[Anonymous]

I’m using Becker and while doing section homework for Ethics and Professional Responsibilities in Tax Services I have confronted two questions whose answers seem to conflict:

1) A tax preparer has advised a company to take a position on its tax return. The tax preparer believes that there is a 75% possibility that the position will be sustained if audited by the IRS. If the position is not sustained, an accuracy-related penalty and a late-payment penalty would apply. What is the tax preparer’s responsibility regarding disclosure of the penalty to the company?

Answer: The tax preparer is responsible for disclosing both penalties to the company.

2) A CPA assists a taxpayer in tax planning regarding a transaction that meets the definition of a tax shelter as defined in the Internal Revenue Code. Under the AICPA Statements on Standards for Tax Services, the CPA should inform the taxpayer of the penalty risks unless the transaction, at the minimum, meets which of the following standards for being sustained if challenged?

Answer: More likely than not.

Can anyone please help to clarify why, in question #1, the more likely than not position is required to be disclosed to the taxpayer, while in question #2 the more likely than not position is not required to be disclosed?

Thank you!

[MCLKT]

I think sometimes you have to look at the MCQ as an isolated question. Generally, you always tell the client of potential fines/penalties.

#1 the Statndard IRC10.34 is: (Page #25: https://www.irs.gov/pub/irs-utl/pcir230.pdf)

(c) Advising clients on potential penalties —

(1) A practitioner must inform a client of any penalties that are reasonably likely to apply to the client with respect to —

(i) A position taken on a tax return if —

(A) The practitioner advised the client with respect to the position; or

(B) The practitioner prepared or signed the tax return; and

(ii) Any document, affidavit or other paper submitted to the Internal Revenue Service.

https://www.irs.gov/pub/irs-utl/circular_230_best_practices.pdf

BUT… Tax Shelters are specifically referred to in the IRC. And the code uses the MAGIC words “more likely than not” as the standard.

Section 10.35(d) requires a practitioner providing a tax shelter opinion to make certain disclosures in the beginning of marketed tax shelter opinions, limited scope opinions and opinions that fail to conclude at a confidence level of at least more likely than not.

I know it isn't that helpful from a big picture point of view. But when you are looking at and MCQ and have to find the best choice… it makes sense.

Just write down as a fact nugget and commit it to memory.

A:[73]97 F:[74]85 R:86 B:[74]82
*NINJA 10 Pt. COMBO & Yaeger*

[Author]

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