Deck 1: Introduction Totax Practice and Ethics

Question 1

Due diligence, in essence, means a tax practitioner:

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

Answer 1

C

Question 2

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

A)more limited as compared toan open transaction
B)limited by the IRS rules of practice
C)limited topresenting the taxpayer's facts tothe government in the most favorable, legal manner
D)more limited as compared toan open transaction and limited topresenting the taxpayer's facts tothe government in the most favorable, legal manner

Answer 2

D

Question 3

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

Answer 3

B

Question 4

The Statements on Standards for Tax Services are:

A)part of the ABA Code of Professional Responsibility
B)intended toreplace Circular 230
C)intended tosupplement the AICPA Code of Professional Conduct and Circular 230
D)none of these are correct

Question 5

The six principles of professional conduct under the AICPA Code include:

A)responsibilities
B)public interest
C)integrity
D)All of these are correct

Question 6

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

A)The transaction is not yet completed.
B)The practitioner can suggest changes toachieve 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 7

Statements on Standards for Tax Services (SSTS)contain advisory guidelines for:

A)m embers of the AICPA
B)enrolled agents
C)attorneys
D)IRS authorities
E)all of these are correct

Question 8

Which of the following is CORRECT about a CPA's responsibility with regard totax 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 these are correct.

Question 9

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 tominimize tax liabilities

Question 10

Under Section 10.3, Subpart A, of Circular 230, the following individuals may practice before the IRS EXCEPT:

A)unenrolled agents
B)enrolled agents
C)enrolled actuaries
D)enrolled retirement plan agents

Question 11

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 these are correct

Question 12

Under the AICPA Code of Professional Conduct , which of the following actions would constitute deceptive advertising?

A)advertising toofrequently
B)implying that the CPA had the ability toinfluence an IRS official
C)promising a favorable result without justification
D)implying that the CPA had the ability toinfluence an IRS official and promising a favorable result without justification

Question 13

According toCircular 230, the "best practices" rules are:

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

Question 14

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 15

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 tofuture periods
D)the same as tax avoidance as both of them result in nonpayment of taxes

Question 16

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 tobe incorrect or incomplete
C)review the prior year's return when feasible
D)determine when conditions for a deduction have been met

Question 17

Whocan 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 these are correct
E)both a CPA and an attorney

Question 18

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 toprotect tax practitioners from unfair discipline by the IRS.
D)Circular 230 is a set of ethical rules for taxpayers.

Question 19

Tax compliance is the process of:

A)filing necessary tax returns
B)gathering the financial information necessary toreport taxable income
C)representing a taxpayer at an IRS audit
D)all of these are correct

Question 20

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

A)whois authorized topractice before the IRS
B)standards for "covered opinions"
C)compliance with state ethical requirements
D)a set of best practices toguide practitioners

Question 21

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

Question 22

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

Question 23

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 24

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

Question 25

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

Question 26

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 these are correct

Question 27

A member of the AICPA may never disclose confidential taxpayer information under the AICPA rules.

Question 28

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

A)Competing ethical solutions must be resolved by the courts.
B)There is more toethical 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 29

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

Question 30

Enrolled actuaries are allowed topractice before the IRS.

Question 31

Tax avoidance and tax evasion are both illegal.

Question 32

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

Question 33

Tax practitioners (as defined by the IRS)are regulated by Circular 230.

Question 34

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

Question 35

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

Question 36

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

A)Public accounting firms may nolonger provide any actuarial services.
B)Accounting firms may nolonger offer tax shelters.
C)Auditors may never dotax compliance work for their clients.
D)Public accounting firms may provide some nonaudit services totheir audit clients if the services are approved in advance by an audit committee.

Question 37

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

Question 38

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

Question 39

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

Question 40

Which of the following statements is CORRECT regarding the unauthorized practice of law?

A)Taxpayers may not represent themselves in Tax Court.
B)A CPA cannot express a legal opinion on a non-tax matter.
C)A CPA cannot  draft wills or trust  instruments.
D)Both b and c are correct.

Question 41

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

Question 42

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

Question 43

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

Question 44

Tax practice can be defined as the application of the tax laws tospecific accounting situations.

Question 45

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

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

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

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

An ethical dilemma occurs when someone is faced with a situation for which there are noclearly defined answers.

Question 50

Whomay represent a taxpayer before the IRS in cases which gobeyond the examination of the return?

Question 51

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

Question 52

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

Question 53

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

Question 54

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