can provide advice about the estimate

Disclosure (on the return) may be necessary

Can’t indicate greater accuracy than exists

Can’t use estimates where tax law requires substantiation

CPA can prepare a return that departs as long as:

-Neither the IRS nor the taxpayer is bound to act consistently

-SSTS No 1 requirements are met

-Earlier treatment was taken because of a desire to settle or insufficient documentation

-Tax law has changed

Must notify client immediately, whether the CPA signed the return or not

Recommend appropriate measures

Insignificant items are not considered errors

Cannot notify IRS

Must take steps to ensure error is not repeated on current return

If CPA discovers error during an audit, CPA must ask client if it can be disclosed to IRS

If client does not give permission, CPA should consider withdrawing from engagement.

Exercise professional judgment and consider client’s needs

Must consider
Importance of transaction and amounts involved

Specific or general nature of client’s inquiry

Existence of authority

Advice for important transactions should be written

If future developments change the advice, the CPA is under no obligation to inform client unless that has been stipulated.

Listed non-audit services may not be provided to audit clients. Prohibited services include bookkeeping, actuarial, appraisal, internal audit, systems design, management and other services.

Tax services may be provided to audit clients only if they are approved in advance by the client’s audit committee.

Cannot engage in unauthorized practice of law
-Different standards across time
-Shouldn’t be wholly in the field of law
-Should be incidental to accounting practice

Okay to do the following:
-Prepare tax returns
-Perform tax research
-Provide tax advice
-Practice before the IRS

Okay for CPAs to practice tax law, but they cannot engage in the following:
Express a legal opinion on any nontax matter
Draft
Wills or trust instruments
-Contracts
-Incorporation papers
-Partnership agreements