Deck 1: Introduction to Tax Practice and Ethics

Question 1

Which of the following is CORRECT about a CPA's responsibility with regard to tax return positions under Statements on Standards for Tax Services No. 1 SSTS No. 1):

A) A CPA may not base his or her position on authority that is not approved by the IRS under Section 6662 accuracy-related penalty).
B) A CPA may sign a return which has a tax position that has a realistic possibility of being sustained on the merits.
C) A CPA may not sign a return which has any tax position that is not fully disclosed.
D) All of the above statements are correct.

Answer 1

B

Question 2

Due diligence, in essence, means a tax practitioner:

A) must be efficient in performing his duties
B) must give due respect to IRS officials
C) should use reasonable effort to comply with the tax laws
D) should charge reasonable fees for work performed for a client

Answer 2

C

Question 3

According to Rule 101 of the AICPA Rules of Professional Conduct, a CPA in public practice must:

A) comply with Circular 230
B) disclose any conflict of interest with another client
C) keep client information confidential
D) be independent of his or her clients

Answer 3

D

Question 4

In a closed transaction, the scope of tax planning is:

A) more limited as compared to an open transaction
B) limited by the IRS rules of practice
C) limited to presenting the taxpayer's facts to the government in the most favorable, legal manner
D) Only a and c

Question 5

Regarding open transactions, which of the following statements is INCORRECT?

A) the transaction is not yet completed
B) the practitioner can suggest changes to achieve a better tax result
C) a tax practitioner has some degree of control over the client's tax liability
D) the practitioner can fix the problem by amending the client's tax return

Question 6

According to Circular 230, the "best practices" rules are:

A) mandatory for all tax practitioners
B) restricted only to attorneys and CPAs
C) aspirational, to act as goals for tax practitioners
D) enforced by disbarment from practice before the IRS

Question 7

The Statements on Standards for Tax Services SSTS) are issued by:

A) the Internal Revenue Service
B) the FASB
C) the AICPA
D) the American Bar Association
E) the AICPA and the American Bar Association jointly

Question 8

Who can represent a taxpayer before the IRS Appeals Office under Circular 230?

A) A CPA
B) An officer of a corporation may represent the corporation
C) An attorney
D) All of the above
E) Only a and c

Question 9

Which of the following statements best describes Circular 230?

A) Circular 230 has been adopted by the AICPA as its set of rules of practice for CPAs.
B) Circular 230 is a set of Treasury Department ethical and legal standards for those engaging in practice before the IRS.
C) Circular 230 is a set of internal rules at the IRS designed to protect tax practitioners from unfair discipline by the IRS.
D) Circular 230 is a set of ethical rules for taxpayers.

Question 10

A contingent fee is:

A) always allowed by Circular 230
B) a fee that is out of line with the value of the service provided
C) a fee based on a percentage of a taxpayer's refund on a tax return
D) all of the above

Question 11

Tax litigation is a process of:

A) participating in an administrative audit
B) settling tax-related disputes in a court of law
C) filing amended tax returns as prescribed by tax laws
D) arranging a taxpayer's affairs to minimize tax liabilities

Question 12

Circular 230 includes rules on all of the following topics EXCEPT:

A) who is authorized to practice before the IRS
B) standards for "covered opinions"
C) compliance with state ethical requirements
D) a set of best practices to guide practitioners

Question 13

An unenrolled tax return preparer can make an appearance as the taxpayer's representative only before the:

A) Examination Division of the IRS
B) Appeals and Collection Division of the IRS
C) SB/SE Division of the IRS
D) Criminal Investigation Division of the IRS

Question 14

Under Statements on Standards for Tax Services No. 3, SSTS No. 3) a CPA preparing a tax return should perform all of the actions EXCEPT:

A) independently confirm the accuracy of the taxpayer's information
B) obtain additional information if the taxpayer's information appears to be incorrect or incomplete
C) review the prior year's return when feasible
D) determine when conditions for a deduction have been met

Question 15

Standards for Tax Services SSTS) contain advisory guidelines for:

A) CPAs
B) enrolled agents
C) attorneys
D) IRS authorities
E) All of the above

Question 16

Under AICPA Rule 502, which of the following actions would constitute deceptive advertising?

A) advertising too frequently
B) implying that the CPA had the ability to influence an IRS official
C) promising a favorable result without justification
D) Only b and c

Question 17

An EA must renew his or her enrollment card on a:

A) 5-year cycle
B) 3-year cycle
C) 2-year cycle
D) Renewal is not required once an EA gets a card

Question 18

Tax compliance is the process of:

A) filing necessary tax returns
B) gathering the financial information necessary to report taxable income
C) representing a taxpayer at an IRS audit
D) all of the above

Question 19

Tax evasion is:

A) a fraudulent act involving illegal nonpayment of taxes
B) one of the objectives of tax planning
C) an act of deferring tax payments to future periods
D) the same as tax avoidance as both of them result in nonpayment of taxes

Question 20

The Statements on Standards for Tax Services are:

A) part of the ABA Code of Professional Responsibility
B) intended to replace Circular 230
C) intended to supplement the AICPA Code of Professional Conduct and Circular 230
D) none of the above

Question 21

A CPA can rely without verification on information given to the CPA by a taxpayer unless the information appears to be incorrect.

Question 22

A member of the AICPA is not allowed to prepare tax returns that involve the use of the taxpayer's estimates.

Question 23

Enrolled actuaries are allowed to practice before the IRS.

Question 24

Which of the following statements best explains the need for tax practitioners to understand nonregulatory ethical models of behavior?

A) Competing ethical solutions must be resolved by the courts.
B) There is more to ethical behavior than just following the rules of professional organizations.
C) Practitioners must always choose the action with the greatest benefit for their client.
D) Ethical choices are clearly spelled out by IRS regulations.

Question 25

State Boards of Accountancy are the organizations with responsibility to license public accountants in each state.

Question 26

Tax planning has a more likelihood of success when a tax practitioner is dealing with an open transaction instead of a closed transaction.

Question 27

An attorney, CPA, or enrolled agent may use advertising to obtain clients under Circular 230.

Question 28

In which of the following situations would a CPA be engaged in the unauthorized practice of law?

A) The CPA drafts a contract for his small business client.
B) The CPA files a client's state tax return.
C) The CPA answers estate tax questions for his client.
D) The CPA represents his client before the IRS.

Question 29

The Sarbanes-Oxley Act addresses issues of corporate governance as well as the independence of auditors.

Question 30

If a CPA becomes aware of an error in a tax return, he or she must immediately notify the IRS.

Question 31

CPAs may never disclose confidential taxpayer information under the AICPA rules.

Question 32

The ABA Model Code of Professional Responsibility has the force of law and covers all attorneys practicing in the United States.

Question 33

Under Circular 230, "covered opinions" include oral advice on tax avoidance transactions.

Question 34

Circular 230 bans tax practitioners from giving written advice on a Federal tax issue based on the likelihood of an audit.

Question 35

Tax avoidance and tax evasion are both illegal.

Question 36

Tax research is only required for tax planning, not preparing returns.

Question 37

Paid tax return preparers must register with the IRS and obtain a PTIN.

Question 38

Which of the following statements is CORRECT regarding unauthorized practice of law?
A) Taxpayers may draft not their own contracts.

A) A CPA cannot express a legal opinion on a non-tax matter.
B) Taxpayers may not represent themselves in Tax Court.
B) A CPA cannot express a legal opinion on a tax matter.

Question 39

The Lowell Bar Association v. Loeb case addressed the issue of:

A) unauthorized practice of law by nonattorneys engaged in tax practice
B) legal research by taxpayers
C) attorneys and CPAs working together in a practice
D) all of the above

Question 40

The primary change made by the Sarbanes-Oxley Act which affects the practice of public accounting is:

A) Public accounting firms may no longer provide any actuarial services.
B) Accounting firms may no longer offer tax shelters.
C) Auditors may never do tax compliance work for their clients.
D) Public accounting firms may provide some nonaudit services to their audit clients if the services are approved in advance by an audit committee.

Question 41

Explain which types of services a CPA can and cannot provide to avoid engaging in the unauthorized practice of law.

Question 42

An ethical dilemma occurs when someone is faced with a situation for which there are no clearly defined answers.

Question 43

To become an enrolled agent, a person must either pass a special IRS examination or must work for the IRS for at least five years.

Question 44

What should an AICPA member do upon learning about an error in a prior year's tax return?

Question 45

What standard must tax practitioners meet under Section 6694 preparer penalties) of the Internal Revenue Code with respect to undisclosed positions taken on tax returns?

Question 46

Explain the standards for professional services that involve tax return positions under SSTS No.1. What is the level of authority for disclosed or undisclosed positions and what types of authority can be relied upon?

Question 47

Explain the AICPA guidelines under SSTS No. 3 for relying without verification on taxpayer or third party information when preparing a tax return.

Question 48

Explain the concept of "limited practice without enrollment" under Circular 230 and list several of the special situations in which the IRS allows this type of representation.

Question 49

Does the IRS regulate unenrolled tax preparers? Explain your answer.
Essay Questions

Question 50

Who may represent a taxpayer before the IRS in cases which go beyond the examination of the return?

Question 51

Drafting wills is a part of a CPA's professional duties.

Question 52

Taxation and tax practice are comprised of the interaction of several disciplines. What are those disciplines? Briefly discuss their impact on the tax system.

Question 53

Tax practice can be defined as the application of the tax laws to specific accounting situations.
Short

Question 54

The three categories of modern tax practice include tax planning, tax compliance, and tax research.