ATP 105 Ethics flashcards
ATP 105 Ethics · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Gross Income Definition
- All income from whatever source derived unless specifically excluded by the Internal Revenue Code; the starting point for computing individual taxable income.
- Adjusted Gross Income
- Gross income minus allowable above-the-line adjustments such as certain retirement contributions, self-employment tax portions, and student loan interest.
- Taxable Income Formula
- Adjusted gross income minus the greater of the standard or itemized deduction, minus any qualified business income deduction.
- Marginal Tax Rate
- The rate applied to the last dollar of taxable income; determines the tax effect of an additional deduction or credit.
- Effective Tax Rate
- Total tax liability divided by total taxable income, expressing the average rate borne across all income.
- Long-Term Capital Gain
- Gain on an asset held more than one year; taxed at preferential rates rather than ordinary graduated rates.
- Short-Term Capital Gain
- Gain on an asset held one year or less; taxed as ordinary income at the taxpayer's marginal rate.
- Standard Deduction
- A fixed statutory amount subtracted from AGI; available without substantiation and indexed for inflation.
- Itemized Deductions
- Allowable personal expenses such as mortgage interest and charitable contributions, claimed only when their total exceeds the standard deduction.
- Tax Credit Versus Deduction
- A credit reduces tax liability dollar-for-dollar; a deduction reduces taxable income and saves tax equal to the deduction times the marginal rate.
- Filing Status Categories
- Single, married filing jointly, married filing separately, head of household, and qualifying surviving spouse.
- Head of Household
- Filing status for an unmarried taxpayer who maintains a household for a qualifying dependent for more than half the year.
- Above-the-Line Adjustment
- A deduction taken before AGI is computed, available regardless of whether the taxpayer itemizes.
- Qualified Dividends
- Dividends meeting holding-period and payer requirements, taxed at the same preferential rates as long-term capital gains.
- Self-Employment Tax
- Social Security and Medicare tax on net self-employment earnings; one-half of the tax is an above-the-line deduction.
- Withholding and Estimated Tax
- Prepayment of tax through employer withholding or quarterly estimated payments; insufficient prepayment can trigger underpayment penalties.
- Circular 230
- Treasury regulations governing practice before the IRS, setting duties, restrictions, and sanctions for practitioners.
- Due Diligence Requirement
- Practitioner must make reasonable inquiries and use reasonable care in preparing returns and determining the correctness of client information.
- Reliance on Client Information
- A practitioner may rely in good faith on client-provided information but must inquire further if it appears incorrect or incomplete.
- Confidentiality Under §7216
- Tax return information generally may not be disclosed without client consent, subject to specific statutory exceptions.
- Contingency Fee Prohibition
- Charging fees contingent on the outcome of a matter is generally barred, with limited exceptions such as certain refund claims.
- Preparer Penalty §6694
- Penalty on a preparer for an understatement due to an unreasonable position or willful or reckless conduct.
- Aiding and Abetting Penalty
- Penalty under §6701 for knowingly aiding or assisting in the preparation of a false or fraudulent return or document.
- Frivolous Position Rule
- A practitioner may not advise or endorse positions lacking a reasonable basis in law or fact.
- Reasonable Basis Standard
- A position supported by authority sufficient to avoid being treated as frivolous, though weaker than substantial authority.
- Substantial Authority Standard
- A position supported by weight of authority greater than reasonable basis but less than more likely than not.
- More Likely Than Not
- A position is more likely than not correct if it has greater than 50 percent likelihood of being sustained on the merits.
- Return of Client Records
- A practitioner must return client records upon request, even where fees remain unpaid, subject to applicable state law.
- Advising on Penalties
- Practitioner should inform clients of potential penalties and how they may be avoided through disclosure or corrected reporting.
- Unauthorized Practice
- Preparing or presenting matters before the IRS without eligibility, or misrepresenting authority to practice, violates Circular 230.
- Conflicts of Interest
- A practitioner may not represent conflicting interests without informed written consent from the affected clients.
- Written Consent Requirements
- Certain arrangements, such as permitted contingency fees, require written client consent and must meet Circular 230 conditions.