ETHICS FOR TAX PROFESSIONALS - cseapalomar.orgcseapalomar.org/Events/SpeakerOutlines/Ethics121510.pdf · those who fall under Circular 230 Standards are written in Circular 230, which

ETHICS FOR TAX PROFESSIONALS

PRESENTED BY:DAVE DU VAL, EADIRECTOR OF TAX SERVICES AND EDUCATIONTAX RESOURCES, INC.866-610-9695 EXT. [email protected]

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Ethics—And Who Really Cares!

Ethics – And Who Really Cares?� Big Brother is Truly Watching You

Back to Basics Quiz

� What is the length of time for a rental depreciation?

� What is the maximum amount of capital losses allowed per year?

� What is the difference between Qualified Relative and Qualifying Relative?

� What can I deduct for my illegal bookmaking operations?

� A woman only lives with her 5 year old grand daughter. What is her filing status?

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Part II Back to Basics

� Can a taxpayer deduct, as medical expense, in vitro fertilization?

� Are net gambling losses deductible for a “weekend gambler”? Where?

� Are net gambling losses deductible for a professional gambler? Where?

� Your client before an audit tells you he “forgot” $10K in SE income. What is your responsibility?

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Part III of Basic Tax Questions

I have a 12 year old who made $500 this summer mowing lawns. I have a 17 year old who made $3,000 this year delivering the Orange County Register.

�Who has to file their own tax return?

�Which one’s income can I include on my return?

�Which will owe tax?

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Part IV of oh so easy ???’s

� Are moving expenses from the “last “ job deductible?

� Are moving expenses to the “first” job deductible?

� Would you advise a 70 year old TP to convert?

� Which box on the Form 1098-T should be used for education deduction\credit; box 1 or 2?

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And Whose Fault ….

…is it that you missed some of these questions???�Yours?�Mine?�The question?�Maybe it is the Taxpayer?

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But Who will be Blamed (ethics)?

What are Ethics?

� What is ethical behavior?

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Some Definitions

� How you portray yourself in an interview

�What the IRS-OPR define it as

� Knowing where that “line” is drawn

� And my favorite: What you do when no one else is watching!

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New Regulation of the Tax Prep Industry

� The Return Preparer Review

� New requirements effective 1/1/11

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Who is a tax return preparer?12

PTIN Registration for All

� Available (mostly working as of 12-6-10) at irs.gov

� All tax return preparers must register: obtain or reapply

� $64.25 fee (proposed EA fees of $30!)

� No more PTINs through W-7P or e-services

� Will be used to “track” tax preparers – replaces 22 databases that do not “talk” to each other

� Compliance and suitability checks will be done!

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A New Designation: Registered Tax Return Preparers

� Practice limited to preparation and representing returns that they have prepared

� Cannot call themselves “certified”

� Under Circular 230

� Subject to actions of Office of Professional Responsibility (behavior)

� Subject to control by Return Preparer Office for CPE, PTIN, and testing

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Competency Testing: Must Pass by 12/31/2013

� Forms that can be prepared will be prescribed by IRS

� Can prepare any Form 1040 series returns

Nonbusiness Form 1040 Series Wage and Small Business Income

Not required by attorneys, CPAs, EAs, ERPAs, enrolled actuariesTesting has been postponed by a year (so far)

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Compliance Checks

� Have all individual and business tax returns been filed?

� Are all federal tax debts paid?

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Suitability Checks

� Did the applicant engage in conduct that would justify disbarment?

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Registration Card

� Registered tax return preparers will receive a registration card or certificate

� Valid PTIN certificate also required (still problems)

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CPE Requirements for Renewal

� 15 hours CPE each year

� 3 hours of Federal Tax Law Updates

� 2 hours of tax-related ethics

� 10 hours of Federal Tax Law Topics

� Registered Tax Return Preparers (and other designated tax professionals) will be allowed a maximum of 4 hours per credit year for instructing

� No credit allowed for writing tax articles or books

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Current Knowledge of Tax Preparers20

From Return Preparer Review, 12-2009 IRS Publication 4832

Ethical Standards: Circular 230 Changes (Proposed Regs REG-138637-07)

� RTRPs will fall under circular 230 starting 1-1-11

� RTRPS can:� Prepare returns

� Represent taxpayers before revenue agents, customer service and the like for returns they signed

� RTRPS cannot:� Represent taxpayer before revenue officers, Counsel or the like

� Provide tax advice except as necessary to prepare a return or claim for refund or other IRS document

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New Standards: Signing Tax Returns(Proposed Regs REG-138637-07)

� Under §10.34(a)(1)(i) of the proposed regulations, a practitioner may not willfully, recklessly, or through gross incompetence, sign a tax return or claim for refund that the practitioner knows or reasonably should know contains a position that: � (A) lacks a reasonable basis;

� (B) is an unreasonable position as described in section 6694(a)(2) (including the related regulations and other published guidance); or

� (C) is a willful attempt by the practitioner to understate the liability for tax or a reckless or intentional disregard of rules or regulations by the practitioner as described in section 6694(b)(2) (including the related regulations and other published guidance).

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New Standards: Advising Clients(Proposed Regs REG-138637-07)

Under §10.34(a)(1)(ii) of the proposed regulations, a practitioner may not willfully, recklessly, or through gross incompetence, advise a client to take a position on a tax return or claim for refund, or prepare a portion of a tax return or claim for refund containing a position, that: � (A) lacks a reasonable basis;

� (B) is an unreasonable position as described in section 6694(a)(2) (including the related regulations and other published guidance); or

� (C) is a willful attempt by the practitioner to understate the liability for tax or a reckless or intentional disregard of rules or regulations by the practitioner as described in section 6694(b)(2) (including the related regulations and other published guidance).

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Section 10.34 (230) vs. 6694 (Civil Penalty Standards)

Differences:

� A practitioner may be subject to discipline under 230 even if there was no understatement of liability (not so with 6694)

� To ensure that penalties are not imposed when practitioner acted reasonably and in good faith, a practitioner liable for a penalty under section 6694 is not automatically subject to discipline under Circular 230

� Under 230, multiple persons within a firm may be disciplined; under 6694 only one person within a firm is subject to penalty.

� Pattern of conduct matters for 230; a single act results in a 6694 penalty.

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Procedures to ensure compliance within a firm

� Section 10.36 of the proposed regulations provides that firm management with principal authority and responsibility for overseeing a firm’s practice of preparing tax returns, claims for refunds and other documents filed with the IRS must take reasonable steps to ensure that the firm has adequate procedures in effect for purposes of complying with Circular 230.

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Incompetence & Disreputable Conduct

� Under 10.51 of the new proposed regs, disreputable conduct includes:�Willfully failing to file on magnetic or other electronic media a tax return prepared by the practitioner when the practitioner is required to do so by the Federal tax laws (unless the failure is due to reasonable cause and not due to willful neglect)

� Preparing/signing a return for compensation without a valid PTIN

� Representing a taxpayer before IRS without authorization

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Office of Professional Responsibility (OPR) vs. Return Preparer Office

� Enforces the standards of practice for those who fall under Circular 230

� Standards are written in Circular 230, which governs attorneys, CPAs, EAs, Actuaries, Registered Tax Return Preparers (2011), and Appraisers

�CPE, PTIN, CE Providers (a big deal!)

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OPR

� Vision:

� Improve voluntarytax compliance through fair and comprehensive outreach and oversight for Circular 230 Professionals.

� Mission:

� To set, communicate, and enforcestandards of competence, integrity and conduct among Circular 230 professionals.

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OPR Organizational Chart (as of 7-2010)

� Director, Karen Hawkins

� Senior Operations Advisor, Helene Bayder� Deputy Director, Terri McField� Senior Counsel, Brinton Warren� Senior Analyst, Robert Johnson� Chief, Enforcement 1 Branch, Laura Zelman� Chief, Enforcement 2 Branch, Patrick McDonough� Chief, Case Development and Licensure Branch, Nadine McPhail

� IT Project Manager, John Brueggeman

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OPR: Increased Enforcement & Staff

� OPR staff has 57 slots (not all filled) as of 8-1-10� 2010 OPR estimate of 150K-200K practitioners � 2011 OPR estimates over one million practitioners

� From 1991 through 2004, there were a total of 287 sanctions against individuals authorized to practice before the IRS. 14 y.

� For the period of 2005 through 2007, the total of sanctions was 873. 3 years

� That’s an average annual increase of more than 900%. � 4,754 complaints against IRS, and 1,590 investigations initiated (10-1-09 thru 3-31-10)

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Office of Professional Responsibility Jurisdiction & Return Preparer Office

� 46,000 EAs

� 300 ERPAs

� 350 CPE Providers

� 46,000 EAs

� 300 ERPAs

� 600,000 RTRPs (minimum)

� 1900 more CPE providers

NOW SOON

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Monetary Penalty (Title 31 not Title 26)

� American Jobs Creation Act 2004

• Penalty amount up to 100% gross income derived (or to be derived) from misconduct

• Can be in addition to, or in lieu of, other sanctions

• Only sanction available against firms

• Assessment and collection issues (no Revenue Officers)

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TIGTA’s 2010 Midyear Report

� The Screening and Monitoring of E-file Providers Needs to Ensure the Integrity of the E-file Program

� During this six-month reporting period, OA issued 43 audit reports that identified more than $4.96 billion in potential cost savings

� Recent TIGTA audits have identified continued problems in requirements development and management, program management, contract management, and security controls.

� The risk that taxpayers’ identities could be stolen by exploiting security weaknesses in the IRS’s computer systems continues to increase, as does the risk that IRS computer operations could be disrupted.

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TIGTA continued…

� The IRS must continue to seek accurate measures for the various components of the Tax Gap and the effectiveness of the actions taken to reduce it.

� TIGTA’s review of IRA information showed that individual noncompliance with IRA excess contribution and minimum distribution requirements continued to grow since the previous review. (est. loss tax revenue is $111.8 million)

� lien determinations were not appropriately made or were made late costing more than $1.4 billion in delinquent taxes.

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TIGTA continues

� Estimates by the IRS show that the underreporting of income by sole proprietors contributed to $68 billion of the $345 billion Tax Gap

� The misclassification of employees as independent contractors is a nationwide issue affecting millions of employees that continues to grow and contribute to the Tax Gap.

� The volume of ITINs is growing. When applications for ITINs are not effectively processed and ITINs are inappropriately issued, the risk increases that ITINs will be used to file fraudulent tax returns.

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TIGTA still more on 9-30-10

� As of 5-28-10 received 131.7M returns, but IRS increased the error inventories by 7.1%.

� Payment of $29.7 million in erroneous Making Work Pay and Government Retiree Credits.

� The inability to identify and prevent erroneous claims at the time tax returns are processed, resulting in more than $15.6 million in erroneous Plug-in Vehicle Credits

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And the story continues…38

� Erroneous Home buyer Credits of $65.6M and the IRS only stopped $11.3M

� IRS potentially erroneous payments for Sch A line 7 of $95.8M

� TIGTA listed incomplete and inaccurate programming resulting in 125K TPs receiving nearly $111.4M in erroneous Recovery Act-related tax benefits

TIGTA June 10, 2010, Report (released 7-29-10)

� IRS’s gross collections declined from $2.75 trillion (FY 08) to $2.35 trillion (FY 09) (1st decrease since 2003)

� IRS collected fewer $ on delinquent TP in 2009� IRS is examining more returns in 2009 than 2008� IRS budget had additional funding for enforcement staff

� 2009, IRS hired > 2,000 examiners (largest in past 5 yr)

� IRS to increase the # of correspondence audits

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IRS 2010-112 E-filing Numbers40

�70% of TP use e-file in 2010 (67% in 2009)

�35% from “home computers” (up 8% from 2009)

�By Pros up 1% with less TPs filing by 1.4%

�Direct Deposit of $237B

Fun Facts to Make Life more Exciting!

� TIGTA faulted the IRS for not imposing accuracy related penalty (7-23-10)� Sample of 2008 audits showed “92% missed penalties that should have been considered and assessed.”

� IRS “lost out” on $3.5 million in revenue for 2008

� IRS “lost out” on $17.5 million in a 5 year period

� The recommendation: “consider penalties lead sheets for all audits.”

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….How to control us?42

OPR (not RPO-TBD)

The four areas of misconduct subject to disciplinary action by the OPR are:

� Misconduct while representing a taxpayer (rising)� Misconduct related to the practitioner’s own return-”low hanging fruit” (personal, business, and employment taxes)

� When advising taxpayers on filing positions or transactions

� Misconduct not directly involving IRS representation-moral turpitude

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…And the Winner is________!44

� Most of reported OPR decisions involve violations of:

� Section 10.22—due diligence

� Section 10.34—no realistic chance of success or undisclosed tax position on a tax return

� Section 10.51—disreputable conduct

� Section 10.52—Willfully act recklessly or is incompetent . Willfully = voluntary, intentional violation of a known legal duty Pomponio USTC

So What Can the IRS-OPR do?

If there is a violation of Cir 230:� Letter of Reprimand (private-may include “soft letter”)� Censure (public)� Suspension (> 6 m < 59 m)� Disbarment (> 60 months)� Monetary Penalty

� (last one never been done)

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What does “Disbarred” mean?46

�Now—

�Later–

To check: WWW.IRS.GOV

� Type in “Final Case Dispositions on Tax Professionals” to look at the list of:

� “Final Agency Decisions” and

� “Final Agency Default Decisions”

� As of 9-26-07 the OPR is allowed to publish decisions on its cases once they become final agency decisions.� After an ALJ issues and not appealed within 30 days

� After the Sec of Tres. has issued decision. Can be appealed to Federal District Court

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Or…

� Type in “Sanctions by OPR” for past lists of who, where, what, and why chart on Disciplinary Sanctions

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Circular 230– Duties Owed To the Client

� Exercise Due Diligence (§10.22)

� Contingent Fees & Negotiating Checks (§10.27/10.31)

� No Conflicting Interests Without Consent (§10.29) (TP vs. Sp or TP vs. you)

� Return of Records (§ 10.28)

� Advertising and Solicitation (§ 10.30)

� Advising of Errors and Omissions and their Consequences (§ 10.21)

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Circular 230 –

Duties Owed to “System”

� Unreasonably Delay Pending Matters Before the IRS (§10.23)

� Assisting Suspended Practitioners in Practice Before the IRS

� (§10.24)

� Providing False or Misleading Information to the IRS (§10.51(a)(4)) {written or oral}

� Signing Returns, Advising on Positions on Submissions in a Manner which Violates §10.34

� Engaging in Contemptuous Conduct (§10.51(a)(12))

� Failing to Submit Records or Information to the IRS Upon Lawful Request (§10.20(a))

� False or Misleading Opinions (§10.51(a)(13))

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Circular 230 Section 10.20

� Information to be furnished to:� (a) to the IRS

� (b) to the OPR

� (c) Cannot interfere with a “proper and lawful request” for records� Required to give the ID of someone else having the records

�Make inquiry of TP to who has the records

�Who are we working for???

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� This section also has what we have to do when we know the TP has made an error:

� Advise the client of the error

� Advise the client of the consequences

� Does NOT say you have to inform the IRS

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� Diligence as to accuracy in preparing-assisting, filing of returns-documents-etc.

� Diligence in giving oral or written info. to IRS-client

� Diligence in reliance on others (via attorney, CPA, EA, plumber, butcher, etc.)

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� Cannot delay the process

� Think of IRS “stall letters”

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� Cannot work with someone who is disbarred or suspended

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� Cannot charge “unconscionable” fees-(Please define!)

� Contingent fees are generally not allowed

� Circular 230 Section 10.28

� Return of client’s records (what if not paid?)

� Includes written or electronic (return emails?)

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� If a practitioner has clients with conflicting interests, the practitioner is required to obtain written consent from each affected client.

� Need “written informed consent” by each and to be kept 36 months.

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Circular 230—Section 10.30

� Solicitation limits—no false, fraudulent, or coercive statement or claim. (please define)

� Cannot “imply” an employer/employee relationship (try stopping someone from inferring) (When can you change your fees?)

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Circular 230 Sections:

� Section 10.31—cannot endorse a client’s refund check

� Section 10.32—Circular 230 does not authorize non lawyers to practice law (must be important to someone)

� Section 10.33—Best Practices = highest quality of representation; communicate clearly; use the law and facts to reach conclusions; avoid accuracy-related penalties; integrity with the IRS; best office practices

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� Cannot give bad advice; incorrect advice; frivolous advice

� Relying on information furnished by clients

� HOWEVER, must make reasonable inquiries� (now think back to some of the questions asked early on)

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� Requirements for the “Covered Opinions”

� We all know about the “disclaimer” size and where we use it…check yours and your friends’….

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� Incompetence and disreputable conduct is:� Conviction of any criminal offense of a federal tax law� Conviction of any criminal offense with dishonesty or breach of trust

� Conviction of any felony which involved conduct that renders theperson unfit to practice before the IRS

� Giving false or “misleading information” to the Department of the Treasury

� Failing to file tax returns and paying taxes� Contemptuous conduct (abusive language)� Giving a “false opinion” (is ignorance an excuse)� Failure to sign a return� Disclosing tax return information (and more on this one later)

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� Violations subject to sanction.

� (a) A practitioner may be sanctioned if the practitioner:

� (1) Willfully violates any of the regulations (other

� than §10.33) ; or

� (2) Recklessly or through gross incompetence

� (within the meaning of §10.51 violates §§ 10.34, 10.35, 10.36 or 10.37.

� (b) Effective/applicability date. This section is applicable to conduct occurring on or after September 26, 2007.

Title 26 Penalties --Mandatory Referrals

� 6694(b) Willful attempt to understate the liability for tax� $5,000 or 50% of income derived

� 6700 Promoting abusive tax shelters� $1,000 per, or 100% of gross income

� 6701(a) Aiding and abetting understatement of tax liability (appraisers-growing area)� $1,000 per TP and $10,000 per corporation

� 7407 Misrepresentation of exp., education, or eligibility to represent� Court action to stop preparer acting as a preparer

� 7408 Action to enjoin specific conduct re: tax shelters and reportable transactions. (District Court can enjoin)

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Title 26 Penalties –

Discretionary Referrals—don’t bet your career on it

� 6662 Accuracy related penalty with facts suggesting “lack of due diligence”� 20%-$5,000 40%-gross valuation misstatement

� 6694(a) Negligent or intentional disregard of tax rules and regulations (Need a Pattern) ($1,000 or 50%)

� 6694(b) Understatement due to preparer’s willful or reckless disregard of rules ($5,000 or 50%)

� 6695(a) Failure to furnish copy of return (seldom)� $50 per up to $25,000 per year

� 6695(b) Failure to sign a tax return (seldom)� $50 per up to $25,000 per year

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And more…

� 6695(d) Failure to keep copy of tax return or a list of taxpayers for 3 years (seldom)� $50 per up to $25,000 a year

� 6702 Frivolous tax returns or submissions (growing)� $5,000

� 7206 Fraud and false statements (always)� Felony up to $100,000 fine, 5 years or both

� 6111 and 6112 Failure to comply with tax shelter registration requirements (decreasing)� $50,000 ($250,000 for corporations)

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And if that is not enough…

� Even if Criminal Investigation or TIGTA (Treasury Inspector General for Tax Administration—J. Russell George) are looking at you in an investigation that goes nowhere, they can still refer you to OPR (sans charges)

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OPR Complaint Process

� Sources of complaints: from IRS divisions and employees, other government agencies, other tax practitioners, and private citizens

� Determine OPR Jurisdiction

� Evaluate Potential of a Violation of Circular 230

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OPR’s Disciplinary Approaches

� Issuance of a “Soft Letter” (compliance and conduct)

“He said, she said” or Intimidation or Aggressive behavior

(Section 10.51 of Cir 230)

� • Issuance of a “Soft 60-Day Letter” (compliance)

� • Issuance of a Notice of Allegation (conduct)

� • Deferred Disciplinary Agreement (both)

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OPR Complaint Process

� Issue Notice of Allegation:

� A report of suspected misconduct forwarded to OPR.

� The report suggests that you may have violated one or more regulations governing practice before the IRS.

� Allegations include (info……..)

� OPR will begin an investigation

� If you possess relevant information which you believe will help resolve the allegation(s), submit it now.

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Continued of Complaint Process

� • Investigation: Documentation; Database Searches; Witnesses; Other

� • Dispute: Conference Opportunity; Settlement Opportunity

� • Administrative Hearing before an Administrative Law Judge (ALJ)

� • Appeal Process

� • Sanction(s)

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Deferred Disciplinary Agreement

� OPR Accepts Offer and Agrees to Refrain From Imposing and Publicizing the Terms of Suspension, Contingent On:

� - Stay in Compliance For 5 Years� - Withdraw All Outstanding Forms 2848 Within 60 Days

� - Agree Not to Submit Any Forms 2848 to the IRS or Attempt to Practice Before the IRS.

� - If Default, Expedited Suspension Procedures of Section 10.82 (Cir 230) apply.

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Expedited Suspension (Section 10.82)

� Loss/Suspension of State License

� • Criminal Conviction under Title 26

� • Any Crime involving Dishonesty/Breach of Trust

� • Any felony rendering Unfit to Practice

� • Civil/Criminal Sanctions (including injunctions) re: any taxpayer’s or practitioner’s own tax liability, for� – Delay

� – Frivolous/Groundless Arguments

� – Failing to Pursue Available Admin. Remedies

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No More Debt Indicator

� IRS will no longer provide this service used to facilitate RALs (there goes someone’s stock!)

� To protect taxpayers

� IRS may provide a new tool to allow a “reasonable” portion of refunds to pay for tax prep (2011)

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New E-filing Requirements

� The new electronic filing requirements will be

“phased in”

� Tax preparers who prepare 100 or more individual or trust returns in 2010 will be required to electronically file

� Tax preparers who prepare 11 or more individual or trust returns in 2011 will be required to electronically file

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Section 7216 Review

� Tax return preparers who knowingly or recklessly disclose or use any information furnished to them for, or in connection with, the preparation of income tax returns for any purpose other than to prepare, or assist in preparing the returns are subject to criminal penalties.

� An exception to the penalty applies for disclosures or uses of information which are permitted by regulations prescribed by the Secretary.

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IRC 7216 says a “tax return preparer includes but not limited to”:

� Return preparers in the business (us)

� Casual preparers that are compensated

� ERO

� ERT (electronic return transmitters)

� E-file providers

� Software developers

� Reporting agents

� Even volunteer preparers such as VITA

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7216 Proposed and Temp Regs

� Effective 1-4-10

� Expand ability of preparers to disclose without permission in specific situations

� Compiling, maintaining and using lists

� Disclosing statistical compilations

� Disclosing and using information in conflict reviews

Temp. Reg. 301.7216-2T

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Lists for Solicitation of a Tax Return Business Temp. Reg. 301.7216-2T(n)

� Entity classification now allowed

� May be used solely for the purpose of providing tax information and general business or economic information or analysis for educational purposes, or soliciting additional tax return preparation services.

� No other products can be solicited

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Web Links—Part I

General Information regarding Sec 7216 Requirements

http://www.irs.gov/efile/article/0,,id=188390,00.html

2010 Temp and Proposed Regulation Update

http://www.irs.gov/taxpros/article/0,,id=218344,00.html

Additional Allowed Uses of Client Information

http://www.irs.gov/pub/irs-drop/rr-10-04.pdf

http://www.irs.gov/pub/irs-drop/rr-10-05.pdf

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Web Links—Part II

IRS 7216 Information Center

http://www.irs.gov/taxpros/article/0,,id=218344,00.html

Frequently Asked Questions


Aids to Preparing Consent & Release Documents


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Group Exercises83

Exercise #1

John, a tax preparer, maintains a list of tax preparer clients as allowed by the regulations. John provides quarterly state income tax information updates to his individual taxpayer clients by email or US Mail. To ensure that his clients only receive the information updates that are relevant to them, he uses his list to direct his outreach efforts towards clients by zip code and income tax return form number (Form 1040 and corresponding state income tax return form number). Is John required to obtain taxpayer consent for these mailings?

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Statistical Compilations & Tax Prep Businesses Temp. Reg. 301.7216-2T(o)

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Producing Statistical Information about Tax Preparation Business

� Purpose must directly relate to managing business or to research/public policy discussions

� Taxpayer identity must be anonymous

� Does not disclose cells from fewer than 10 returns

� No marketing identifying dollar amounts of refunds, credits or deductions

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Group Exercises 2, 3 & 487

Exercise 2

Sondra, a tax return preparer, compiled a statistical compilation of data for internal management of her tax preparation business. She decides to launch a new marketing campaign emphasizing her experience preparing small business tax returns. In the campaign she discloses that she prepared 32 S Corporation returns. She did not include any information that identifies any specific taxpayers. Does Sondra need taxpayer consent to disclose this statistical compilation?

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Exercise 3

Frank, a tax preparer, wants to advertise that the average tax refund obtained for his clients in 2009 was $8,000. Is he allowed to disclose this information in advertisements?

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Exercise 4

In 2009, Diane, a tax preparer, produced an anonymous statistical compilation of tax return information obtained during the 2009 filing season. She wants to disclose portions of the anonymous statistical compilation from cells containing data from ten or more tax returns in connection with the marketing of her financial advisory and asset planning services. Does Diane need taxpayer consent to disclose this information?

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Disclosure for Quality Peer or Conflict Reviews Temp. Reg. 301.7216-2T(p)

� Penalties will not apply to any disclosure for the purpose of a quality or peer review to the extent necessary to accomplish the review. A quality or peer review is defined as a review that is undertaken to evaluate, monitor, and improve the quality and accuracy of a tax return preparer’s tax preparation, accounting, or auditing services.

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Revenue Ruling 2010-4

� Tax return preparers can contact clients about tax law developments that may affect them when they can reasonably expect to prepare the clients taxes the next year

� Can disclose to a third part that sends out informational emails on their behalf to provide tax and business information for educational purposes

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Revenue Ruling 2010-5

� Okay to disclose without permission to professional liability carrier to:

�Obtain quotes

� Report claims

� Secure legal representation

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Dirty Dozen 2010

� Return Preparer Fraud

� Hiding income offshore

� Phishing

� False or misleading forms

� Withholding on nontaxable SS

� Charitable Abuse

� Frivolous Arguments

� Abusive Retirement Plans

� Disguised Corporate Ownership

� Zero Wages

� Trust Misuse

� Fuel Tax Credit Scams

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Civil and Criminal Actions95

Tuesday, August 10, 2010

A federal court in Kansas City, Mo, permanently barred Missouri lawyer A. Blair Stover Jr. from promoting a variety of improper tax schemes. U.S. District Judge Ortrie D. Smith found that Stover for years promoted schemes in which business owners use sham companies and sham transactions to improperly reduce their reported income tax liabilities. The court said that "very conservative estimates" of the tax losses to the government from Stover's conduct were around $100 million, and noted that an Internal Revenue Service (IRS) revenue agent estimated the total tax loss to be $300 million.

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Monday, August 9, 2010

The United States sued Gwenn Wycoff and Frank Ozak of Los Angeles seeking to bar them from promoting the formation and operation of "common-law" trusts for the purpose of tax avoidance. According to the government’s complaint, Wycoff and Ozak promote -through personal appearances, a website and a self-published two-volume work they co-wrote entitled The Art of Passing the Buck - the creation of common-law trusts. Wycoff and Ozak urge taxpayers to place all personal assets, as well as their businesses, into a variety of related trusts in order to create the impression that the taxpayer no longer owns the assets at issue.

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Friday, August 6, 2010

A federal judge in Santa Ana, CA, permanently barred Thanh Viet Jeremy Cao and his business, Phoenix Financial Management Group, from preparing federal tax returns. The court found that Cao prepared numerous federal tax returns claiming a total of over $200 million in tax refunds based on false representations of tax withholdings. The court noted that in 2010 the Internal Revenue Service (IRS) continued to receive fraudulent tax returns prepared by Cao, including a bogus $82 billion refund claim on his own 2009 income tax return.

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Friday, July 23, 2010

� A federal district judge in Chicago permanently barred Natalie Bradford, individually, and operating as K & N Tax Pros Inc., and Kristine Burkland-Valdez, individually, and operating as K & N Tax Pros Inc. and Tax Pros Inc., from preparing federal tax returns for others. According to the government complaint in the case, the Elmhurst, Ill., company prepared 23,823 federal tax returns for calendar years 2005 through 2009. The Internal Revenue Service (IRS) examined 100 of these returns and found that 94% of the returns contained misstatements. The examinations of these returns resulted in the assessment of additional taxes totaling $830,147. According to the complaint, the returns that the defendants, a mother-daughter team, prepared for customers contained fabricated or falsified deductions such as employee business expenses, mileage, cash contributions, rental losses and medicalexpenses.

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A Quick Review of Substantial Authority & Hierarchy of Sources

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What is “Substantial Authority”

� Do I expense a $5 calculator?

� Do I expense a $50,000 computer

� Where is the line drawn?

� Can I deduct my client’s outfits for performances?

� Can Elton John’s “roadies” deduct their outlandish “uniforms”?

� Baseball-32

� Fireperson-40

� Police-43

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What is Substantial Authority?

� Used when determining liability for an understatement of tax related to an undisclosed position on a tax return

� If Substantial Authority exists, no accuracy penalty will be imposed

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Substantial Authority: The Standard

�When the weight of authorities supporting the position is substantial in relation to the weight of authorities supporting contrary treatment.

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Acceptable Authorities per Regs. Sec. 1.6662 (part 1 of 2)

� Internal Revenue Code and other statutory provisions – THE ULTIMATE AUTHORITY

� Regulations:� Final – Legally binding

� Temporary – Effective for 3 years

� Proposed – Invalid if found to be inconsistent with statute

� Revenue rulings and revenue procedures

� Tax treaties and regulations thereunder

� Court cases

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Acceptable Authorities - Continued

� Congressional intent as reflected in committee reports; � General explanations of tax legislation prepared by the Joint Committee on Taxation (the Blue Book);

� Private letter rulings and technical advice memoranda issued after October 31, 1976;

� Actions on decisions and general counsel memoranda issued after March 12, 1981;

� IRS information or press releases; and � Notices, announcements, and other administrative pronouncements published by the Service in the Internal Revenue Bulletin.

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IRS Pubs are not an Authority

� IRS Publications are issued to assist taxpayers. But we all use them!

� Although they may contain useful information, they do not cite to authority and should not be relied upon by researchers.

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Quote from Tax Court Judge Marvel

� TP: “I used the IRS Pub to determine if I could claim a deduction for dependent”

� Judge Marvel: “Well established precedent confirms that TPs rely on such at their own peril!”

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Treasury Regulations Have the Full Force & Effect of Law

� The Internal Revenue Service, under the direction of the Commissioner of Internal Revenue, is a bureau of the Department of the Treasury. IRC Sec. 7805(a) grants the Secretary of the Treasury the authority to promulgate rules and regulations necessary for the enforcement of the tax laws.

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Treasury Regs Continued…

� There are two kinds of regulations: general and legislative.

�General (or "interpretive") regulations are issued under the IRS's general authority to interpret the language of the IRC; they are subject to challenge if they do not reflect congressional intent.

� Legislative regulations are authorized by Congress to provide the substantive requirements of a specific IRC provision. Legislative regulations carry nearly the same authority as the IRC itself.

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Proposed Regulations

� At least 30 days before a regulation is published in final form, it must be issued in proposed form, allowing the public time to comment. Proposed regulations are published in the Federal Register. It can take months or years before a proposed regulation is adopted as a final regulation. Neither the IRS nor the courts are bound by proposed regulations; however, they are useful for indicating the IRS's position.

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Final Regulations

� Final Regulations are issued as Treasury Decisions (T.D.) and are first published in the Federal Register.

� They are officially cited as Title 26 of the Code of Federal Regulations.

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Temporary Regulations

� The IRS occasionally issues Temporary Regulations in response to changes in the IRC or in its interpretation. Temporary Regulations, which expire three years after issuance, are effective upon publication, but the IRS must simultaneously issue the Regulations in proposed form. Taxpayers should follow Temporary Regulations as if they were final.

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IRS Rulings & Pronouncements

� The IRS issues various types of rulings and pronouncements, some of which are officially published by the IRS (in the IRS Bulletin) and may be cited as precedent, and some of which are not officially published and cannot be cited as precedent.

� Treasury Decisions

� Revenue Rulings – Official Position of IRS

� Revenue Procedure – Tells how to do something

� Private Letter Rulings – Not binding & cannot be cited as precedent

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Tax Court Cases

� The U.S. Tax Court, a federal trial court that specializes in tax disputes, issues two types of decisions: Memorandum Decisions and Regular Decisions.

� The U.S. Tax Court generally issues Memorandum Decisions when the decisions merely repeat prior rulings or applications of existing law.

� The Tax Court issues a Regular Decision, which is officially reported, when the decision involves a new or unusual point of law.

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Nature of Analysis

� The weight accorded an authority depends on its relevance and persuasiveness and the type of document providing the authority

� Any document that is more than 10 years old generally is accorded very little weight.

� One S.A. is not = to another S.A.

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Group Exercise116

Exercise #5

Betsy, a tax preparer, files a tax return for her client, Zack, who just took out a $2 million dollar mortgage on a new home in Newport Beach. Zack wants to deduct the interest on $1.1 million of his acquisition debt since he has no home equity debt and his best friend is able to deduct interest on $1M in acquisition debt and another $100,000 in home equity debt. In support of this position, Betsy finds Chief Counsel Memorandum CCA 200940030 which reinterprets the term “acquisition indebtedness.” There are several contrary tax court decisions. Does Betsy have a reasonable basis for filing Zack’s taxes according to the Chief Counsel’s new interpretation? Does Betsy need to file a Form 8275 to disclose her position to avoid any possible understatement penalty?

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Changes to CTEC CPE Requirements

� Starting with the 2010/2011 registration cycle, all CRTP’s will have to complete two hours of ethics as part of the 20 continuing education requirement (12 hours federal, 4 hours state, 2 hours of either federal or state, and 2 hours of ethics).

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Changes to Late Fees & Registrations

� Late fee increases to $55 beginning 11/1/2012

� CRTPs who do not renew by January 15, 2013, and each year thereafter, will have to retake the sixty-hour qualifying education course, pass a competency exam from an approved education provider, and register as a new CRTP

� The new policy shortens the grace period from one year to ten weeks.

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Competency Test Required for Qualifying Education

� Beginning January 1, 2010, qualifying education providers are required to issue a competency test at the end of a sixty-hour qualifying education course. A score of seventy percent is needed to pass the course and qualify for CTEC registration.

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Continued……….

� Must not conduct business without having a surety bond in effect.

� Must cease doing business as a tax preparer upon cancellation or termination of the bond.

� Must furnish evidence of a current bond upon the request of any state or federal agency.

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And it Still Continues….

� Prior to rendering any tax prep services the client must be provided, in writing, the preparer’s name, address, telephone number and bond evidence. (do you?)

� Must not make fraudulent or misleading statements which are intended to induce a person to use their services. (?)

� Must not obtain a customer’s signature on a document with blank spaces.

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More…..

� Must not fail to provide customer with appropriate copies.

� Keep copies of customer’s returns for at least four years. (less for EAs)

� Must not engage in fraudulent advertising.

� Must not violate disclosure laws.

� Must not fail to sign tax return when payment has been received.

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And finally……..

� Must not fail to return upon demand customer’s original documents.

� Must not give false bond information.

� Must apply for certification within 18 months of completing initial education.

� Must complete annual continuing education requirements.

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CTEC Registered Preparers:

� Must register with CTEC.

� Maintain $5,000 Tax Preparer Bond.

� Identify to the surety company all preparers employed or associated with the holder of the bond.

� File an amendment to the bond within 30-days if any information should change.

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FTBs Top Scams

� Tax Shelters

� Credits and Incentives

� Phony Home Businesses

� Internet Business

� Moving Business Out of State

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