Ethics in Federal Tax Practice Preparer Penalties and Ethical Standards

Transcription

1 Ethics in Federal Tax Practice Preparer Penalties and Ethical Standards Todd Simmens, National Tax Partner BDO USA, LLP BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.

2 Disclaimer: The following presentation is intended for educational and discussion purposes only and cannot be relied upon as tax or accounting advice No information contained in this presentation is intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or applicable state provisions or (ii) promoting marketing or recommending to another party any transaction or other matter presented herein BDO USA, LLP will not be responsible for any loss that results from reliance on this presentation You should seek advice from a qualified advisor based on your specific facts and circumstances before taking any action The matters discussed during this presentation do not necessarily reflect BDO USA, LLP policy Page 1

3 Agenda: Federal Tax Penalties Affecting Preparers Preparer Penalties Disclosure Rules Sources Of Federal Tax Practice Ethical Rules Circular 230 AICPA ABA Page 2

4 Preparer Penalty Under IRC Sec. 6694: Who Is A Preparer? Returns Or Claims For Refund (Compare To Claimant s 6676 Penalty) What Is An Understatement Of Liability? What Is An Unreasonable Position? Disclosed, Yet Lacks Reasonable Basis Undisclosed And Lacks Substantial Authority Tax Shelters And Reportable Transactions Must Be At More Likely Than Not Penalty Amount Page 3

5 Preparer Penalty Under IRC Sec (cont d): Signing Preparers Non-Signing Preparers Examples Page 4

6 Other Assessable Preparer Penalties Under IRC Sec. 6695: Failure To Furnish Copy Of Return Or Refund Claim To Taxpayer Failure To Sign Return Failure To Furnish Identifying Number Failure To Retain Copy Or List Of Clients (sec. 6107) Failure To File Correct Information Return Of Employed Preparers (sec. 6060) Above Penalties $50 Per Failure (Unless Reasonable Cause), Maximum $25,000 Negotiation Of Taxpayer s Check: $500 Per Check Failure To Be Diligent In Determining Eligibility For EIC: $100 Per Failure Page 5

7 Sections 6713 And 7216 Disclosure Of Information By Preparers: CIVIL PENALTY UNDER SEC Any Preparer Who Discloses Any Information Furnished To Him/Her In Connection With Preparation Of Return, OR Uses Such Information For Any Purpose Other Than To Prepare Return Is Subject To A Penalty Of $250 For Each Disclosure/Use Maximum Per Year, $10,000 Subject To Rules Of Sec. 7216(b) CRIMINAL PENALTY UNDER SEC Misdemeanor Fine Not More Than $1,000 Or Not More Than 1 Year Prison, Or Both Disclosure Regulations Page 6

8 Disclosure: Forms 8275, 8275-R Form 8886 Schedule UTP Rev. Proc Page 7

9 Reportable Transaction Penalties: Regulations Require Both Taxpayers And Material Advisors To Report Participation Or Advice Related To Reportable Transactions Categories Of Reportable Transactions Include: Transactions With Contractual Protection, Transactions Under Conditions Of Confidentiality, Losses, Listed Transactions, And Transactions Of Interest Taxpayers Report On Form 8886 With Annual Tax Return Page 8

10 Material Advisor Obligations: Material Advisors Are Obligated To File Quarterly Information Returns (Form 8918), With Respect To Any Reportable Transaction, Setting Forth (1) Information Identifying And Describing The Transaction, (2) Potential Tax Benefits, And (3) Any Other Required Information And Maintain Lists (1) Identifying Each Person With Respect To Whom The Advisor Acted As A M/A With Respect To A Transaction And (2) Any Other Required Information Page 9

11 Who Is A Material Advisor? One Who Provides Any Material Aid, Assistance, Or Advice With Respect To Organizing, Managing, Promoting, Selling, Implementing, Insuring, Or Carrying Out Any Reportable Transaction, And One Who Directly Or Indirectly Derives Gross Income In Excess Of The Threshold Amount (Or Such Other Amount As May Be Prescribed By The Secretary) For Such Aid, Assistance, Or Advice. Amounts: $50,000 Where Substantially All Benefits Provided To Natural Persons And $250,000 In Any Other Case Page 10

12 Penalties Imposed On Material Advisors: Sec. 6707: Penalty For Material Advisor s Failure To Report On Form 8918 In General, $50,000 Per Failure For Listed Transactions, Greater Of $200,000 Or 50 Percent Of The Gross Income Derived By Such M/A Intentional Failure? Substitute 75 For 50 Percent Rescission Available It s Much Tougher Than Traditional Reasonable Cause Sec. 6708: Penalty For Material Advisor s Failure To Maintain List After 20 Days From Request, $10,000 Per Day With No Cap (Unless Reasonable Cause) Page 11

13 Promoting, Aiding, And Abetting: Sec. 6700: Any Person Who Organizes, Participates In Sale Of, Makes Statement With Respect To An Arrangement Which The Person Knows Or Has Reason To Know Is False/Fraudulent Or Gross Valuation Overstatement (Unless Reasonable Basis) As To Any Material Matter Is Subject To Penalty $1,000 Or, If Lesser, 100 Percent Of Gross Income Derived 50 Percent Of Gross Income If Involving A Statement Sec. 6701: Any Person Who Assists, Procures, Advises With Respect To A Return Or Other Document That Will Result In Understatement Of Another Person Is Subject To Penalty $1,000 ($10,000 If Related To Tax Of Corporation) Page 12

14 Actions To Enjoin Preparers: The United States Government May Bring An Action To Enjoin Any Tax Return Preparer From Engaging In Certain Conduct (Where Preparer Would Be Subject To Penalty And Has Misrepresented His/Her Education Or Experience And Made Other Misrepresentations) Court May Enjoin Preparer From Acting As Preparer, Generally, Where There Is A Continuous Or Repeated Pattern Of Conduct Page 13

15 Circular 230: Who May Practice Before IRS? Discovery Of Omissions Covered Opinions And Other Written Advice Sanctions Final Circular 230 guidance expected week of May 9??? Page 14

16 AICPA Statements On Standards For Tax Services: Statement On Standards For Tax Services No. 1 Tax Return Positions Statement On Standards For Tax Services No. 2 Answers to Questions On Returns Statement On Standards For Tax Services No. 3 Certain Procedural Aspects Of Preparing Returns Statement On Standards For Tax Services No. 4 Use Of Estimates Statement On Standards For Tax Services No. 5 Departure From A Position Previously Concluded In An Administrative Proceeding Or Court Decision Statement On Standards For Tax Services No. 6 Knowledge Of Error: Return Preparation And Administrative Proceedings Statement On Standards For Tax Services No. 7 Form And Content Of Advice To Taxpayers Page 15

17 AICPA Code Of Professional Conduct: Introduction Section 50 - Principles Of Professional Conduct Section 90 - Rules: Applicability And Definitions Section Independence, Integrity And Objectivity Section General Standards Accounting Principles Section 300 Responsibilities To Clients Section Responsibilities To Colleagues Section Other Responsibilities And Practices Page 16

18 ABA Model Code And Model Rules Of Professional Conduct: The Tax Lawyer Lawyer-Client Relationship Advocate Page 17

19 Contact: Todd Simmens, National Tax Partner BDO USA, LLP Woodbridge, NJ Page 18