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Ethics Chapter 15 pp. 579 - 605

Ethics Chapter 15 pp. 579 - 605. 2015 National Income Tax Workbook™. Ethics p. 579. Ethical Decision Making General Ethical Obligations IRS Regulations of Return Preparers Circular 230 Case Studies Conclusion.

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Ethics Chapter 15 pp. 579 - 605

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  1. EthicsChapter 15 pp. 579 - 605 2015 National Income Tax Workbook™

  2. Ethics p. 579 • Ethical Decision Making • General Ethical Obligations • IRS Regulations of Return Preparers • Circular 230 • Case Studies • Conclusion

  3. Introduction p. 579 • Ethical decision making requires: • A sensitivity to perceive ethical implications. • Ability to evaluate complex, ambiguous & incomplete facts. • Skill to implement ethical decisions without jeopardizing one’s career.

  4. Introduction pp. 579 - 580 • IRS sets standards for tax professionals including Attorneys, CPAs, Enrolled Agents, Enrolled Actuaries and Appraisers in its • Circular 230. • AICPA sets out guidelines for ethical standards in its: • Code of Professional Conduct and • Standards for Tax Services • American Bar Association sets out standards for attorneys in its: • Model Rules of Professional Conduct

  5. Ethical Decision Making pp. 580 - 581 • Several motivators may lead tax practitioners to make ethical decisions including: • Ethics Codes • Obligations to Clients • Obligations to the Government • Obligations to Taxpayers • Duty to Profession • Consequences of Noncompliance

  6. Tax Minimization and Ethics p. 582 • Return preparers have power and influence since we impact money via tax refunds, tax liabilities, etc. • A client may be happy if you produce a larger refund, but does he or she expect or want you to be unethical in securing a larger return? • But pressure is there to provide the smallest legal tax liability. • Catherine Pilkington argues that the “tax practitioner, acting as an agent of a client, has a professional ethical duty to that client to minimize the client’s tax liability by legal means” [Catherine Pilkington, “Taxation and Ethical Issues,” in Ethical Issues in Accounting, ed. John Blake and Catherine Gowthorpe (London: Routledge, 1998), 88].

  7. Rationalizations for a Wrong Act pp. 582 - 583 • If It’s Necessary, It’s Ethical (The ends justify the means) • The False Necessity Trap • If It’s Legal (Permissible), It’s Proper • I Was Just Doing It for You • It’s Just Part of the Job • It’s All for a Good Cause • I’m Just Fighting Fire with Fire • It Doesn’t Hurt Anyone • Everyone’s Doing It • It’s Okay If I Don’t Gain Personally • I’ve Got It Coming • I Can Still Be Objective

  8. GENERAL ETHICAL OBLIGATIONS p. 584 • The practitioner must know his or her limitations • The practitioner must keep up-to-date on changing laws • The practitioner must safeguard the client’s tax information • The practitioner has a duty to ask enough questions. • The practitioner must seek out legitimate tax benefits. • The practitioner must never omit or overstate income, deductions and credits.

  9. Disclosure of Information p. 584 • I.R.C. § 7216 prohibits tax return preparers from disclosing or using a client’s information for any purpose other than tax preparation without the client’s specific consent. • Tax return information is all the information tax return preparers obtain from taxpayers or other sources in any form or manner that is used to prepare tax returns or is obtained in connection with the preparation of returns. • Return preparers can use information for certain reasons including creating lists for solicitation of tax return business or to produce statistical information.

  10. Safeguarding Data p. 585 • Take responsibility or assign an individual or individuals to be responsible for safeguards. • Assess the risks to taxpayer information in your office, including your operations, physical environment, etc • Write a plan of how you will safeguard taxpayer information; put appropriate safeguards in place • Use only service providers who have policies in place to also maintain an adequate level of information protection. • Monitor, evaluate, and adjust your security program for business or circumstances changes.

  11. Ethical Obligations to Self p. 585 • If a client wants to make bad choices the practitioner should terminate the practitioner-client relationship. • The practitioner must not try to prepare too many returns. • The practitioner must be careful to not get too involved on a personal level with clients. • A practitioner also has an obligation to be compliant with his or her own business and personal tax filings.

  12. Ethical Obligations to the Government pp. 585 - 586 • The practitioner must file accurate tax returns. The return should be complete and filed on time, including extensions. The practitioner should handle any IRS matters or correspondence in a timely manner. • The ethical practitioner must exercise due diligence. • The practitioner must submit any nonprivileged information as required in response to IRS requests.

  13. IRS REGULATION OF RETURN PREPARERS pp. 586 - 587 • As a result of the court’s decision in Loving v. IRS, 742 F.3d 1013 (D.C. Cir. 2014), the Registered Tax Return Preparer Program was replaced by the Annual Filing Season Program (AFSP). The AFSP is a voluntary program that allows the IRS to regulate unenrolled preparers who are not attorneys, CPAs, or enrolled agents. • Although there are challenges to the IRS’s authority the secretary of the Treasury has the authority to regulate the practice of representatives of persons before the Department of the Treasury

  14. CIRCULAR 230 pp. 587 - 588 • Subpart A deals with the rules governing the authority to practice. • Subpart B regulates the duties and restrictions relating to practice before the IRS. • Subpart C deals with sanctions for violation of the regulations. • Subpart D focuses on rules applicable to disciplinary proceedings. • Subpart E is for general provisions (which are not discussed in this issue).

  15. CIRCULAR 230 pp. 587 - 588 • The Office of Public Responsibility (OPR) is responsible for matters related to practitioner conduct and the authority to practice before the IRS. • The OPR, which generally has responsibility for: • Practitioner conduct and has exclusive responsibility for discipline and sanctions. • Matters related to authority to practice before the IRS, including acting on applications for enrollment to practice before the IRS and administering competency tests and continuing education.

  16. CIRCULAR 230 pp. 587 - 589 • The Office of Public Responsibility (OPR): • Has goals and objectives. • Is Committed to standards. • And is over any individual who, for compensation, prepares, or assists in the preparation of, all or a substantial portion of a document pertaining to any taxpayer’s tax liability for submission to the IRS. • Exceptions to OCR control include: • IRS employees performing official duties. • VITA individuals, etc…..See pages 588 -589

  17. Subpart B—Duties and Restrictions Relating to Practice before the IRSEx. 15.1 p. 589 • Under Circular 230 § 10.20, a practitioner must, on a proper and lawful request by a duly authorized officer or employee of the IRS, 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 information are privileged.

  18. Subpart B—Duties and Restrictions Relating to Practice before the IRSEx 15.2 p. 590 • A practitioner who has been retained by a client with respect to a matter administered by the IRS, and who knows that the client has not complied with the revenue laws of the United States or has made an error in or omission from any return, document, affidavit, or other paper that the client submitted or executed under the revenue laws, must promptly advise the client of such noncompliance, error, or omission. The practitioner must also advise the client of the legal consequences of such noncompliance, error, or omission

  19. Subpart B—Duties and Restrictions Relating to Practice before the IRSEx 15.2 p. 590 • Question 1: • EA reviews prior year return and sees that contributions were claimed as advertising on Sch C. • Should EA report error to IRS? • No but should advise client of error and explain consequences of error. Can offer to prepare amended return but not force client to do so.

  20. Subpart B—Duties and Restrictions Relating to Practice before the IRSEx 15.2 p. 590 • Question 2: • EA reviews prior year return and sees that previous preparer claim large nonexistent deduction and a fraudulent return. • Should EA report fraud to IRS? • EA should report the fraud but is not required to report the fraud. • To report use Form 3949-A.

  21. Diligence as to Accuracy p. 590 Practitioner must use due diligence in: • Preparing or assisting in the preparation of, approving, and filing tax returns and other papers relating to IRS matters • Determining the correctness of oral or written representations made by the practitioner to the Depart of the Treasury • Determining the correctness of oral or written representations made by the practitioner to clients with reference to any matter administered by the IRS. Circular 230 § 10.22

  22. Diligence as to AccuracyEx. 15.3 p. 590 • Client drops off organizer to CPA that shows: • $12,083 increase in sale to $37,364.00 • $6,275.00 in travel expenses. • Does preparer need to verify income and expenses? • No but the practitioner must make reasonable inquiries if the information furnished appears to be incorrect, inconsistent, or incomplete.

  23. Diligence as to AccuracyReliance on Professionals p. 591 • A practitioner will be presumed to have exercised due diligence if the practitioner relies on the work product of another person and the practitioner used reasonable care in engaging, supervising, training, and evaluating the person. • A practitioner may rely on the advice of another person only if the advice was reasonable and the reliance is in good faith considering all the facts and circumstance.

  24. Diligence as to AccuracyReliance on Professionals p. 591 • Inquiries May Be Needed: • A practitioner who is relying on the advice of another person may have an obligation to inquire about that person’s background. • Conflict of Interest May Be Waived: • Reliance is not permitted when the practitioner knows or reasonably should know that the other person has a conflict of interest unless the practitioner knows the conflict has been waived.

  25. Prompt Disposition of Pending Matters Ex. 15.4 p. 591 • Client received Final Notice of Intent to Levy. • Client asks CPA to request a due process hearing to give client time to pay the taxes. • Question. • Is the CPA unreasonably delaying the prompt disposition of a matter before the IRS by filing for the collection due process hearing? • Yes. Client received several notices prior to the final notice and had ample time to address the delinquency and an installment plan, etc so requesting a hearing to delay collection is not reasonable. Speaker Comment – Do you agree?

  26. Notaries pp. 591 - 592 • A practitioner may not take acknowledgments, administer oaths, certify papers, or perform any official act as a notary public with respect to any matter administered by the IRS and for which he or she is employed as counsel, attorney, or agent, or in which he or she may be in any way interested

  27. NotariesEx. 15.5 pp. 592 • Ryan is an attorney and a notary. • Ryan represents client to whom an SND was issued. • Ryan wants a statement from Client’s employees to present to IRS. • Can Ryan take statements and notarize them? • He cannot notarize such statements.

  28. FeesEx. 15.5 pp. 592 • A practitioner generally may not charge an unconscionable fee in connection with any matter before the IRS. • With some limited exceptions, a practitioner may not charge a contingent fee for services rendered in connection with any matter before the IRS. • But see text page 264

  29. Contingent FeesEx. 15.6 pp. 592 • Calvin prepared return with $2,550.00 refund for client and charged 10% of the refund = $255.00. • Calvin prepared a similar return for another client and with the EIC the refund was $11,972.00. • Does Calvin violate Cir 230 if he charges 10% ($1,197.20) for preparing this return. • Yes, he has violated Cir 230.

  30. Return of Client’s Recordspp. 592 - 593 • A practitioner must, at the request of a client, promptly return any and all records of the client that are necessary for the client to comply with his or her federal tax obligations. The practitioner may retain copies of the records returned to a client…. • Even if there is a dispute over fees. • Exception: Only access to the records is required if there is a dispute over fees and State law so provides only access is required.

  31. Return of Client’s Recordspp. 592 - 593 • Records includes: • All documents or written or electronic materials provided to the practitioner. • Materials that were prepared by the client or a third party and provided to preparer. • Any return, claim for refund, schedule, or any other document prepared by the practitioner, or his or her employee or agent, that was presented to the client with respect to a prior representation if such document is necessary for the taxpayer to comply with his or her current federal tax obligations

  32. Retention of RecordsEx. 15.7 p. 593 • Client gave his 2015 income tax documents to preparer on March 4, 2016. • Only income is $85,390 on 1099-MISC. • Client provides mileage log, receipts, etc. • Client owes $10,000 in taxes and preparer tried to reach client several times. • Client came in on April 14th, was unhappy with amount owed, requested his documents and refused to pay $212.00 prep fee.

  33. Retention of RecordsEx. 15.7 p. 593 • Question 1. Can preparer retain Client’s records until he pays the return preparation fee? • No. • Question 2. Can preparer charge Client for copying the records? • If preparer is required to return all records and wishes to retain a copy of those records for its files, it cannot charge client to make the copies. • Question 3. Does preparer have to give Tom the return that it prepared for him? • No.

  34. Conflicting Interestspp. 593 - 594 • A conflict of interest exists if: • The representation of one client will be directly adverse to another client; or • There is a significant risk that the representation of one or more clients will be materially limited by the practitioner’s responsibilities to another client, a former client, or a third person; or by a personal interest of the practitioner.

  35. Conflicting Interestspp. 593 - 594 If a conflict of interest exists the practitioner may represent a client if: • The practitioner reasonably believes that he or she will be able to provide competent and diligent representation to each affected client; • The representation is not prohibited by law; and • Each affected client waives the conflict of interest and gives informed consent, confirmed in writing by each affected client, at the time the existence of the conflict of interest is known by the practitioner.

  36. Conflicting Interestsp. 594 • The following are examples of potential conflicting interests: • ■ Divorcing couples • ■ Married couples filing joint returns • ■ Partnerships and partners • ■ Corporations and shareholders • ■ Owners and employees • ■ Trusts and beneficiaries • ■ Business competitors • ■ Family members of family-owned business • ■ Tax practitioner and client

  37. Conflict of Interest— Family MembersEx. 15.8 p. 594 • Preparer recognizes that long time client does not seem well and cannot recall information. • Preparer asks client to bring his son with him. • Client agrees to bring son. • Question 1: • Is there a conflict of interest? • No. At this point, Oscar is Joe’s client, and Joe does not provide services for Junior. However, Joe must be careful to safeguard Oscar’s confidential communications.

  38. Conflict of Interest— Family MembersEx. 15.9 p. 594 • Bill, his wife own 99% and son own 1% of the stock in a corporation. • Bill wants to sell stock of his company. • Attorney recommends an S election prior to sale to limit NIIT on sale proceeds. • Election must be sign by all shareholders. • Son took form to CPA who CPA for the corporation. • Question: • Can CPA advise son about signing election? • There is a conflict of interest. CPA should explain and secure a waiver in writing before advising.

  39. Solicitation p. 594 • Circular 230 restricts advertising and solicitation. A practitioner may not, with respect to any IRS matter, in any way use or participate in the use of any form of public communication or private solicitation containing a false, fraudulent, or coercive statement or claim; or a misleading or deceptive statement or claim.

  40. Logos Practitioner Notep. 594 • Commencing in the 2014 calendar year, practitioners may not use logos, slogans, and advertising on Form W-3, Copy A of Form W-2, or any employee copies reporting wages paid. • Rev. Proc. 2014-58, 2017-45 I.R.B. 793.

  41. Negotiation of Taxpayer Checks p. 595 • A practitioner may not endorse or otherwise negotiate any check (including directing or accepting payment by any means) issued to a client by the government in respect of a federal tax liability.

  42. Depositing RefundEx. 15.10 p. 595 • Taxpayer owes preparer $250.00. • Taxpayer expects a $630.00 Fed tax refund. • Taxpayer has no bank account. • Taxpayer suggests direct deposit to preparer’s bank account and that preparer then give her a check for $380.00. • Question: • Can preparer do this? • No.

  43. Depositing RefundEx. 15.11 p. 595 • Taxpayers won a Tax Court case. • IRS agreed to pay $7,500 in attorney fees and issued check payable to taxpayers. • IRS mailed check to attorney. • Question: • Can attorney deposit funds into her client trust account and apply it to fees owed to her? • No. Attorney must give check to clients and bill for fees.

  44. Practice of Law p. 595 Under Circular 230 § 10.32, practitioners who are not attorneys cannot give legal advice.

  45. Practice of LawEx. 15.12 pp. 595 - 596 • Client is buying business and wants to limit liability. • CPA advises client to speak with an attorney about forming an entity. • Client cannot get a timely meeting with attorney. • Question: • Can the CPA draft and file articles of organization for Bill, as long as Bill’s attorney prepares the operating agreement and other company formation documents? • No.

  46. Best Practices for Tax Advisers p. 596 • Communicating clearly with the client regarding the terms of the engagement. • Establishing the facts, determining which facts are relevant, evaluating the reasonableness of any assumptions or representations, relating the applicable law. • Advising the client regarding the import of the conclusions reached. • Acting fairly and with integrity in practice before the IRS.

  47. Standards with Respect to Tax Returns, Documents, Affidavits, and Other Papers p. 596 • A practitioner may not willfully, recklessly, or through gross incompetence sign a tax return or claim for refund that lacks reasonable basis, takes an unreasonable position, or is a willful attempt to understate the lability for tax. • A practitioner may not advise a client to take a position on a document, affidavit, or other paper submitted to the IRS unless the position is not frivolous. • A practitioner must inform the client of any penalties that are reasonably likely to apply. • A practitioner generally may rely in good faith without verification on information furnished by the client but must make reasonable inquiries if information furnished appears to be incorrect, inconsistent, or incomplete.

  48. Competence Standard p. 597 Circular 230 § 10.35 Competence. A practitioner must possess the necessary competence to engage in practice before the Internal Revenue Service. Competent practice requires the appropriate level of knowledge, skill, thoroughness, and preparation necessary for the matter for which the practitioner is engaged.

  49. Appropriate Preparation p. 597 Competence requires the appropriate level of knowledge, skill, thoroughness, and preparation necessary for the matter for which the practitioner is engaged. Practitioners are expected to advise clients to obtain other counsel when the practitioner is not competent or cannot become competent to provide advice requested on a matter within the scope of Circular 230.

  50. Written Advice pp. 597 - 598 • Base written advice on reasonable factual and legal assumptions. • Reasonably consider all relevant facts and circumstances. • Use reasonable efforts to identify and ascertain the facts • Not rely upon representations, statements, findings, or agreements of the taxpayer or any other person if reliance on them would be unreasonable. • Relate applicable law and authorities to facts. • Not, in evaluating a federal tax matter, take into account the possibility that a tax return will not be audited or that a matter will not be raised on audit

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