Risk Assessment Flashcards

What does the 'more likely than not' standard mean for a tax position?

Answer: Greater than a 50% likelihood of being sustained on its merits

More likely than not means a greater than 50% likelihood that the position will be upheld if challenged.

Which of these confidence standards is the HIGHEST?

Answer: More likely than not

The common ranking from lowest to highest is not frivolous, reasonable basis, substantial authority, then more likely than not.

Which judicial doctrine lets the IRS combine a series of formally separate steps and treat them as one transaction?

Answer: Step transaction doctrine

The step transaction doctrine collapses interdependent steps to tax the overall transaction by its end result.

A plan that is structured correctly on paper but does not reflect economic reality is most at risk under which doctrine?

Answer: Substance over form

Under substance over form, the IRS taxes the economic reality of an arrangement rather than its legal labels.

In Notice 2017-10, how did the IRS classify syndicated conservation easement transactions?

Answer: Listed transactions

Notice 2017-10 identified syndicated conservation easement transactions as listed transactions that require disclosure.

Notice 2016-66 designated certain micro-captive insurance arrangements as what type of reportable transaction?

Answer: Transactions of interest

Notice 2016-66 labeled certain micro-captive arrangements as transactions of interest, which triggers disclosure requirements.

Before carrying out an aggressive but supportable strategy, what risk-management step should a tax coach take?

Answer: Document the client's informed consent, including the audit risk and possible penalties

A written record of the risks discussed and the client's informed consent protects both client and advisor and fits the client's risk tolerance.