[REG] 9. Ethics, Professional Responsibilities, and Federal Tax Procedures

9.1 Licensing and Disciplinary Systems

9.1.1 State Board of Accountancy

Authority

License

- State License > State Board license 직접 관리, License fee 1년에 한번씩 납부, Continuing Professional Education(CPE)

- CPA's license 관련 전반 업무

 

9.1.2 AICPA, CPA들이 가입

- 사설기관: AICPA에서 정한 윤리 기준을 어길 경우, CPA에게 Sacnstion조치할수있음

Automatic explusion 자동제명되는 경우

- Felony commission(felony: imprison ≥ 1yr)

- Willful failure to file tax return

- Fraudulent file of tax return on behalf of a client

- Abetment or help for fraudulent tax return

- State Board of Accountancy's revocation

 

Joint Ethics Enforcement Program(JEEP)

- AICPA + State societies

두개 이상 states에서 Ethic complanits 발생하는 경우, 미연방관련 소송인 경우 JEEP 통해 문제 해결하고자 함

 

Public Company Accounting Oversight Board(PCAOB)

CPA firm with 100+ audits > must be registered with PCAOB 

 

9.2 Tax Return Preparer and Tax Return Position

1. Tax return preparer(TRP)

1) Process

Tax return 세금신고: Taxpayer > TRP > IRS, Taxpayer

Tax Payment 세금납부: Taxpayment> IRS 

- Self-employed individual > $400 or more 신고대상

- Refund > form 1040X

 

2) Definition

TRP: a person who is paid to prepare and retain EEs to prepare a substantial portion of any federal tax return

 

Substantial portion

Individual ≤ $10K

Corp ≤ $400K + less than 20% of gross income on tax return

 

Not TRP:

- prepares as a fiduciary a return

- Volunteer Income Tax Assistance(VITA), Low income tax clinic(LITC) program

- prepares return with no agreement for compensation

 

2. Tax return position= TRP가 세금 보고시 생각해야하는 것

 

  1) Reasonable basis(세금 보고시 세금 안낼 확률 20% 이하)

  2) Realistic possibility(세금보고시 세금 안낼 확률 33%이하)

  3) Substantial authority( 세금보고시 세금 안낼 확률 40%이하)

  4) More likely than not standard(MLTN)(세금보고시 세금 안낼 확률 50%이하)

Position	Possibility of success	Rules	Reasonable cause
Reasonable basis	20%	Treasury Department Circular 230	Disclosed position to IRS
Realistic possibility	33%	AICPA SSTS	Disclosed position to IRS
Substantial authority	40%	IRC	Undisclosed position
More Likely than (Not)	50%	IRC	Tax shelter position

* Tax shelter: 1) pship 2) investment plan 3) Avoidance or evasion of federal income tax

 

3. Civil penalties on TRPs (IRC 6694)

1) Tax return IRS 보고시, 세금보고 누락에 대한 민사상 책임= understatement of the taxpayer's taxes due to     unreasonable TRP position

   1)-1 Position issue

       - Undisclosed position is unreasonable > substantial authority(40%)

       - Disclosed position(20%) + unreasonable basis(20%) = unreasonable

       - More likely than not the position for tax shelter 세금신고안한 것으로 IRS와 싸워 이길 확률이 50%이상이면, Disclose 안해도 됨, Tax return 안해도 됨

Undisclosed position	Disclosed position
substantial authority(40%이상)인 경우, Reasonable cause해당 > Penalty(x)	Reasonable basis(20%이상)인 경우, Reasonable cause 해당 > penalty(x)
Tax advisor, IRS직원을 신뢰함 > penalty(x)	Tax advisor, IRS직원을 신뢰함 > penalty(x)

    

 1)-2 Civil penalties on TRP for understatement

Mistake < Negligence < Gross negligence < Reckless disregard(constructive fraud) < Fraud

Due to unreasonable position[IRC 6694]     원칙: the greater $1K or 50% of income	Due to willful or reckless conduct    원칙: the greater 1)$5K or 2)75% of income  -willful attempt to understate tax liability  - Reckless disregard of rule  - Rules and regulations (IRC. Treasury regulations, Revenue rulings)
* 예외 - substantial authority(40%) - adequately disclosed position on a reasonable basis - more likely than not standard(more than 50%) for tax shelter	* Reasonable cause있거나 Goodfaith가 있어서 Understatement를 했다면 Penalties물리지 않음. 즉 세금 안낼 확률이 40%보다 높은 경우 IRS에 Tax return시 신고 누락했다면 penalties없음

 

 

2) Abusive tax shelter = promoting abusive tax shelter 경우 penalties 부과

TRP and other people organize or participate in the sale of the shelter + 1)knowingly or recklessly make a substantial false statement or engage in a gross overvaluation of property

penalty= The greater $1K or 100% of gross income

 

3) Aiding and abetting the understatement of tax liabilities

TRP and other people assist, aid, and advise in preparing understatement of tax returns in an unlawful manner

penalty = $1K individual, $10K corporation

 

4. Criminal provisions

1) Tax evasion

2) Tax Fraud

3) other criminal provisions

   - willful failure to file a return or pay tax

   - willful failure to collect

   - fraudulent returns, documents

   - attempt to interfere with the administration of internal revenue laws

   - unauthorized disclosure of taxpayer info

   - willful disclosure or use of confidential info

   - Conspiracy to commit offenses

   - Adding and abetting tax fraud

 

 

9.3 Treasury Department Circular 230

1. Tax return 서류 서명: tas payer, TRP 2. copy of tax return: client 1부 *돈을 안내도 copy는 주어야함                                   TRP 1부 * client가 소송하면 증거자료로 써야함 3. 작성은 "reasonable"하게 4. 과거 tax return error를 TRP가 발견함: 1) client에게 알려줌 2)수정신고를 하지 않음 결과도 안내 5. Privilege 자료는 client의 permission을 받고 제공할수있음     * 예외상황: 법정명령, 고객과의 소송 6. Conflict of Int는 Tax return 서비스에서 고려사항이 아님     ex) 삼전의 TRP > 미래 엘전의 TRP 가능, 고지필요없음

1. Rule to practice

- practitioner: CPA, attorney, enrolled agent(EA), others

- all paid TRP must register with the IRS and obtain a preparer tax identification number(PTIN)

- TRP needs to secure the power of attorney and submit it before the IRS

 

2. Practitioner's responsibilities & restrictions

- Privilege 해당자료 제외, 필요자료 IRS 제출

- 법을 따르지 않고 작업, 실수가 있을 경우 1) client에게 알려야함 2)Penalty of omission 설명해야함

- Notarization 공증불가, 변호사 업무

- Conscionable, reasonable fee, contingent fee(성공보수) 불가

* 성공보수가 가능한 경우     - IRS examination(국세청조사) of the original tax return     - Claim for credit or refund filed     - Judicial proceedings related to the Internal Revenue Code

 

- Practitioner 고객이 요청하면 즉각적으로 Client's record를 돌려줘야함. copy는 꼭 가지고 있어야함

- Conflict of interest상태라면 representation 하면 안된다, tax return상관없다(조건 competent diligent representation할수있음, 법위배아님, written consent

- Public/Private communication에 false, fraudulent, coercive statement, misleading내용을 광고할 수 없음, "Certified"용어사용금지, IRS직원과 유대관계를 광고에 실을 수없음

- Refund check은 고객이 직접 서명해야함

- 최고의 역량을 다해 tax return service 고객에게 제공해야함

 

3. Standard for tax return and advising

- The practitioner must not maintain a position that 1) lacks reasonable basis(20%), 2) is unreasonable 3) is a willful attempt to understate tax liability 4) reckless disregard of rules

- must notify a client of any penalties that are reasonably likely to apply to the position taken on tax return, any chance to avoid penalties bt disclosure  고객에게 법을 어기는 경우 또는 공개를 피할경우 발생할 수 있는 불이익을 반드시 고지해줘야함

- must make reasonable inquiry if info furnished appears to be incorrect, incomplete, inconsistent with other facts

- TRP은 Privilege가 있는 자료에 대해 taxpayer에게 판단을 맡겨야 함

 

9.4 AICPA Statement of Stand of Tax Service

1. Tax return position

- member should have a good-faith belief that the position has at least a realistic possibility(33%) of being sustained administratively or judicially on its merits

- Member may prepare tax return if members conclude that there is a reasonable basis for position and advises taxpayer to disclose that position appropriately

AICPA SSTS에서 기본 포지션은  realistic possibility(33%)이며, reasonable basis(20%)인 경우 Position을 disclose해야함. Disclosure를 하지 않는 경우, 발생할 수 있는 Penalty에 대해 Taxpayer에게 안내를 해야함

 

2. Responsibility

- make reasonable effort to obtain from taxpayer info, necessary to provide appropriate answers

- taxpayer에게 advice를 줘야하는 경우, tax authority가 standard를 및 서식도 정해 놓았다면 그 원칙에 따라 제출

- tax return중 문제발견> taxpayer에게 문의, 페널티나 불이익 설명, IRS에 보고는 안됨

- taxpayer가 잘못된 과거 내용 수정 거부 > tax return거부 고려

 

3. Use of estimate

- may use taxpayer's estimates in preparation, reasonable based on facts and circumstances known to the member

  자연재해 등으로 자료가 소실되었다면 서류증명없이 추정치를 사용할수 있음

 

4. Departure from the position previously concluded in an IRS proceeding or court decision

국세청 결정, 법원판결이 있더라도 본인이 자신 있다면 자신의 의사에 따라 tax return처리할수있음. 하지만 증명해야함

 

 

 

9.5 Federal Legislation

 

 

 

 

9.6 Sources of Tax Authority and Research

FED constitution(연방헌법) > Legislative Authority(입법부)   ≥ Administrative authority(행정부) = judicial authority(사법부)

                                                - Congress                                 - IRS가 만든 규칙/법                     + court's judgment(판례)

                                                     HOR/Senate                            treasury regulation 230

                                                - IRC

                                               >>>>>>>>>>>>>>>>>>>>>>>Primary Source>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

 

1. Types of tax authority

Primary authority - Legislative authority(입법부) - Administrative authority(행정부) - Judicial authority(사법부)

Secondary authority Treatises, journals, commentaries, IRS publications

 

 

2. Legislative authority

Constitution > Internal Revenue Code(IRC)

 

3. Administrative authority

1) Treasury regulations = regulation published in the federal register or Internal Revenue bulletin

   - Legislative regulation = IRC와 동일한 수준으로 간주

   - Interpretative regulation = code가 되기 위한 기준자료

   - Procedural regulation = 절차법

   - Proposed regulation=일정기간30일후 법으로 될 안건, 현재는 법이 아님 

   - Temporary regulation = 일정기간 동안 법으로 인정

2) Revenue rulings

   - Revolutions > Revenue rulings 

   - Dealing with more specific issues than regulations

3) Private letter rulings

   - Request by the taxpayer for the IRS to provide the tax consequences on a specific set of facts

   - precedent applies only to the taxpayer making the request

   - The IRS does not have to provide a ruling on the request

4) Revenue procedure=Providing internal mgt practices of the IRS

5) Technical advice memoranda = Audit기간 동안 IRS에서 taxpayer에게 발행한 공문서. 해당 납세자에게만 적용

 

4. Judicial authority

 

 

9.7 U.S Federal Court System

1. Trial court 1심

1) U.S Tax court (IRS안에)

   - tax cases + 1judge, no jury

   - No payment required to file a petition

   - the petition must be filed within 90 days of the IRS's mailing of the 90-day letter

   - Judicial amount less than $50K(small claim) > appeal is not allowed

  - IRS acquiesces in the court's decision

2) U.S District Court

  - Payment required to file a petition

    (Taxpayer가 deficiency에 대해 먼저내고, IRS에 refund를 요청해야함)

  - Tax return 제출일 기준 3년, 납세일기준2년안에 소송을 진행해야함

  - 1Judge+jury(optional)

3) U.S Court of Federal Claims

  - Payment required to file a petition

   (Taxpayer가 deficiency에 대해 먼저내고, IRS에 refund를 요청해야함)

- 사건 발생후 6년안에 소송을 진행할 수 있음. Jury trial은 불가능

 

2. Appellate court 2심

1) U.S Court of Appeals < Tax court, district court

2) U.S Court of Appeals for the Federal Circuit < US Court of Federal claim

 

3. Supreme Court of the United States 3심

9 Justices nominated by the President and confirmed by the Senate

	Type of court
1심	US Tax Court(no payment)	US District Court(payment)	US Court of Feral Claims(payment)
2심	US Court Appeals		US court of appeals for the Federal Circuit
3심	Supreme Court of the United States

 

 

9.8 Tax Practice and Procedure

1. Audit process(IRS) + Appeal(IRS/Court) IRS의 감사

 - Discriminate Function System(DIF) score is used to determine which tax returns must be reviewed for audit

 - Formal examination is conducted at either the IRS office or taxpayer field

 - IRS reports its findings in an Income Tax Examination Changes Report

 - The IRS issues a no-change report after an audit, IRS generally cannot reopen the examination unless fraud or other similar misrepresentation is involved

	Taxpayer accepts audit result	Taxpayer does not accept audit result
IRS'S action	1) IRS issues additional tax bill	1) IRS makes Revenue Agent's report 2) IRS issues 30day letter(preliminary notice) 1번째
Taxpayer's action	2) Taxpayer pays the bill	3) taxpayer appeals(at appellate conference/IRS) > both settle the case 4) Taxpayer "ignores" 30day letter> IRS issues 90-day letter     > Taypayer appeals (at Tax Court within 90 days)

* internal audit 업무를 맡는 샤람들은 independent하면 된다. 모두가 CPA일 필요는 없음

 

2. Filing requirements

- Net self-employment income이 $400초과하는 경우 Tax return제출해야함

 

3. Signing a tax return

- Taxpayer must sign a tax return for it to be complete.

- Tax return signed > tax refund can be issued

- Taxpayers must have a personal ID number to file electronically

- The tax preparer must also sign the tax return and provide a PIN

 

4. Statute of limitations

IRS가 Taxpayer에게 Claim을 거는 경우	Period
General tax claim	3 years tax return filing date or tax return due date
Gross income omission > 25% (overstatement of the basis of the asset)	6 years
Fraud, tax evasion	No limits
Taxpayer > IRS((tax refund)	Later 2yrs from  the tax payment date or 3 years from the tax return filing date

 

5. Filing deadline

	Due Date	form
Individual	15th day of 4th month	F 1040
Corporation	15th day of 4th month 15th day of 3rd month	F 1120
S Corporation	15th day of 3rd month	F 1120S
Partnership	15th day of 3rd month	F 1065
Tax-exempt Org	15th day of 5th month	F 990
Estate tax	9months after death	F 706
Gift Tax	15th day of 4th month	F 709

 

 

9.9 Taxpayer penalties + TRP's penalties

1. Late filing penalty + Late payment IRC

	Month	Max	Extention
1) Late filing penalty	5% / M	25%	6 months	Extention> late filing, late payment(x)
2) Late payment penalty	0.5% / M	25%	X	세금 90% 미리내면 면제가능

* 만약 위에 모두 어기면 5% 내라고 함 [1) 4.5%, 2) 0.5%]

 

2. Understatement penalty

1) Accuracy-related penalties (one of those)

20% penalty of tax - inaccurate position caused by negligence - substantially understating tax - substantial misevaluation

40% penalty of tax - gross misevaluation of property

75% penalty of tax + additional 505 int - Fraud

 

2) Understatement attributable to negligence or disregard of rules

* Defense for disregard 1) disclosure of position on Form 2) good faith mistake

 

3) Substantial understatement of income tax

	Individual	Non-subchapter S Corp. C corp
Penalty를 낼때, Substantial 기준	Greater 1)10% of tax or 2) 5K	Lesser 1) 10% of tax or 2) 10M

 

4) Estimated tax payment

- no penalty for estimated tax underpayment

	Individual	Corp
Threshold(general)	1) 90% of current year tax or 2) 100% of last year tax	1) 100% of current year tax or 2) 100% of last year tax
Threshold(special)	1. AGI > $150K - 90% of current year - 110% of last year	1. Taxable income ≥ $1M - 100% of current year tax - Tax due is less than $500  * $500미만은 페널티 없음
Regular installment method	분기별 균등분할납부 가능(0)	분기별 균등분할납부 가능(0)
Annulization installment method	차등 분할 납부 가능(0) 10%-25%-25%-40%	차등 분할 납부 가능(0) 10%-25%-25%-35%

- corp기준 estimated tax payment 내는 날짜는 매 분기 15일

- $500미만은 페널티 없음

 

3. Civil Fraud Penalty

- Underpayment of tax attributable to fraud

- 15% per month of tax due (max 75%)

 

4. Defense = reasonable cause + Good faith +Disclosure + Substantiation

- reasonable cause=exercise of ordinary biz care and prudence in an objective view

* tax adviser/ IRS advice를 신회한 경우, taxpayer본인/가족이 사망하거나 아픈경우, 세금신고관련 자료가 소실된 경우

- Good faith = honesty of purpose in a subjective  view

- Disclosure= position is disclosed on properly completed and filed the form 8275,8275R in good faith, taxpayer has reaosnable basis(20%) and keep adequate doc

- Substantiation= 증빙자료 준비(x) > accuracy related penalty 부과될 수 있음

 

5. TRP's penalties

- failure to furnish a copy of the tax return or tax refund claim to the taxpayer

- Failure to furnish an identifying number PTIN

- Failure to retain tax return records, listing of tax return preparers, place of employment for 3years

- Failure to file correct info on tax return

- TRP's endorsement/negotiation of federal tax refund check issued to taxpayer

 

6. Civil penalties on TRP for understatement

1) Due to an unreasonable position

   - greater $1K or 50% of income

     * exception: ⓐsubstantial authority(40%) ⓑadequately disclosed position(F8275,8275R) ⓒmore likely than not standard(more than 50%) for tax sheler, reportable transaction

 

2) Due to willful or reckless conduct

   - greater $5K or 75% of income

   

9.10 Accountant's Legal Liability

Negligence
elements 1) Duty: CPA는 Audit을 잘할 의무가 있다 2) Breach of duty 3) Causation: CPA의 잘못이 치해를 불러일으킴 4) Damgae: CPA때문에 피해발생	Defense(CPA방어논리) 1) Elements of Negligence 2) GAAS에 따라 작성했어요 3) 너도 잘못했어

1. Basic concept 

1) Breach of contract: failure to comply with obligation in an enforceable agreement

2) Torts

Negligence ≠ Gross negligence
elements: duty + breach of duty + causation + damage	Defense: 너도 잘못이 있어 contributory negligence 1%잘못했어도 네책음 comparative negligence 서로의 과실비율대로 책임 Assumption of risk 너도 알았어야지
Fraud ≓ Intentional misrepresentation
Elements Intent to defraud +misrepresentation +actual reliance + damage		Constructive fraud ≓ gross negligence, reckless
Negligent misrepresentation ≓ innocent misrepresentation
element: negligent + misrepresentation + actual reliance + damage

* Burden of proof(입증책임)은 Plantiff(원고)가 갖고 있으며, 일반적인 경우 preponderance of evidence수준으로 각 elements를 증명할 수 있으면 됨. Claim종류에 따라 clear and convincing evidence수주능로 높아질 수 잇음

* Statute of limitation소명시효sms Defense로 사용가능하며 State마다 claim마다 다름

 

2. Common law liability=Client(taxpayer,corp) <-> CPA

1) Breach of contract

elements:

- both parties created an enforceable agreement

- the defendant breaches an obligation in the agreement

- damage

 

2) Negligence

elements: duty + breach of duty + causation+ damage

defense: contributory negligence, comparative negligence, failure to prove the elements

 

3) Fraud

elements:

- Intent to defraud =scienter(reckless disregard> contructive fraud)

- Misrepresentation of material facts(FS accounring service)

- Plaintiff's reasonable reliance

- Damage

* 고의성 정도에 따라 Punitive damage 청구가능함

 

3. Common law liability = 3rd party(기존채권자, 미래채권자) <-> CPA

1) Breach of contract

3rd party beneficiary(intended, done, incidental)

 

2) Torts(불법행위)

	Breach of K	Negligence	Fraud
Minority Rule
1) Foreseen party	Liable	Not liable	Liable
2) Forseeable party	Liable	Not liable	Liable
Majority rule
1) Foreseen party	Liable	Liable	Liable
2) Forseeable party	Liable	Not liable	Liable

 

4. Statutory liability(법정책임)

	1933ACT sec11	1934Act sec10b	1934Act sec18
Elements
1) Intent to defraud    =scienter	X	O	X
2) Misrepresentation of material fact	O	O	O
3) Reasonable reliance	X	O	O
4) Damage	O	O	O
Other issues
1) Protection for	Potential investor	Seller & buyer
2) 규제대상	발행시장(발행전 신고)	유통시장(정기, 수시공시)

Defense

1) elements를 증명하지 못함

2) GAAP/ GAAS따라 문건 작성

3) CPA 행동과 Damage사이에 Causation 설명이 명확하지 않다

4) Assumption of risk 주장

* Intent to defraud = scienter ≓ reckless disregard

 

9.11 Privileged Communications, Confidentiality, and Privacy Acts

9.11.1 Privileged communications(면책표시)

Testimonial(증언)

Work Product(소송을 윟 준비되는자료)

* 공개될 필요는 없다

1) Testimonial evidence at court

  Attorney-client privilege, priest-penitent privilege, physician-patient privilege(state court)

  - Discovery of lawsuit-work product privilege

2) Accountant-client "testimonial" privilege

  - Federal court >accountant-client testimonial privilege(x) 공개가능

  - State court > accountant-client testimonial privilege(x) 공개가능

   * 만약 accountant-client privilege가 있다면, State court에서 자료를 요구한다고 할지라도 Client's permission이 있어야 자료를 넘길 수 있음. AICPA Quality review 목적인 경우 State CPA society에게 고객 동의없이 자료전달 가능함

3) Tax practitioner's privilege 자료o, 대화x

  - The client of a federally authorized tax practitioner is given a modest testimonial privilege under IRC sec 7525

  * Exceptions(Privilege 적용x, 공개해야함):

      ⓐ Criminal matters 형법과 관련된사항

      ⓑ Tax advice on state or local matters (지방세,주세 관련소송)

      ⓒ Written advice about tax shelter promotions

4) Accountant's working documents

  - ownership of working pater by CPA is essential custodial with confidentiality

   

9.11.2 Confidential communication

1. General rules

1) CPAs are prohibited from disclosing confidential info of clients under the AICPA Code of Professional Conduct

   * Exception

2) IRC provision

- civil penalty for each unauthorized disclosure or use of tax return info

- Criminal fine and imprisonment for knowingly or recklessly disclosure

4) Disclosure without client's consent

- peer review(quality peer, conflict review)

- Enforceable governmental orders(court, agency, board, committee, PCAOB, congress, legislation)

- sharing the info occurs in the same firm

- Client files a lawsuit against a CPA

- professional liability insurance requires the disclosure, arbitration proceeding

 

9.11.3 Privacy acts

1) client financial difficult가 드러나면 privacy 문제발생    * 단순히 이름드러나는것은 문제되지 않음 2) Client Explicit/Implict consent가 있다면, 개인정보 disclose가능

1. General rules: voluntary guidelines for protecting clients ' information from others

- accounting firm(firm) should define, document, and assign accountability for its privacy rule

- the firm should notice the rules and identify the purpose for the collection and use of the client's info

- the firm should describe the choices to the client for collection, use, and disclosure of its info

- the firm should collect personal info according to the privacy rules

- the firm should provide a client with access to its personal info for review and update

- Firm should maintain accuracy

- The firm should monitor compliance with the privacy rules with reasonable effort

 

2. Email

some states require accountants to encrypt emails that contain client's personal info

 

3. Reasonable measure

some states have statutes requiring the firm to take reasonable measures to preserve the confidentiality

 

4. Bank Secrecy Act and Foreign Bank

- Taxpayers must report foreign bank accounts

- Foreign bank account penalties are aimed primarily at the taxpayer