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

Accepted Answer

Due diligence refers to the care a reasonable person should take before entering into an agreement or a transaction with another party. In the context of a tax practitioner, it specifically means using reasonable effort to comply with tax laws, ensuring that tax returns and documents are prepared accurately and in accordance with the relevant legal requirements.

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

Accepted Answer

In a closed transaction, the scope of tax planning is indeed more limited compared to an open transaction because the events have already occurred, and the taxpayer's options for structuring those events to achieve a more favorable tax outcome are no longer available. Additionally, the scope is limited to presenting the taxpayer's facts to the government in the most favorable, legal manner, as the primary focus shifts to compliance and optimization of the tax implications of the completed transactions.

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

Accepted Answer

Enrolled Agents (EAs) must renew their enrollment card on a 3-year cycle to maintain their status and continue practicing.

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

Accepted Answer

The Statements on Standards for Tax Services are intended to supplement the AICPA Code of Professional Conduct and Circular 230, providing additional guidance to CPAs in the conduct of their tax practice.

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

Accepted Answer

The AICPA Code's six principles of professional conduct indeed include responsibilities, public interest, and integrity, among others, making all the provided options 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.

Accepted Answer

Amending a client's tax return pertains to correcting or changing a tax return after it has been filed, which is not directly related to managing or influencing open transactions. Open transactions are those that are not yet completed, and while a practitioner can suggest changes or have some control over the tax implications of these transactions, amending a tax return is a separate action that applies to already filed returns.

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

Accepted Answer

The Statements on Standards for Tax Services (SSTS) are advisory guidelines specifically for members of the American Institute of Certified Public Accountants (AICPA).

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.

Accepted Answer

SSTS No. 1 allows CPAs to sign a tax return that includes a position with a realistic possibility of being sustained on its merits, indicating that the position has a one-in-three or greater likelihood of being upheld if challenged.

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

Accepted Answer

Tax litigation specifically refers to the process of settling tax-related disputes in a court of law. This involves legal actions taken to resolve disagreements over tax assessments, payments, or interpretations of tax laws.

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

Accepted Answer

Under Section 10.3, Subpart A, of Circular 230, unenrolled agents are not authorized to practice before the IRS. Enrolled agents, enrolled actuaries, and enrolled retirement plan agents are specifically authorized to practice.

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

Accepted Answer

A contingent fee, as defined by Circular 230, is a fee that is based on a percentage of the refund amount from a tax return. Circular 230 does not always allow contingent fees; it has specific rules governing when they are permissible. A fee being out of line with the value of the service provided is a separate issue and not specifically what defines a contingent fee.

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

Accepted Answer

Both implying the ability to influence an IRS official and promising a favorable result without justification are considered deceptive because they mislead clients about the CPA's influence and capabilities.

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

Accepted Answer

The "best practices" rules outlined in Circular 230 are aspirational and serve as goals for tax practitioners to strive towards, rather than being mandatory requirements or enforced through disbarment.

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

Accepted Answer

The Statements on Standards for Tax Services (SSTS) are issued by the American Institute of Certified Public Accountants (AICPA), which is a professional organization for Certified Public Accountants (CPAs) in the United States.

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

Accepted Answer

Tax evasion is considered a fraudulent act because it involves the illegal nonpayment or underpayment of taxes, which is against the law.

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

Accepted Answer

SSTS No. 3 does not require a CPA to independently confirm the accuracy of the taxpayer's information. Instead, it emphasizes the need to ask for additional information if something appears incorrect or incomplete, review prior returns when possible, and determine the applicability of deductions, but it relies on the information provided by the taxpayer unless there are reasons to believe it is incorrect.

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

Accepted Answer

All of these professionals are authorized to represent a taxpayer before the IRS Appeals Office under Circular 230. This includes CPAs, corporate officers for their corporation, and attorneys.

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.

Accepted Answer

Circular 230 is a publication of the Treasury Department in the United States that outlines the regulations governing those who practice before the IRS, including attorneys, CPAs, and enrolled agents, ensuring they adhere to ethical and procedural standards.

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

Accepted Answer

Tax compliance involves all the listed activities: filing necessary tax returns, gathering financial information to report taxable income, and representing a taxpayer at an IRS audit.

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

Accepted Answer

Circular 230 is a set of regulations from the IRS specifying who can represent taxpayers before the IRS and outlining the duties and restrictions for those practitioners, including standards for covered opinions and best practices. However, it does not directly address compliance with state ethical requirements, as these are governed by state laws and regulations.

Quiz 1: Introduction Totax Practice and Ethics

Due diligence, in essence, means a tax practitioner:

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

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

The Statements on Standards for Tax Services are:

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

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

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

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) ?

Tax litigation is a process of:

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

A contingent fee is:

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

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

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

Tax evasion is:

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:

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

Which of the following statements best describes Circular 230?

Tax compliance is the process of:

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