ETHICS

1
ETHICS

• What Every Tax Preparer Needs to Engrave in Their
  Thoughts

2

• Presented By
• Marcia L. Miller, MBA, EA
• Financial Horizons, Inc.
• Weston, Florida
• ProactiveTax_at_aol.com

3

• Ethics has always been a requirement, but will
  our clients agree not to control us by swaying
  our ethical requirements?
• Frivolous tax arguments and tax scams will always
  be a dilemma to be reckoned with, but now more
  than ever it is imperative that we not trust
  the client too much.

4
Imagine a Pyramid

• At the bottom appears the Code of Professional
  Conducts
• six principles are the cornerstone of ethical
  behavior.
• They include
• 1 - Responsibilities
• 2 - The Public Interest
• 3 - Integrity
• 4 - Objectivity and Independence
• 5 - Due Care
• 6 - Scope and Nature of Services

5
Principles

• These are positive statements of responsibility
  in the Code of Professional Conduct that provide
  the framework for the rules, which govern
  performance.

6

• Next are the rules by which we are governed
  whether we are in the practice of accounting or
  merely providing professional services.
• Independence
• Integrity and objectivity
• General Standards
• Compliance with Standards
• Accounting Principles
• Confidential Client Information
• Contingent Fees
• Acts Discreditable
• Commissions and Referral Fees
• Advertising and Other Forms of Solicitation
• Form of Organization and Name

7
RULES

• Broad but specific descriptions of conduct
  that would violate the responsibilities stated
  in the principles in the Code of Professional
  Conduct.

8

• Now as the Pyramid narrows, you as the
  professional, must make your own interpretations
  of these specific rules, some of which may
  require rulings for certain circumstances.

9
INTERPRETATIONS

• This refers to those pronouncements issued by
  organizations such as the AICPAs Division of
  Professional Ethics
• to provide guidelines concerning the scope and
  application of the rules of conduct.

10
ETHICS RULINGS

• Rulings summarize the application of rules and
  interpretations to a
• particular set of factual circumstances.

11
YOUR BEHAVIOR

• Lastly, at the top of your pyramid is the
  Behavior for which your peers are judging your
  actions.
• Your Behavior needs to be impacted by the Code,
  Interpretations and Rulings.

12
CIRCULAR 230

• In order to protect citizens from incompetent and
  unethical practitioners, governments have passed
  laws and regulations regarding the professional
  conduct of certain professionals who provide
  accounting and tax services. In particular,
  Certified Public Accountants (CPAs) and Public
  Accountants (PAs) are regulated by State Boards
  of Accountancy and professionals who are
  authorized to practice before the Internal
  Revenue Service (IRS) are regulated by Treasury
  Department Circular 230 and the IRS Office of
  Professional Responsibility. The body of law
  which is intended to protect citizens from
  unethical behavior is sometimes referred to as
  regulatory ethics. Those who are regulated and
  fail to uphold the required standards of ethical
  and professional conduct are guilty of committing
  acts which are not only unethical, but also
  illegal.

13
CIRCULAR 230

• Many accounting and tax practitioners are not
  directly regulated by State Boards of Accountancy
  or the Internal Revenue Service. However, the
  standards of ethical and professional conduct
  established by those authorities represent the
  high expectations of the citizens who are served
  by the accounting profession. Because these
  standards are widely published and well known,
  they may also be used in a court of law when a
  citizen sues to obtain damages from a
  practitioner. Therefore, it is important for all
  accounting and tax professionals, whether
  regulated or not, to understand the high level of
  ethical and professional conduct that is expected
  because of the trust that is conveyed to them by
  the individuals and businesses they serve.

14
CIRCULAR 230

• Liability for Fraud
• Actual fraud and constructive fraud present two
  different circumstances under which an accountant
  may be found liable. An accountant may be held
  liable for actual fraud when he or she
  intentionally misstates a material fact to
  mislead his or her client, and the client
  detrimentally relies on the misstated fact. A
  material fact is one that a reasonable person
  would consider important in deciding whether to
  act. Constructive fraud, on the other hand, will
  be found when an accountant is grossly negligent
  in the performance of his or her duties. The
  intentional failure to perform a duty in reckless
  disregard of the consequences of such a failure
  would constitute gross negligence on the part of
  an accountant. Both actual and constructive
  frauds are potential sources of legal liability
  under which a client may bring an action against
  an accountant.
• When a client is dissatisfied with the
  performance of an accounting firm, he or she will
  often sue on all three common law theories in the
  alternative. The Federal Rules of Civil Procedure
  permit a pleader, in a claim or defense, to make
  two or more statements which are not necessarily
  consistent with each other. A plaintiff may sue
  on several theories.

15
CIRCULAR 230

• Treasury Department Circular 230
• Circular 230 provides regulations governing the
  practice of Attorneys, Certified Public
  Accountants, Enrolled Agents, Enrolled Actuaries,
  Enrolled Retirement Plan Agents, and Appraisers
  before the Internal Revenue Service. As part of
  an ongoing effort to improve ethical standards
  for tax professionals and to curb abusive tax
  avoidance transactions, the Treasury Department
  and the Internal Revenue Service have issued
  final regulations amending Circular 230 to
  achieve the strategic goal of ensuring that
  attorneys, accountants, enrolled agents, and
  other tax practitioners adhere to professional
  standards and follow the law. Subpart B of
  Circular 230 describes the duties and
  restrictions relating to practice before the
  Internal Revenue Service, the best practices for
  tax advisors, and standards with respect to tax
  returns, financial documents, and workpapers.
  Subpart C describes the sanctions for violation
  of the regulations, and defines incompetence and
  disreputable conduct for which a practitioner may
  be sanctioned. The most recent revision of
  Circular 230 is available on the Internal Revenue
  Service website.

16
CIRCULAR 230

• Tax professionals who are authorized to practice
  before the Internal Revenue Service (that is, to
  represent clients) are regulated by the Office of
  Professional Responsibility (OPR) and are legally
  obligated to follow Circular 230 requirements.
  Tax professionals who are not authorized to
  practice before the Internal Revenue Service are
  not directly regulated by OPR. However, all tax
  professionals should be familiar with Circular
  230 as many of the standards and best practices
  discussed are universally applicable. Some of the
  most important requirements regarding
  professional conduct are summarized below.
• Furnishing Information A practitioner must
  furnish records or other information to the IRS
  or OPR upon a proper and lawful request unless
  the practitioner believes in good faith and on
  reasonable grounds that the records or
  information are privileged. If the practitioner
  does not possess the requested records, he/she
  must promptly notify the requesting IRS officer
  or employee. The practitioner must ask the client
  where the requested records are located, and
  provide any information regarding the identity of
  any person who the practitioner believes may have
  possession of the requested records to the IRS
  officer or employee.
• Knowledge of Clients Omission If a practitioner
  knows that a client has not complied with the
  revenue laws or has made an error in or omission
  from any return or other document submitted to
  the U.S. government, the practitioner is
  obligated to advise the client promptly of the
  facts of such noncompliance, error, or omission.
  The practitioner must also advise the client of
  the consequences of such noncompliance, error, or
  omission as provided under the Internal Revenue
  Code and regulations.

17
CIRCULAR 230

• Diligence as to Accuracy A practitioner must
  exercise due diligence as to the accuracy of all
  returns, documents, other papers, and oral or
  written representations which relate to IRS
  matters. If the practitioner relies on the work
  product of another person, he/she will be
  presumed to exercise due diligence if the
  practitioner has used reasonable care in
  engaging, supervising, training, and evaluating
  the person, taking into account the nature of the
  relationship between the practitioner and the
  person.
• Prompt Disposition of Pending Matters A
  practitioner may not unreasonably delay the
  prompt disposition of any matter before the
  Internal Revenue Service.
• Assistance from Disbarred or Suspended Persons A
  practitioner may not knowingly accept assistance
  regarding IRS matters, either directly or
  indirectly, from any person who is under
  suspension or disbarment from practice before the
  Internal Revenue Service.

18
CIRCULAR 230

• Notaries A practitioner may not act as a notary
  public with respect to any matter administered by
  the IRS if the practitioner is also employed by
  the client regarding IRS matters or is in any way
  interested in the matter pending before IRS.
• Fees A practitioner may not charge
  unconscionable fees. Generally, a practitioner is
  not allowed to charge a contingent fee for tax
  return preparation or other matters before the
  IRS. A contingent fee is a fee that is based on a
  percentage of the refund reported on a return, or
  is otherwise dependent on the result obtained.
  However, contingent fees are allowed in the
  following situations
• Services rendered in connection with an
  examination or other challenge to a taxpayers
  original return.
• Services rendered in the preparation of an
  amended return or claim for refund or credit
  which is filed within 120 days of the taxpayer
  receiving a notice of examination or a written
  challenge to the return.
• Services rendered in connection with a claim for
  refund or credit regarding the determination of
  interest and penalties assessed by the IRS.
• Services rendered in connection with any
  judicial proceeding arising under the Internal
  Revenue Code.

19
CIRCULAR 230

• Return of Clients Records A practitioner is
  obligated to promptly return, upon request, any
  and all records that belong to the client, or
  that the client needs to comply with his/her
  federal tax obligations. The practitioner may
  retain copies of the records returned to the
  client. A dispute over fees does not relieve the
  practitioner of this responsibility. (There is an
  exception, where allowed by state law, whereby
  the practitioner may retain the records subject
  to the fee dispute, but must provide the client
  with reasonable access to review and copy the
  records.) The practitioner is not required to
  release returns or other documents which have
  been prepared by the practitioner or the
  practitioners firm if the return or document is
  being withheld due to the clients nonpayment of
  fees with respect to that return or document.

20
CIRCULAR 230

• Conflicting Interests A practitioner shall not
  represent a client before the IRS if the
  representation involves a conflict of interest. A
  conflict of interest exists if the representation
  of one client will be directly adverse to another
  client. There is also a conflict of interest if
  there is a significant risk that the
  representation of a client will be materially
  limited by the practitioners responsibilities to
  another client, a former client or a third
  person, or by the practitioners own personal
  interests.
• A practitioner may reasonably believe that
  he/she will be able to provide competent and
  diligent representation to clients where a
  potential conflict of interest exists. The
  clients may consent to such representation if it
  is not prohibited by law. Each affected client
  must waive the conflict of interest and give
  informed consent in writing within 30 days after
  being informed of the conflict. The practitioner
  must retain copies of the written consents for at
  least 36 months after the conclusion of the
  representation of the affected clients, and must
  provide those consents upon request to any
  officer or employee of the IRS.

21
CIRCULAR 230

• Solicitations A practitioner may not advertise
  or solicit clients, either publicly or privately,
  in any manner that could be considered false,
  fraudulent, misleading, deceptive, or coercive.
  Any uninvited solicitation must clearly identify
  the solicitation as such, and also identify the
  source of information used in choosing the
  recipient.
• If a practitioner publishes a fee schedule,
  he/she may not charge more than the published
  fees for at least 30 days after the last date of
  publication. The practitioner must retain a copy
  of any communication containing fee information,
  along with a list or description of persons to
  whom the communication was distributed. The
  practitioner must retain these copies for at
  least 36 months after they were last used. This
  applies to all methods of communication
  mailings, e-mails, radio, television, flyers,
  telephone directories, and all others.

22
CIRCULAR 230

• Clients Refund Checks A practitioner who
  prepares tax returns may not endorse or otherwise
  negotiate any check issued to a client by the
  government with respect to a federal tax
  liability.
• Best Practices Tax professionals should adhere
  to best practices when preparing tax returns or
  other documents or providing advice
• regarding federal tax matters. In addition to
  compliance with standards, best practices include
  the following
• Communicating clearly with clients and having a
  clear understanding with clients as to the scope
  of advice and assistance being given.
• Establishing the facts, determining which facts
  are relevant, evaluating the reasonableness of
  any assumptions, relating the facts to the
  applicable law, and arriving at conclusions that
  are supported by the law and the facts.
• Advising clients regarding the importance and
  potential consequences of the conclusions
  reached, including the avoidance of penalties if
  the taxpayer relies on the advice.
• Acting fairly and with integrity in the conduct
  of your business.
• Developing procedures to ensure best practices
  are followed by all members, associates, and
  employees of the firm.

23
CIRCULAR 230

• Standards with Respect to Tax Returns Circular
  230 establishes certain standards with respect to
  tax returns and other submissions to the Internal
  Revenue Service. A tax professional may NOT
• Advise a client to take a position on a return or
  document submitted to the IRS unless the position
  is not frivolous.
• Advise a client to submit a document to the IRS
  for the purpose of impeding or delaying

24
CIRCULAR 230

• Advise a client to submit a document to the IRS
  for the purpose of impeding or delaying
  administration of federal tax laws.
• Advise a client to submit a return or document
  that is frivolous.
• Advise a client to submit a return or document
  that contains or omits information in a manner
  that demonstrates an intentional disregard of a
  rule or regulation (unless the client is also
  advised to submit documents that evidence a good
  faith challenge to the rule or regulation).
• In order to comply with standards, a tax
  professional must
• Inform a client of any penalties that may
  reasonably apply to a position taken on a tax
  return, if the practitioner gave advice regarding
  the position or prepared or signed the tax
  return.
• Inform a client of any opportunity to avoid
  penalties by disclosure, and of the requirements
  of adequate disclosure.

25
CIRCULAR 230

• A tax professional may generally rely in good
  faith without verification upon information
  furnished by the client. However, a practitioner
  may not ignore the implications of information
  furnished by the client or otherwise known by the
  practitioner. If the information provided by the
  client appears to be incorrect, inconsistent, or
  incomplete, the professional must make reasonable
  inquiries to obtain reliable information.
• Giving Written Advice When giving written advice
  to a client, a tax professional may NOT
• Base the advice on unreasonable factual or legal
  assumptions
• Unreasonably rely on the representations or
  statements of the taxpayer or any other person
• Ignore or fail to consider all relevant facts
  that the professional knows or should know or
• Take into account the risk of being audited or
  having the advice challenged by the IRS.

26
CIRCULAR 230

• Incompetence and Disreputable Conduct
  Incompetence and/or disreputable conduct may
  subject a tax professional who is authorized to
  practice before the IRS to sanctions for
  violation of the regulations. Incompetent and/or
  disreputable acts include the following
• Conviction of any criminal offense under the
  federal tax laws.
• Conviction of any criminal offense involving
  dishonesty or breach of trust.
• Conviction of any felony under federal or state
  law which would render a practitioner unfit to
  practice.
• Knowingly giving false or misleading information
  to the Department of the Treasury or its officers
  or employees.
• Soliciting employment or attempting to deceive a
  client or prospective client using false or
  misleading representations, or intimating that
  the practitioner is able to obtain special
  consideration or action from the IRS or its
  officer or employee.
• Willfully failing to file a federal tax return,
  or participating in evading or attempting to
  evade any assessment or payment of any federal
  tax.
• Willfully assisting, counseling, or encouraging
  a client or prospective client to violate any
  federal tax law, or knowingly counseling or
  suggesting to a client or prospective client an
  illegal plan to evade federal taxes.

27
CIRCULAR 230

• Misappropriation or failure to remit funds
  received from a client for the purpose of paying
  taxes or other government obligations.
• Directly or indirectly trying to influence the
  official action of any IRS officer or employee by
  the use of threats, false accusations, duress or
  coercion, or by offering or promising gifts,
  favors, or anything of value.
• Disbarment or suspension from practice as an
  attorney, certified public accountant, public
  accountant, or actuary by any state or other U.S.
  jurisdiction.
• Knowingly aiding and abetting another person to
  practice before the IRS during a period of
  suspension, disbarment, or other period of
  ineligibility.
• Contemptuous conduct in connection with practice
  before the IRS, including the use of abusive
  language or malicious or libelous communications.
• Knowingly, recklessly, or through gross
  incompetence giving a false opinion on questions
  arising under Federal tax laws.
• Willfully failing to sign a tax return prepared
  by the practitioner.
• Willfully disclosing or otherwise using a tax
  return or tax information in a manner not
  authorized by the Internal Revenue Code.

28
CIRCULAR 230

• Confidentiality, Privacy, and Disclosureof
  Financial or Tax Information
• Citizens have a right to expect professionals who
  assist them with private financial matters to be
  trustworthy. The accounting and tax professional
  has an obligation to maintain and respect the
  confidentiality of information obtained in the
  performance of all professional activities. The
  Gramm-Leach-Bliley Act of 1999 requires each
  financial institution and tax preparer to
  disclose its privacy policy to those who trust
  them with nonpublic personal information.
• In general, the tax preparers privacy policy
  should state that nonpublic personal information
  is not disclosed without the clients consent.
  Any exceptions should be explained in the privacy
  policy. The following are some common exceptions
  that a tax preparation firm should explain in its
  privacy policy
• Disclosure to employees, technical advisors,
  software consultants, or electronic filing
  providers.
• Disclosures required to comply with federal,
  state, or local laws, or with licensing
  requirements.
• Disclosures required to comply with legal
  subpoenas or other legal actions.
• The Internal Revenue Service also has
  requirements regarding the disclosure of tax
  information. These requirements are found in
  Revenue Procedure 2008-35, published in the
  Internal Revenue Bulletin on July 21, 2008.
  Section 7216(a) of the Internal Revenue Code
  imposes criminal penalties on tax return
  preparers who knowingly or recklessly make
  unauthorized disclosures or uses of information
  furnished in connection with the preparation of a
  tax return. Any disclosure or use of tax
  information requires the informed consent of the
  taxpayer.

29
Due Diligence

• It probably doesnt mean that practitioners must
  use all measures possible to verify all
  information that client provides but the scope of
  our investigations has broadened.
• It would be likely that facts and circumstances
  would be considered.

30
Letter to Client

• Due to the tighter standards imposed by the new
  rules, the cost of providing written tax opinions
  will likely be higher unless the disclaimer
  approach is taken.

31
Firm Responsibilities

• Effective for all members, associates and
  employees there must be a conformity with
  Circular 230.

32
Tax Return Preparation

• Tax return should not be signed as preparer if it
  contains a position that does not have a
  realistic possibility of being sustained on its
  merits.
• Audit roulette does not count.
• Does it have a one in three chance (or greater)
  of being sustained on its merits.
• If position is improper it is frivolous.
• Preparers must make taxpayers aware of the
  penalties involved.

33
Penalties

• Reckless violation or incompetence is grounds
  for censure, suspension or disbarment from
  practice.
• All information, hearings, pleadings, evidence,
  reports decisions will be made available to the
  public.

34
Changing Face of Return Prep

• SBWOTA changes
• Substantial or Gross valuation misstatement
  gt5,000 penalties to 20 or 40, respectively
  unless
• Substantial authority or
• Adequately disclosed and reasonable basis.

35
Understatement of Tax Liability by Return
Preparers

• Prior
• 1st Tier penalty 250 for Income Tax preparer if
• Not disclosed Not realistic possibility (1/3)
• 2nd Tier penalty if willful neglect 1,000
  preparer penalty

36
Tax return preparer penalties

• Old Law An income tax return preparer is liable
  for penalties for failing to have a reasonable
  factual or legal basis for a position taken on a
  return.
• Evolved into a "realistic possibility of success"
  standard, as a one-in-three chance of prevailing
  on the merits of an issue.

37
Tax return preparer penalties

• If the position did not meet the realistic
  possibility of success an income tax preparer
  could avoid the penalty for non-frivolous
  positions through adequate disclosure.
• Only subject to the penalty if an understatement
  arose as the result of
• (1) a nondisclosed position that failed to meet
  the "realistic possibility of success"
  standard, or
• (2) a disclosed position that was frivolous.

38
Understatement of Tax Liability by Return
Preparers

• Now
• ANY return prepared gt 5/27/07
• More Likely Than Not sustained (51)
• 1st Tier is greater of 1,000 or 50 of fees
• 2nd Tier is greater of 5,000 or 50 of fees
• Change effectively applies penalties, due to
  understatement of taxpayer liability, to
  preparers of ALL returns (Gift, Estate, 941,
  Excise, 990-T, W-2s, 1099s)

39
New Preparer Penalty Legislation

• Undisclosed Positions
• Preparer may be subject to penalties even
• though the taxpayer would not as a result of
• an understatement.
• Standard for Taxpayers
• Substantial Authority
• Standard for Practitioners
• Higher level, was a realistic possibility of
  success, now is MORE LIKELY THAN NOT,
• (more than 50 likely to succeed)

40
New Preparer Penalty Legislation

• New Law Return preparer is subject to a
• penalty of up to 50 of the fees for the
• assignment if
• - the position was not disclosed and the
  return preparer did not have a reasonable
  belief that the position was more likely than
  not correct, or
• - the position was disclosed but did not
  have a reasonable basis.

41
New Preparer Penalty Legislation

• Accounting firms may be forced to change the
  Engagement letters, Organizer Letters and even
  the Circular 230 disclaimer on
• e-mails and memoranda advising clients to
  disclose any position that does not meet the
  "more likely than not" standard.
• Notice 2007-54 delayed application for all
  returns filed before 2008.

42
New Preparer Penalty Legislation

• Tax professionals should react with caution to
  this change in the law.
• It has been suggested that some practitioners in
  order to protect themselves may disclose every
  position taken on a return on Form 8275 rather
  than risk the penalty.
• Line-by-line basis, that there is no certainty
  that each number reflected on the return is more
  likely than not correct..
• AICPA Urged Congress to Reconsider.see article
  in Sept Journal Of Accountancy, page 25.

43
Are YOU willing to GAMBLE1,000 or 50 of
professional fees for.

• 1099 issued to individual in lieu of Form W-2?
• Asset is held for investment versus sale?
• Expense capitalized versus deducted?
• Form W-2 issued to self-employed member (partner)
  of LLC (partnership)?
• Value of non-cash charitable contributions?
• Basis of asset sold?
• Worthlessness of a Stock or Debt?
• Claiming Real Estate Pro when not?
• Unreasonably LOW compensation of S shareholder?
• Business Miles driven by taxpayer?

44
Getting the records and proof from clients dont
trust your client too much

• Suggested solutions for consideration
• Document, document, document!!!
• Form 8275 - Disclosure Statement
• Disclose a position contrary to a rule
• such as a statutory position or
• IRS revenue ruling.

45
IRS advice avoid the Dirty Dozen tax scams
of 2009

• Phishing
• Economic Stimulus Payments
• Frivolous Tax Arguments- taxes are illegal
• Fuel Tax Credit Scams
• Hiding Income Offshore
• Abusive Roth IRAs
• Zero Wages
• False claims for refunds and abatements
• Return Preparer Fraud
• Disguised Corporate Ownership
• Trust Misuse
• Use of Charitable Organizations to shield income

46
Update on Circular 230

• 1. In general, Treasury Department proposed
  changes to Circular 230
• on March 6, 2006
• 2. What is a contingent fee?
• Fee based in whole or part on a position
  taken on a tax return includes refund or
  reimbursement of fees
• Cannot charge contingent fee on Original
• Can charge contingent free on
• Amended return,
• exam of original return,
• or judicial proceeding

47
Tax Return Preparation

• 230 regs forbid practitioners from signing a
• return that contains a position that does not
• have realistic possibility of being
  sustained.
• Generally 1-in-3 or better chance of being
• sustained.
• Risk of audit cannot be considered.
• Disclosure to client of potential penalties
• Disclosure of position on return?
• IRS sanctions include censure, suspension, or
  disbarment from practice before IRS.

48
New Preparer Penalties Update

• Standard is now MLTN or gt50
• Applies to all tax returns
• IRS Notice 2008-13
• May rely on good faith upon information furnished
  by T/P or 3rd party
• You dont have to audit your clients
• Make reasonable inquiries
• Do not ignore other information you may have

49
Pension Protection Act Penalties

• 1. Thresholds for accuracy related penalties
  reduced
• - From 200 to 150 for Substantial valuation
  misstatement (20 penalty)
• - From 400 to 200 for Gross valuation
  misstatement (40 penalty)
• 2. Appraisal penalties increased
• - 1,000 or 10 of tax understatement
• - Max 125 x appraisal fee unless more likely
  than not correct appraisal

50
Accuracy Related Penalty

• NOTE Per the IRS general instructions
• The portion of the accuracy-related
  penalty
• attributable to the following types of
  misconduct cannot be avoided by disclosure
  on Form 8275
• Negligence
• Disregard of rules or regulations
• Any substantial understatement of income tax
• Any substantial valuation misstatement
• Any substantial overstatement of pension
  liabilities
• Any substantial estate or gift tax valuation
  understatements

51
FIVE MINUTE MANAGEMENT COURSE
52
Lesson 1 

• A man is getting into the shower just as his wife
  is finishing up her shower, when the doorbell
  rings. 
• The wife quickly wraps herself in a towel and
  runs downstairs.  When she opens the door, there
  stands Bob, the next-door neighbor.  Before she
  says a word, Bob says, "I'll give you 800 to
  drop that towel"   After thinking for a moment,
  the woman drops her towel and stands naked in
  front of Bob, after a few seconds, Bob hands her
  800 and leaves. 

53

• The woman wraps back up in the towel and goes
  back upstairs.  When she gets to the bathroom,
  her husband asks, "Who was that?" 
• "It was Bob, the next door neighbor," she
  replies.
• "Great," the husband says, "did he say anything
  about the 800 he owes me?" 

54
Moral of the story

• If you share critical information pertaining to
  credit and risk with your shareholders in time,
  you may be in a position to prevent avoidable
  exposure.

55
Lesson 2

• A priest offered a nun a lift.  She got in and
  crossed her legs, forcing her gown to reveal a
  leg. 
• The priest nearly had an accident.  After
  controlling the car, he stealthily slid his hand
  up her leg.  The nun said, "Father, remember
  Psalm 129?"  The priest removed his hand. But,
  changing gears, he let his hand slide up her leg
  again. 
• The nun once again said, "Father, remember Psalm
  129?"  The priest apologized "Sorry sister but
  the flesh is weak."  Arriving at the convent, the
  nun sighed heavily and went on her way. 
• On his arrival at the church, the priest rushed
  to look up Psalm 129. It said, "Go forth and
  seek, further up, you will find glory." 

56
 Moral of the story 

• If you are not well informed in your job, you
  might miss a great opportunity. 

57
Lesson 3 

• A sales rep, an administration clerk, and the
  manager are walking to lunch when they find an
  antique oil lamp.  They rub it and a genie comes
  out.  The genie says, "I'll give each of you just
  one wish."  "Me first! Me first!" says the admin
  clerk. "I want to be in the Bahamas, driving a
  speedboat, without a care in the world.
• Puff! She's gone.  "Me next! Me next!" says the
  sales rep. "I want to be in Hawaii , relaxing on
  the beach with my personal masseuse, an endless
  supply of Pina Coladas and the love of my life." 
• Puff! He's gone.  "OK, you're up," the Genie says
  to the manager.  The manager says, "I want those
  two back in the office after lunch." 

58
Moral of the story 

• Always let your boss have the first say. 

.   
59
Lesson 4 

• An eagle was sitting on a tree resting, doing
  nothing.  A small rabbit saw the eagle and asked
  him, "Can I also sit like you and do nothing?" 
• The eagle answered "Sure, why not."   So, the
  rabbit sat on the ground below the eagle and
  rested. All of a sudden, a fox appeared, jumped
  on the rabbit and ate it.   

60
Moral of the story 

• To be sitting and doing nothing, you must be
  sitting very, very high up. 

61
Lesson 5 

• A turkey was chatting with a bull.  "I would love
  to be able to get to the top of that tree" sighed
  the turkey, "but I haven't got the energy."  
  "Well, why don't you nibble on some of my
  droppings?" replied the bull. They're packed with
  nutrients.
• The turkey pecked at a lump of dung, and found it
  actually gave him enough strength to reach the
  lowest branch of the tree.  The next day, after
  eating some more dung, he reached the second
  branch.   Finally after a fourth night, the
  turkey was proudly perched at the top of the
  tree.  He was promptly spotted by a farmer, who
  shot him out of the tree. 

62
Moral of the story 

• Bull st might get you to the top, but it won't
  keep you there.. 

63
Lesson 6 

• A little bird was flying south for the winter. It
  was so cold the bird froze and fell to the ground
  into a large field.  While he was lying there, a
  cow came by and dropped some dung on him.  As the
  frozen bird lay there in the pile of cow dung, he
  began to realize how warm he was.  The dung was
  actually thawing him out!  He lay there all warm
  and happy, and soon began to sing for joy.  A
  passing cat heard the bird singing and came to
  investigate.
• Following the sound, the cat discovered the bird
  under the pile of cow dung, and promptly dug him
  out and ate him. 

64
Morals of the story 

• (1) Not everyone who shts on you is your enemy.
• (2) Not everyone who gets you out of sht is
  your friend.
• (3) And when you're in deep sht, it's best to
  keep your mouth shut! 
•  

65
THUS ENDS THE FIVE MINUTE MANAGEMENT COURSE

• Send this to at least five bright, funny
  people you know and make their day! 

66
Sec 7216 Discussion Points

• General Overview of Sec. 7216
• Criminal Penalties Apply
• Tax Return Preparation Auxiliary Services
• Definition of Tax Return Information
• Use and Disclosure
• Permitted Disclosures without Consent
• How do we protect ourselves?

67
IRS REGULATION 7216Use and Disclosure of Tax
Information

• As of this filing Season 2009, IRS Regulation
  7216 provides guidance to tax preparers regarding
  the use and disclosure of their clients' tax
  information. This regulation strengthens
  taxpayers' ability to control their tax
  information and to make informed decisions
  regarding the preparer's use of that information.
  
• Tax preparers who fail to comply with this
  regulation face a 1,000 fine and one year in
  jail for each violation.
• The Consent to Use of Tax Return Information
  requires the clients permission to use his or
  her tax information for purposes other than
  preparing and filing the tax return (such as
  determining whether bank or other financial
  products may be available to the client). The
  Consent to Use of Tax Return Information explains
  this requirement and must be signed before the
  return is prepared.
• The Consent to Disclosure of Tax Return
  Information requires all tax preparers, to obtain
  the clients permission to disclose his or her
  tax return information to third parties (such as
  to banks for bank products, or to service bureaus
  or franchisors). The Consent to Disclosure of Tax
  Return Information must be signed before sending
  the return to the designated third party.

68
Section 7216 Overview

• New regulations under Internal Revenue Code
  Section 7216, became effective January 1, 2009.
• The new regulations update regulations that have
  been substantially unchanged since the 1970s, and
  give taxpayers greater control over their
  personal tax return information.  
• The statute limits tax return preparers use and
  disclosure of information obtained during the
  return preparation process to activities directly
  related to the preparation of the return.
• Rev. Proc. 2008-35 provides guidance to tax
  return preparers regarding the format and content
  of consents to disclose and consents to use tax
  return information with respect to taxpayers
  filing a return in the Form 1040 series.
• This revenue procedure also provides specific
  requirements for electronic signatures when a
  taxpayer executes an electronic consent to the
  disclosure or use of the taxpayers tax return
  information.

69
Sec 7216 overview continued

• Unless section 7216 or 301.7216-2 specifically
  permits the disclosure or use of tax return
  information, a tax return preparer may not
  disclose or use a taxpayers tax return
  information prior to obtaining a consent from the
  taxpayer.
• Consent must be knowing and voluntary.
• There is form and content requirements that all
  consents to disclose or use must include, as well
  as timing requirements and other limitations
  upon consents to disclose or use tax return
  information.
• There is a limitation upon consents to disclose a
  taxpayers social security number to a tax return
  preparer located outside of the United States.

70
Sec 7216 overview continued

• The Secretary may, by publication in the Internal
  Revenue Bulletin, prescribe additional
  requirements for tax return preparers regarding
  the format and content of consents to disclose
  and consents to use tax return information with
  respect to taxpayers filing a return in the Form
  1040 series, as well as the requirements for a
  valid signature on an electronic consent under
  section 7216.
• The Secretary may, by publication in the Internal
  Revenue Bulletin, describe the requirements of an
  adequate data protection safeguard for purposes
  of removing the limitation upon consents to
  disclose a taxpayers social security number to a
  tax return preparer located outside of the United
  States. This revenue procedure provides
  additional consent format and content
  requirements and defines an adequate data
  protection safeguard.

71
Form and Content of a Consent to Disclose or a
Consent to Use Form 1040 Tax Return Information

• Separate Written Document. A taxpayers consent
  to each separate disclosure or use of tax return
  information must be contained on a separate
  written document, which can be furnished on paper
  or electronically. For example, the separate
  written document may be provided as an attachment
  to an engagement letter furnished to the
  taxpayer.
• Special rule for multiple disclosures or uses
  within a single consent form. Multiple
  disclosures and uses can be authorized within a
  single forms, only if the document provides the
  taxpayer with the opportunity to affirmatively
  select each disclosure or use, and must be
  provided any information required for each
  specific disclosure or use.
• A consent furnished to the taxpayer on paper must
  be provided on one or more sheets of 81/2 inch by
  11 inch or larger paper. All of the text on each
  sheet of paper must pertain solely to the
  disclosure or use the consent authorizes, and the
  sheet or sheets, together, must contain all the
  elements described in section 4.04 and, if
  applicable, comply with section 4.06. All of the
  text on each sheet of paper must also be in at
  least 12-point type (no more than 12 characters
  per inch).

72
Form and Content continued

• An electronic consent must be provided on one or
  more computer screens. All of the text placed by
  the preparer on each screen must pertain solely
  to the disclosure or use of tax return
  information authorized by the consent, except for
  computer navigation tools. The text of the
  consent must meet the following specifications
  the size of the text must be at least the same
  size as, or larger than, the normal or standard
  body text used by the website or software package
  for direction, communications or instructions and
  there must be sufficient contrast between the
  text and background colors. In addition, each
  screen or, together, the screens must
• - contain all the elements described in
  section 4.04 and, if applicable, comply
  with section 4.06,
• - be able to be signed as required by
  section 5 and dated by the taxpayer, and
• - be able to be formatted in a readable and
  printer-friendly manner.

73
Form and Content continued

• Consents Must
• Identify the intended purpose of the disclosure
  or use
• Identify the recipient(s) and describe the
  particular authorized information to be disclosed
  or used
• Include the name of the tax return preparer and
  the name of the taxpayer
• Include the applicable mandatory language set
  forth in section 4.04(a)-(c) of Revenue Procedure
  2008-35 that informs the taxpayer that he is not
  required to sign the consent and if he signs the
  consent, he can set a time period for the
  duration of that consent
• Include the mandatory language set forth in
  section 4.04(d) of Revenue Procedure 2008-35 that
  refers the taxpayer to the Treasury Inspector
  General for Tax Administration if he believes
  that his tax return information has been
  disclosed or used improperly.

74
Form and Content continued

• Consents Must
• Where applicable, include the appropriate
  mandatory statement set forth in section 4.04(e)
  of Revenue Procedure 2008-35 that informs the
  taxpayer that his tax return information may be
  disclosed to a tax return preparer located
  outside the U.S
• Be in 12-point type on 8 1/2 by 11 inch paper.
  Electronic consents must be in the same type as
  the web sites standard text and
• Contain the taxpayers affirmative consent (as
  opposed to an opt-out clause) and
• Be signed and dated by the taxpayer.

75
Form and Content continued

• 4 Types of Consents
• Consent to disclose tax return information in
  context other than tax preparation or auxiliary
  services.
• Consent to disclose tax return information in tax
  preparation or auxiliary services context.
• Consents for disclosure of tax return information
  to a tax return preparer outside of the United
  States if the tax return information to be
  disclosed does not include the taxpayers social
  security number, or if the social security number
  is fully masked or otherwise redacted.
• Consents for disclosure of the taxpayers tax
  return information including a social security
  number to a tax return preparer outside of the
  United States.

76
Form and Content continued

• Adequate data protection safeguard
• A tax return preparer located within the United
  States, including any territory or possession of
  the United States, may disclose a taxpayers SSN
  to a tax return preparer located outside of the
  United States or any territory or possession of
  the United States with the taxpayers consent
  only when both the tax return preparer located
  within the United States and the tax return
  preparer located outside of the United States
  maintain an adequate data protection safeguard at
  the time the taxpayers consent is obtained and
  when making the disclosure.
• An adequate data protection safeguard is a
  security program, policy and practice that has
  been approved by management and implemented that
  includes administrative, technical and physical
  safeguards to protect tax return information from
  misuse or unauthorized access or disclosure and
  that meets or conforms to one of the privacy or
  data security frameworks listed in Rev. Proc.
  2008-35.

77
Form and Content continued

• ELECTRONIC SIGNATURES
• If a taxpayer furnishes consent to disclose or
  use tax return information electronically, the
  taxpayer must furnish the tax return preparer
  with an electronic signature that will verify
  that the taxpayer consented to the disclosure or
  use. The regulations under 301.7216-3(a) require
  that the consent be knowing and voluntary.
  Therefore, for an electronic consent to be valid,
  it must be furnished in a manner that ensures
  affirmative, knowing consent to each disclosure
  or use.

78
Electronic signatures continued

• A tax return preparer seeking to obtain a
  taxpayers consent to the disclosure or use of
  tax return information electronically must obtain
  the taxpayers signature on the consent in one of
  the following manners
• (a) Assign a personal identification number
  (PIN) that is at least 5 characters long to the
  taxpayer. To consent to the disclosure or use of
  the taxpayers tax return information, the
  taxpayer may type in the pre-assigned PIN as the
  taxpayers signature authorizing the disclosure
  or use. A PIN may not be automatically furnished
  by the software so that the taxpayer only has to
  click a button for consent to be furnished. The
  taxpayer must affirmatively enter the PIN for the
  electronic signature to be valid
• (b) Have the taxpayer type in the taxpayers
  name and then hit enter to authorize the
  consent. The software must not automatically
  furnish the taxpayers name so that the taxpayer
  only has to click a button to consent. The
  taxpayer must affirmatively type the taxpayers
  name for the electronic consent to be valid or
• (c) Any other manner in which the taxpayer
  affirmatively enters 5 or more characters that
  are unique to that taxpayer that are used by the
  tax return preparer to verify the taxpayers
  identity. For example, entry of a response to a
  question regarding a shared secret could be the
  type of information by which the taxpayer
  authorizes disclosure or use of tax return
  information.

79
Criminal Penalties

• A violation of section 7216 is a misdemeanor,
  with a maximum penalty of up to one year
  imprisonment or a fine of not more than 1,000,
  or both, together with the costs of prosecution.
• Section 7216(b) establishes exceptions to the
  general rule in section 7216(a) and also
  authorizes the Secretary to promulgate
  regulations prescribing additional permitted
  disclosures and uses.
• Section 6713(a) prescribes a related civil
  penalty for unauthorized disclosures or uses of
  information furnished in connection with the
  preparation of an income tax return. The penalty
  for violating section 6713 is 250 for each
  disclosure or use, not to exceed a total of
  10,000 for a calendar year. Section 6713(b)
  provides that the exceptions in section 7216(b)
  also apply to section 6713.

80
Tax Return Preparation Auxiliary Services

• A tax return preparer is anyone who is engaged
  in the business of preparing tax returns or
  providing auxiliary services in connection with
  the preparation of income tax returns.
• That is true even if the preparation of tax
  returns or provision of auxiliary services is not
  the principal business of the organization, as
  well as if no fee is charged specifically for the
  preparation of income tax returns.
• It also includes those that do such returns on
  the side outside the course of business, if done
  for compensation.

81
Tax Return Information

• Tax return information includes any and all
  information provided to a tax return preparer in
  connection with the preparation of a taxpayers
  tax return.
• It also includes information received from third
  parties in connection with the preparation of the
  taxpayers tax return, including items received
  from the IRS.
• Statistical compilations of tax return
  information also constitutes tax return
  information, even if the information is
  maintained in a form that cannot be associated
  with the taxpayer, unless it is for internal
  management and support of the taxpayers business.

82
Use Disclosure

• Use of tax return information is defined as any
  circumstance where the preparer refers to or
  relies upon tax return information as to the
  basis to take or permit an action.
• IRS Example
• Tax preparer inquires of taxpayers about
  whether they wish to make an IRA contribution
  after determining if the taxpayer is eligible to
  make an IRA contribution. Only those taxpayers
  that are eligible to make an IRA contribution
  receive the inquiry. This is a use of tax return
  information potentially subject to the consent
  rules.
• Disclosure of tax return information includes the
  act of making tax return information known to any
  person in any manner whatever. An extremely
  broad definition.

83
Permitted Disclosures without Consent

• Regulation 301.7216-2 provides a list of cases
  where tax return information may be used for
  disclosed without taxpayer consent.
• CPAs need to review their states regulations.
• The following are permitted
• 1) Disclosures pursuant to other provisions of
  the Internal Revenue Code or Regulations.
• 2) Disclosures to Officers or Employees of the
  IRS.
• 3) Disclosures or Uses for the Preparation of a
  Taxpayers Tax Return.
• 4) Disclosure to Other Preparers.
• 5) Related Taxpayers

84
Permitted Disclosures without Consent

• 6) Courts Regulatory bodies.
• 7) Attorney for purposes of securing legal
  advice.
• 8) Officer of the Court.
• 9) Certain disclosures by Attorneys
  Accountants.
• 10) Corporate Fiduciaries.
• 11) Taxpayers Fiduciary.
• 12) Employee of the Treasury Dept. for use in
  investigation of the tax return preparer.

85
Permitted Disclosures without Consent

• 13) Other Tax Returns/Tax Obligations.
• 14) Payment for Tax Preparation Services.
• 15) Retention of Taxpayer records.
• 16) Lists for solicitation of Tax Return
  Business.
• 17) Production of Statistical information for
  return
• preparation business.
• 18) Quality or Peer Reviews.
• 19) Disclosure to Report the Commission of a
  Crime.
• 20) Due to Tax Return Preparers Incapacity or
  Death.

86
How Do We Protect Ourselves?

• Know the Rules.
• Use disclosure letters.
• When in doubt, use disclosure letters.
• Inform your staff and all return preparers.
• Have a company written policy and procedures
  document that all employees must sign.
• Inform your clients as you meet with them during
  tax season.
• Use NSAs Tax Talk forum. Its a free member
  benefit.

87
Thank you for attending today.

• Todays Course has been presented by
• Marcia L. Miller, MBA, EA
• Financial Horizons, Inc.
• Weston, Florida
• ProactiveTax_at_aol.com