ATP 105 Ethics cheat sheet

Gross income includes all income from whatever source derived unless specifically excluded by statute (IRC §61).

Filing status categories: single, married filing jointly, married filing separately, head of household, qualifying surviving spouse.

Standard deduction is a flat amount set by statute; taxpayers may instead itemize deductions if the total exceeds the standard amount.

Above-the-line (adjustments) reduce gross income to arrive at adjusted gross income; below-the-line deductions reduce AGI to taxable income.

Taxable income = AGI minus the greater of the standard deduction or itemized deductions, minus qualified business income deduction.

Ordinary income is taxed at graduated marginal rates; long-term capital gains and qualified dividends use preferential rate brackets.

Marginal tax rate applies to the last dollar of income; effective tax rate = total tax divided by total taxable income.

A capital gain is long-term if the asset was held more than one year; one year or less is short-term and taxed as ordinary income.

Credits reduce tax liability dollar-for-dollar, whereas deductions reduce taxable income and thus yield tax savings equal to deduction times marginal rate.

Circular 230 governs practice before the IRS; Subpart B sets duties and restrictions for practitioners.

Practitioner must exercise due diligence in preparing returns and in determining client information is correct (Circular 230 §10.22).

Practitioner may not unreasonably delay or interfere with IRS administration, nor unreasonably audit or harass a client's records.

A practitioner may rely in good faith on client-provided information but must make reasonable inquiries if information appears incorrect or incomplete.

Confidentiality under IRC §7216 generally bars disclosure of return information without client consent, subject to statutory exceptions.

Written consent requirements: contingency fees are generally prohibited except for specified situations under Circular 230 §10.27.

Penalties: IRC §6694 preparer penalty applies for understatements due to unreasonable positions; §6701 applies to aiding and abetting.

Practitioner must advise clients of penalties and of the opportunity to avoid them by disclosure, and must not endorse frivolous positions.

Records supporting a return should be retained; practitioners must return client records upon request even if fees are owed.