Question 1

The "Statement on Practice in the Field of Federal Income Taxation" includes all of the following areas of mutual competence except
A) preparing federal income tax returns.
B) determining the tax effect of proposed transactions.
C) representing clients in criminal investigations.
D) representing taxpayers before the U.S. Tax Court.

Accepted Answer

The "Statement on Practice in the Field of Federal Income Taxation" outlines areas of mutual competence where lawyers and certified public accountants can work together, including preparing federal income tax returns, determining the tax effect of proposed transactions, and representing taxpayers before the U.S. Tax Court. However, it specifically excludes representing clients in criminal investigations, as this falls outside the scope of federal income taxation.

Question 2

Anyone who prepares a tax return is subject to the provisions of Circular 230.

Accepted Answer

The answer of Anyone who prepares a tax return is...

Question 3

The innocent spouse relief provision from tax liability covers all of the following except
A) improper deductions.
B) improper credits.
C) improper basis.
D) All are understatements subject to minimum thresholds.

Accepted Answer

The innocent spouse relief provision from tax liability covers all understatements subject to minimum thresholds, including improper deductions, improper credits, and improper basis. Therefore, all choices are covered by innocent spouse relief provision except for option D, which states that they are not covered.

Question 4

Tax return preparers can be penalized for the following activities except
A) failure to sign a return.
B) failure to give a copy of the return to the taxpayer.
C) failure to maintain IRS continuing education requirements.
D) failure to provide the preparer's identification number on the return.

Accepted Answer

Tax return preparers can be penalized for failure to sign a return (A), failure to give a copy of the return to the taxpayer (B), and failure to provide the preparer's identification number on the return (D). However, failure to maintain IRS continuing education requirements (C) may result in the preparer losing their PTIN (preparer tax identification number) and being unable to prepare tax returns legally. While losing their PTIN may impact their ability to earn income as a preparer, it is not necessarily a penalty in the same sense as the other options which may result in fines or legal consequences.

Question 5

What is the penalty for a tax return preparer who lacks substantial authority to take a return position?
A) $50
B) $250
C) $1,000
D) 20% of the understatement

Accepted Answer

The penalty for a tax return preparer who lacks substantial authority to take a return position is $1,000.

Question 6

All of the following requirements must be met in order to establish innocent spouse relief except which of the following?
A) The return contains an understatement of tax attributable to the erroneous item(s) of an individual filing it.
B) The request for innocent spouse relief is made no later than one year after the IRS begins its collection efforts.
C) The requesting individual establishes that he or she neither knew nor had reason to know of any or all of the understatement.
D) Based on all the facts and circumstances, holding the other individual for the deficiency would be inequitable.

Accepted Answer

All of the listed requirements must be met in order to establish innocent spouse relief, including the presence of an understatement of tax attributable to the erroneous item(s), the requesting individual's lack of knowledge or reason to know of the understatement, and the inequity of holding the other individual responsible. However, the request for relief must be made no later than two years after the IRS begins its collection efforts, not one year as stated in option B.

Question 7

Which of the following statements regarding Circular 230 is false?
A) Circular 230 applies to all tax return preparers.
B) Circular 230 defines practice before the IRS.
C) Circular 230 provides guidance as to the level of authority necessary for a CPA to take a tax return position.
D) Circular 230 applies to CPAs, enrolled agents, enrolled actuaries, and attorneys.

Accepted Answer

Circular 230 does not apply to all tax return preparers. It specifically applies to those who are eligible to practice before the IRS, such as CPAs, enrolled agents, enrolled actuaries, and attorneys, but not all individuals who prepare tax returns are covered under its provisions.

Question 8

For innocent spouse relief to apply, five conditions must be met. Explain them.

Accepted Answer

The answer of For innocent spouse relief to apply, five...

Question 9

Jayne and Jon jointly file a tax return this year. Jayne fraudulently reports two expenses on Schedule C: $2,000 and $2,500. The IRS audits the return, assesses a $1,050 deficiency, and begins collection efforts two years after the timely filing by Jayne and Jon. What must Jon do to be relieved of the $1,050 tax liability?

Accepted Answer

The answer of Jayne and Jon jointly file a tax...

Question 10

According to Circular 230, what should a CPA do upon discovery of an error in a client's prior-year return?
A) Notify the IRS of the error.
B) Inform the client of the error and its tax consequences.
C) File an amended return for the client.
D) Do nothing.

Accepted Answer

Circular 230 requires a CPA to inform the client of any errors discovered in a prior-year return and the potential consequences of those errors. It does not mandate notifying the IRS directly, filing an amended return without the client's consent, or ignoring the error.

Question 11

Which, if any, of the following could result in penalties against an income tax return preparer? I. Knowing or reckless disclosure or use of tax information obtained in preparing a return.
II) A willful attempt to understate any client's tax liability on a return or claim for a refund.
A) I only
B) II only
C) neither I nor II
D) both I and II

Accepted Answer

Both Knowing or reckless disclosure or use of tax information obtained in preparing a return and A willful attempt to understate any client's tax liability on a return or claim for a refund can result in penalties against an income tax return preparer.

Question 12

Treasury Department Circular 230 regulates the practice of attorneys, CPAs, enrolled agents, and enrolled actuaries before the IRS.

Accepted Answer

Treasury Department Circular 230 regulates the practice of attorneys, CPAs, enrolled agents, and enrolled actuaries before the IRS.

Question 13

Kristina and Victor filed a joint return for the current year. They are in the 31% marginal tax bracket. Victor did not know that Kristina failed to report a prize valued at $16,000 that she won. She used the money to buy Victor a motorcycle. Does Victor meet the tests for relief under the innocent spouse provisions?

Accepted Answer

The answer of Kristina and Victor filed a joint return...

Question 14

Which of the following activities is protected by accountant-client privilege?
A) written communications between a CPA and a corporation regarding a tax shelter
B) communications related to tax return preparation
C) communications related to criminal tax evasion
D) advice given regarding tax issues in a divorce

Accepted Answer

The answer of Which of the following activities is protected...

Question 15

What is the penalty for a tax return preparer who willfully attempts to understate taxes, or intentionally disregards the tax rules and regulations?
A) $50
B) $250
C) $5,000
D) 20% of the understatement

Accepted Answer

According to the IRS, the penalty for a tax return preparer who willfully attempts to understate taxes, or intentionally disregards the tax rules and regulations is $5,000.

Question 16

Identify which of the following statements is true.
A) If a taxpayer fails to file a return, the statute of limitations is extended to 10 years.
B) If a couple files a joint return but only one spouse had income, only the spouse with income is responsible for paying any tax due.
C) Joint and several liability means that each spouse is potentially liable for the full amount of tax due.
D) All of the above are false.

Accepted Answer

Joint and several liability means that each spouse is potentially liable for the full amount of tax due. This means that if one spouse does not pay their share of the tax, the other spouse may be held responsible for the entire amount due. A is false because the statute of limitations is extended to 6 years, not 10 years. B is false because both spouses are jointly and severally liable for any tax due on their joint return, regardless of who earned the income.

Question 17

Christie and Billy jointly file this year. Billy intentionally omits $5,000 in gambling winnings. Christie fraudulently deducts $1,000 in business expenses. The IRS audits the return, assesses a $2,500 deficiency and begins collection efforts two years after the timely filing of the return. Christie and Billy divorced one year before the deficiency was assessed. Can Christie receive any tax relief from the full $2,500 deficiency?

Accepted Answer

The answer of Christie and Billy jointly file this year....

Question 18

Identify which of the following statements is true.
A) The "innocent spouse provision," if applicable, relieves both spouses from an assessment of tax caused by a spouse's understating income or gain and/or overstating deductions, losses, or credits.
B) The IRS is precluded from assessing any residual tax liability against transferees and fiduciaries because the initial filers are responsible for meeting the tax payments in a timely fashion.
C) Treasury Department Circular 230 regulates the practice of attorneys, CPAs, enrolled agents, and enrolled actuaries before the IRS.
D) All of the above are false.

Accepted Answer

Treasury Department Circular 230 does regulate the practices of attorneys, CPAs, enrolled agents, and enrolled actuaries before the IRS. The other statements are false - the innocent spouse provision only relieves one spouse of liability, not both; the IRS can assess residual tax liability against transferees and fiduciaries in certain situations; and the statement that all of the above are false is not accurate as C is true.

Question 19

What is the IRS guideline for determining whether a tax return position has substantial authority?
A) A person knowledgeable in the tax law concludes that the position has a something less than 50% likelihood of being supported.
B) A person knowledgeable in the tax law concludes that the position has at least a 50% likelihood of being supported.
C) A person knowledgeable in the tax law concludes that the position has at least a two-thirds likelihood of being supported.
D) A person knowledgeable in the tax law concludes that the position has at least a 75% likelihood of being supported.

Accepted Answer

The answer of What is the IRS guideline for determining...

Question 20

One of your corporate clients comes to you asking for advice regarding a proposed merger with XYZ Company. You (a) issue an opinion concerning the FMV of XYZ, (b) prepare pro forma financials for the merged entity to be, (c) draft shareholder resolutions for your client approving the proposed merger, (d) file a shareholder proxy statement with the U.S. Securities and Exchange Commission, and (e) advise your client's board of directors concerning the advantages of a Type A versus a Type B reorganization. Which of these activities, if any, constitutes the unauthorized practice of law?

Accepted Answer

The answer of One of your corporate clients comes to...

Quiz 15: Administrative Procedures

The "Statement on Practice in the Field of Federal Income Taxation" includes all of the following areas of mutual competence except

Anyone who prepares a tax return is subject to the provisions of Circular 230.

The innocent spouse relief provision from tax liability covers all of the following except

Tax return preparers can be penalized for the following activities except

What is the penalty for a tax return preparer who lacks substantial authority to take a return position?

All of the following requirements must be met in order to establish innocent spouse relief except which of the following?

Which of the following statements regarding Circular 230 is false?

For innocent spouse relief to apply, five conditions must be met. Explain them.

According to Circular 230, what should a CPA do upon discovery of an error in a client's prior-year return?

Which, if any, of the following could result in penalties against an income tax return preparer? I. Knowing or reckless disclosure or use of tax information obtained in preparing a return. II) A willful attempt to understate any client's tax liability on a return or claim for a refund.

Treasury Department Circular 230 regulates the practice of attorneys, CPAs, enrolled agents, and enrolled actuaries before the IRS.

Which of the following activities is protected by accountant-client privilege?

What is the penalty for a tax return preparer who willfully attempts to understate taxes, or intentionally disregards the tax rules and regulations?

Identify which of the following statements is true.

Identify which of the following statements is true.

What is the IRS guideline for determining whether a tax return position has substantial authority?