[REG] Ethics

Authority to Practice

Regulations Governing practice before the Internal Revenue Service

Authority to practice before the IRS Duties and restrictions relating to practice before the IRS Sanctions for violation of the regulations Rules applicable to disciplinary hearings

 

Authority to Practice

anyone who prepares or assists in preparing a federal tax return for compensation must register with the IRS

- unlimited representation rights: Attorneys, CPAs, enrolled agents

 

Duties and Restrictions relating to practice before the IRS

- practitioner may withhold info or record

- practitioner must info IRS, irs-requested info

- client's noncompliance with federal tax laws/ error/omission

  > Notify client, advise the penalties, consequences

- Diligence as to accuracy(due diligence)

  * reasonable reliance on the work product of others is okay

- Prompt disposition of pending matters

- Assistance from or to disbarred or suspended persons and former IRS employees

  * unless the firm isolated the former government EE from the representation

- Notary No no(공증인)

  practitioner may not act as a notary public for his clients on any tax matter

- cannot charge an unconscionable fee in connection with matters before the IRS

  * contingent fee allowed, 3 situations

    : 1) IRS audits(examination of an original tax return)

      2) Claim for a refund of int/ penalties 

      3) Judicial proceeding

- Return of client's records

- Conflict of interest

   a practitioner may not represent a client before the IRS if if involves a conflict of int

    *Exception: written consent within 30 days

- No false or misleading information

   > Advertising and solicitation restrictions, no guarantee for tax reduce

   > written schedule of fees, 30 days

   > Communicating fee info retained for 36 months

- May not endorse or negotiate any refund check, safekeeping okay

- Best practices for tax advisors

- Competence 

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Circular 230

 

- Reliance on the advice of other

- Standard of review

 

promptly submit records or information in any matter before the IRS unless the practitioner believes in good faith and on reasonable grounds that the records or info are privileged

Circular 230 requires a practitioner must, promptly return all records of the client that are necessary for the client to comply with his federal tax obligations
* Workpapers belong to the accountant (or firm) who prepares them, but the accountant is prohibited from showing the workpapers to anyone without the client's permission except in certain situations

if a conflict of interest exists, a practitioner can still represent the client > IF client waives the conflict of interest +  written confirmation within 30 days

advertising fee okay, 30 days keep the promise

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Compliance and Sanctions

 

Sanctions for violations of the regulations

 

petition for reinstatement, after the expiration SOF 5yrs following suspension or disbarment

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Tax return preparer

- any tax professional with an IRS PTIN is authorized to prepare federal tax returns

- CPA license is not required to be a tax return preparer

unlimited representation rights: = Tax practitioners(licensed) = Tax professionals with these credentials, - represent their client

PTIN holders with no credentials = Tax preparers(no licensed) authorized only to prepare tax returns, no authority to represent clients before the irs

1) Paid 2) Prepare

 

Listed Transaction

reportable transaction, identified by the secretary of the US Treasury Department as a tax avoidance transaction

 

Reportable Transaction

any transaction where information is required to be included with a return/ statement, determined by US Treasury Department as potential for tax avoidance, tax evasion

- listed transactions

- confidential transactions

- transactions with contractual protection

- loss transactions

 

 

Ordinary Negligence

failure to make a reasonable attempt to comply with the provisions of the Internal Revenue laws. not fraud

 

Tax position

Reasonable Basis Standard(lowest standard) - 내가 처리한게 맞을 확율 not greater than 20% - Relatively high standard of tax reporting	Disclose will avoid the substantial underpayment penalty
Realistic possibility - 33.3%	Disclose
Substantial Authority Standard(medium standard) - greater than 40%, less than 50% - objective standard, less stringent than "more likely than not"	undisclose
More likely than not(Highest standard), tax shelter - greater than 50%	undisclose, listed/reportable transaction

 

 

penalty

Understatement due to an unreasonable position $1K or 50% of the income the preparer received for tax return preparation services

Understatement due to willful or reckless conduct, Fraud $5K or 75% of the income preparer received

 

 

Penalties for unethical behavior, protect taxpayer

- Failure to provide copy to the taxpayer

- Failure to sign return(penalty $60 for each)

- Failure to furnish identification number of preparer

- Failure to properly retain records: keep copy of the return for 3yrs

- Failure to file correct info 

- negotiation of irs refund check

- failure to be diligent in determining a client's eligibility for the earned income credit($600 each)

 

Aiding and abetting understatement of tax liability

 civil penalty of $1K for taxpayers, corporations $10K

burden of proof shifts to IRS

* criminal action duren of proof on govenment

 

Wrongful disclosure and/or Use of tax return information

- $250 for each wrongful disclosure(max 10K)

- guilty of a misdemeanor imprisoned for not more than 1 year

* exception: court order, preparation of state/local tax, estimated tax, quality/peer review

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State Boards of Accountancy, an independent organization under state statute

sole power to Grant, Suspend, Revoke the license

 

Disciplinary Power of State Boards

3 categories of misconduct

1) while performing accounting services: negligence, fraud, dishonesty

2) outside the scope of accounting services: intoxication alcohol, drugs

3) criminal conviction: felony, failure to file tax returns

State Board - Due process or judicial review required - Can impose fines and revoke or suspend a license

State Society/AICPA - Due process or judicial review not required - cannot impose fines or revoke or suspend a license

 

state board of accountancy

- suspension or revocation of license

- monetary fine

- reprimand or censure

- probation 검정, 시험

- Requirement for continuing professional education(CPE) courses

* a formal hearing for possible disciplinary action

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AICPA

- membership is voluntary

- applies professional code of conduct to all members of the AICPA

- Joint Ethics Enforcement Program for enforcement of their codes of conduct, investigative information shared

- develop & maintain uniform CPA examination

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Disciplinary Actions

 

IRS

 Criminal penalties

  - found guilty, may be imprisoned for not more than 3yrs and/or fined nor more than $100K(corp $500K)

 

Civil penalties

  - IRS may prohibit practicing before the IRS

  - the preponderance of evidence and burden is on the taxpayer

  - Civil fraud- intent to evade tax and aiding and abetting others to evade tax(IRS has burden)

 

 

 

SEC(Securities and Exchange Commission)

Civil penalties

- investigates criminal activity, does not prosecute criminal cases

  > willfully violate federal security laws or regulations

- may suspend or revoke the right to practice before the SEC

- SEC may impose fines of not more than $100K (corp $500K)

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Confidential

accountant is prohibited from showing workpapers to anyone with the client's permission

except:

1. lawful subpoena

2. prospective purchasers, as long as the prospective purchasers do not disclose confidential information

3. QC panel

4. AICPA/ State Trial Board

5. Court proceedings

6. When GAAP requires disclosure of such info in the FS 

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Accuracy-related penalty

- Negligence or a disregard of the tax rules or regulations

- Any substantial understatement of income tax