Deck 14: Duties of Tax Professionals

Question 1

A taxpayer is a licensed contractor who repairs defective electrical wiring in building elevators.She wishes to assert a tax position concerning the deductibility of depreciation expense on a home garage where she stores tools used in conducting her profession.Her tax position satisfies the "reasonable basis" standard.This taxpayer ordinarily may:

A) Assert this tax position only if advance written permission is obtained from the IRS
B) Assert this tax position only if the position is prominently disclosed to the IRS
C) Not assert this tax position
D) Without special conditions or disclosures

Answer 1

B

Question 2

A taxpayer wishes to assert a tax position concerning the deductibility of mortgage interest on a home that is partially used for business and partially used as a vacation home.This tax position satisfies the "substantial authority" standard.This taxpayer ordinarily may assert this tax position:

A) Only if advance written permission is obtained from the IRS
B) Only if the position is prominently disclosed on the face of the taxpayer's tax return
C) Only if the position is prominently disclosed in a written statement attached to the front of the taxpayer's tax return
D) Without special conditions or disclosures

Answer 2

D

Question 3

A taxpayer ordinarily should not assert a tax position unless it is supported by a "reasonable basis." This standard commonly is referred to as requiring a certain probability of acceptance or approval if the position is detected and challenged by the taxing authority.What is the associated probability of success?

A) 20%
B) 33.3%
C) 40%
D) Over 50%

Answer 3

A

Question 4

The "reasonable possibility of success" standard commonly is associated with "1 out of 3" odds of success.These odds refer to the likelihood of success:

A) After the IRS has detected and challenged an asserted tax position
B) Taking into account the fact that the IRS may not detect a questionable tax position
C) Taking into account the fact that the IRS may detect a questionable tax position, but not challenge it due to limited government resources
D) Of the taxpayer achieving the beneficial tax savings desired from the asserted position

Question 5

The use of estimates on a tax return should be prominently disclosed on the face of the tax return if:

A) The estimates involved deductions for meals and entertainment
B) The estimates involved business-related automobile usage
C) The taxpayer was unavailable to participate in the tax return preparation process due to illness or death
D) The estimates result in a change in a taxpayer's tax liability by "a sum equal to or greater than $1,000"

Question 6

Before recommending a tax position that meets the "substantial authority" standard,a tax return preparer should make sure that:

A) The taxpayer adequately understands the potential penalties associated with claiming a tax position that satisfies this reporting standard
B) The tax law does not impose a higher reporting standard on the particular transaction or matter at issue
C) A list of the authorities that support this position is attached to the taxpayer's tax return
D) The taxpayer adequately discloses to the IRS a minimum of one "recognized contrary authority" that fails to support the taxpayer's asserted position

Question 7

A taxpayer is willing to make a clear disclosure to the IRS on the face of his tax return that he is claiming a questionable tax return deduction.Ordinarily,the taxpayer may:

A) Claim the tax position if, at minimum, it meets the "not frivolous" test
B) Claim the tax position if, at minimum, it meets the "reasonable basis" test
C) Claim the tax position as long as the taxpayer's can adequately document the date, time, and purpose for the deduction
D) Not claim the deduction

Question 8

A taxpayer wishes to assert a tax position concerning the deductibility of a "special-purpose uniform" that she wears to work and never wears outside the workplace.The tax position satisfies the "reasonable possibility of success" standard.This taxpayer ordinarily may:

A) Not assert this tax position under any circumstance
B) Assert this tax position under all circumstances
C) Assert this tax position only if it also satisfies the "not frivolous" standard
D) Only if the tax position is prominently disclosed to the IRS

Question 9

A taxpayer ordinarily should not assert a tax position unless it is supported by "substantial authority." This standard commonly is referred to as requiring a certain probability of acceptance or approval if the position is detected and challenged by the taxing authority.What is the associated probability of success?

A) 20%
B) 33.3%
C) 40%
D) Over 50%

Question 10

For CPAs solely engaged in professional tax practice,abiding by the Statements of Standards on Tax Services (SSTS)is:

A) Mandatory because it is the only set of professional conduct rules that applies to them
B) Desirable, but not mandatory
C) Mandatory, when acting as a tax return preparer, but not as a tax planner
D) Mandatory, even if they do not represent taxpayers in IRS audits or administrative proceedings

Question 11

A tax return preparer generally has a professional duty to:

A) Review, but not verify, all documents supporting a client's reported deductions
B) Review and verify all documents supporting a client's reported deductions if the deduction amounts are material
C) Review and verify all documents supporting a client's reported deductions, regardless of whether the deduction amounts are material or immaterial
D) Neither review nor verify the documents supporting a client's reported deductions

Question 12

The use of estimates on a tax return generally is:

A) Prohibited
B) Allowed, but must be disclosed if the amounts involved are material
C) Allowed, but must be disclosed if most, or all, of the line items on the tax return were estimated
D) Allowed only if documents were destroyed by a natural disaster or computer failure

Question 13

A paid tax return preparer estimated a client's charitable contributions based on the taxpayer's statement that she "donates $20 cash every week to her church" and she "attends church weekly,without fail." Upon audit,the IRS discovered that this taxpayer never attends church and never made any charitable contributions.This tax return preparer is:

A) Not subject to any fines or penalties
B) Subject to civil fines, but not criminal penalties, if the character of these claimed deductions as estimates was adequately disclosed to the IRS with the word "estimate" or the abbreviation "est." appearing adjacent to the estimated item
C) Subject to civil fines and potentially subject to criminal penalties
D) Subject to having his license as a professional tax return preparer suspended for a short period of time

Question 14

A taxpayer ordinarily should not assert a tax position unless it is supported by a reasonable possibility of success." This standard commonly is referred to as requiring a certain probability of acceptance or approval if the position is detected and challenged by the taxing authority.What is the associated probability of success?

A) 20%
B) 33.3%
C) 40%
D) Over 50%

Question 15

A tax return preparer may prepare a tax return solely based on information furnished by a client:

A) If the information appears to be reliable on its face
B) Even if the information appears to be inconsistent with reality
C) Even if the preparer knows facts that would make a person question the authenticity of the furnished information
D) As long as the taxpayer agrees in writing to accept full responsibility for the authenticity of the furnished information

Question 16

A taxpayer wishes to assert a tax position concerning the deductibility of data communication service on a mobile wireless device that is partially used for business and partially used for personal activities.This tax position satisfies the "substantial authority" standard.Two federal district courts issued decisions that denied taxpayers a deduction for these costs,but the U.S.Supreme Court issued a later decision that allowed a taxpayer a deduction for these costs.The taxpayer may:

A) Not assert this tax position
B) May assert this tax position only if it is prominently disclosed on the face of the taxpayer's tax return
C) May assert this tax position even though the taxpayer's assertion only satisfies the "reasonable possibility or success" standard
D) May assert the tax position because the "substantial authority" test is satisfied

Question 17

Preparing a client's tax return solely based on what the client has represented to you about his income and expenses generally is:

A) Permissible
B) Prohibited only by the AICPA's Statements of Standards onTax Practice
C) Prohibited only by U.S. Treasury Circular 230
D) Prohibited by both AICPA and IRS professional mandates

Question 18

In asserting a tax position,the reporting standard that customarily is applied is that the position is supported in the law:

A) Beyond a reasonable doubt
B) In accord with the "more likely than not" standard
C) By substantial authority
D) By substantial documentation

Question 19

The "Cohan Rule" states that:

A) A taxpayer is not liable for tax liability that arose due to a tax return preparer's negligence
B) A taxpayer who incurred legitimate tax deductions may claim reasonable estimates of these deductions on her tax return
C) A taxpayer who furnishes incomplete information to a tax return preparer may claim estimated deductions only if the tax return preparer independently determines the amounts of these estimates in good faith
D) A tax return preparer who claims estimated deductions on a client's tax return is legally liable to the government for any tax liability that arises if the deductions are illegitimate and the taxpayer is unable or unwilling to pay the resulting increase in tax liability

Question 20

The Statements of Standards on Tax Services (SSTS)governs:

A) CPAs engaged in federal tax practice only
B) CPAs engaged in federal, state, or local tax practice
C) Attorneys, actuaries, enrolled agents, and CPAs engaged in federal tax practice
D) All registered tax return preparers, whether or not they are CPAs

Question 21

Your client claimed seven children as dependency exemptions on his tax return last year.You now have learned that the client only has three children,of which only two qualify as dependents.You have advised your client to amend his prior-year tax return to correct for this error,but your client has refused to do so.However,your client has agreed to only claim the proper number of dependency exemptions during the current and future years.You:

A) Have a duty to resign and a duty to inform your client about the tax penalties associated with the commission of tax fraud
B) Have a duty to inform the IRS about the errors in your client's prior-year return and may do so anonymously
C) Have a duty to inform your client about tax fraud penalties, but do not have a duty to resign
D) Have a duty to inform your client to contact an attorney to discuss the consequences of committing tax fraud, and should consider resigning

Question 22

A client filed its tax return last year using the services of Teri Yakim,an Enrolled Agent.For the current year,this client has retained you to serve as her tax return preparer.You have noted that last year's tax return contained a material error.You have a duty to:

A) Inform your client only
B) Inform your client and Teri Yakim only
C) Inform the IRS and your client, but not file a corrected return without your client's permission
D) Inform your client, and submit a corrected return to the IRS even if your client does not give you permission to do so

Question 23

What are some of the ethical duties that apply to tax return preparers?

Question 24

What are a tax return preparer's duties,if any,upon discovering an error in a tax return that previously was submitted by a client to a taxing authority?

Question 25

Should a tax return preparer solely be an advocate for a client?

Question 26

Should tax return preparers have a duty to verify the information provided to them by clients? Why or why not?

Question 27

If tax return preparers were required to solely act in the public interest rather than serve as advocates for their clients' interests,what would be the consequences?

Question 28

What are some of the practical problems associated with applying the tax reporting standards,such as the "reasonable basis" standard?

Question 29

In what circumstances may a tax return preparer rely upon information furnished by a client?

Question 30

When must a tax return preparer refrain from claiming estimated deductions on a client's tax return?

Question 31

What are some of the ethical duties that apply to accounting professionals engaged in tax planning?

Question 32

In reviewing your corporate client's tax return for last year,you discovered that it overstated the beginning balance of its Patent account by $15 million.The client amortizes patents over a15-year period on a straight-line basis,so the company's pretax income was understated by $1 million last year.You informed your client over this error,and the client acknowledged that an error had been made.Nonetheless,your client insists that,for tax purposes,it intends to continue to amortize this patent balance in the same manner and for the same amounts as it did last year.You have a duty to:

A) Inform the IRS about the client's refusal to make required corrections
B) Not serve as the client's tax return preparer during the current year
C) Not serve the client in any tax-related capacity, including as its tax preparer or tax adviser
D) Continue to serve as the client's tax return preparer in accordance with your tax advocacy and confidentiality obligations

Question 33

If tax return preparers were permitted to solely act as advocates for their clients' interests,without regard to the public interest,what would be the consequences?

Question 34

A client wants to claim a dubious tax deduction,but the client's deduction does is not "more likely than not" to be approved of,if detected and challenged by the IRS.What options are available to this client?

Question 35

When does "substantial authority" exist for a tax return position?

Question 36

Based on the advice of a tax return preparer,a taxpayer recently reported the market value of an unusual property distribution received from a real estate investment trust in her gross income.After the tax return was filed,the U.S.Tax Court ruled that similar kinds of distributions are not includible in gross income.The tax return preparer has:

A) A duty to have retained the taxpayer's contact information and a duty to inform the client of this legal ruling
B) A duty to inform the client of this legal ruling only if the amounts at issue are material to the taxpayer, measured as a percentage of the taxpayer's reported gross income
C) A duty to inform the client of this legal ruling only if the amounts at issue are material to the taxpayer, measured as a percentage of the taxpayer's net worth
D) No duty to contact the taxpayer

Question 37

If a tax return preparer informs a taxpayer that an error exists in a tax return previously filed by the taxpayer,the taxpayer has:

A) A duty to correct the tax return under all circumstances
B) A duty to correct the tax return only if the error was intentional
C) A duty to correct the tax return only if the error was material
D) No duty to correct the tax return