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REG 1. Ethics, Professional Responsibilities, and Federal Tax Procedures

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taxpayer penalties on the reg cpa exam

Taxpayer Penalties on the REG CPA Exam

substantiation and disclosure of tax positions on the cpa exam

Substantiation and Disclosure of Tax Positions on the CPA Exam

irs audit process

IRS Audit Process on the CPA Exam

cpa licensing and disciplinary systems

CPA Licensing and Disciplinary Systems

Tax return preparers are required to obtain a preparer tax identification number (PTIN). Signers and non-signer preparers are subject to this requirement. The definition of a tax return preparer (TRP) is: “Any person who prepares for compensation, or who employs one or more persons to prepare for compensation, all or substantial portion of any return of tax or any claim for refund of tax under the Internal Revenue Code.” This includes anyone who prepares any federal income tax returns, and estate and gift tax returns, and is paid to do so. Being compensated is key. One layperson helping their mom do her taxes in TurboTax is not considered a preparer. Keep in mind it includes anyone who prepares a “substantial portion” of the return as well, not just the signing TRP. Tax return preparer penalties If a TRP aids or abets federal tax evasion, then the TRP can be prohibited from working as a preparer, AND face federal criminal prosecution. If a TRP endorses or otherwise negotiates a refund check issued to a taxpayer, this is not allowed and the TRP will pay a fine of $530. So, a TRP cannot endorse and cash a client’s refund check, even if for some reason the client asked them to. Understating a taxpayer’s tax liability: If the preparer takes unreasonable positions which understate a taxpayer’s tax liability, the penalty is the greater of $1,000 or 50% of the income derived by the TRP with respect to the return or claim for refund. Also, if there is understatement due to willful or reckless conduct, the penalty is the greater of $5,000 or 75% of the income derived by the TRP with respect to the return or claim for refund. Failure to furnish a copy to the taxpayer: If the TRP fails to provide the client with a copy of the return, there is a $50 penalty for each instance. Failure to sign a return: A penalty of $50 for each instance of not properly signing a return. Failure to provide PTIN: A penalty of $50 for each failure to provide the TRP’s identification number on a return. Failure to retain a copy: A penalty of $50 for each instance of not retaining a copy of the return. Failure to file correct information return: Any person that employs other TRPs needs to file an information return that lists the names and social security numbers of such employees. Failure to file this information results in a penalty of $50. Failure to be diligent in determining eligibility for earned income credit: This results in a penalty of $530 for each failure. Promoting abusive tax shelters: Penalty is $1,000 for each case in which such a shelter was planned or arranged. Aiding and abetting understatement of tax liability: This results in a $1,000 fine. Unauthorized disclosure of information by a TRP: If a TRP discloses or uses information from preparing a return for any other purpose then preparing and filing the return, there is a $250 fine for each use of such information, up to a maximum of $10,000 in a calendar year. This is also a misdemeanor, and upon conviction a fine of $1,000 and imprisonment of up to a year. Also, if the disclosure or use is made in connection with a crime relating to the misappropriation of another person’s taxpayer identify, the penalty increases to $1,000 for each use or disclosure, up to a maximum of $50,000 in a calendar year. Fraud and false statements: This is guilty of a felony, and upon conviction a fine of not more than $100,000 and possibly imprisonment for not more than 3 years, or both. Fraudulent returns or statements: This is guilty of a misdemeanor, and upon conviction a fine of not more than $10,000 and possibly imprisonment of not more than a year.

IRS Regulations and Penalties for Tax Return Preparers

regulations governing practice before the IRS

Regulations Governing Practice Before the IRS

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