Question 1

Under Circular 230,tax preparer Winston cannot disclose to a mortgage banker the income level of her client Pickett,or other information acquired by preparing the return,without Pickett's permission.

Accepted Answer

Circular 230 imposes strict confidentiality rules on tax preparers and prohibits them from disclosing any information about a client without their express consent.

Question 2

Circular 230 applies to all paid tax practitioners.But attorneys,CPAs,and enrolled agents are exempt from the Circular 230 rules,because each of the groups has its own code of professional conduct.

Accepted Answer

Attorneys, CPAs, and enrolled agents are still subject to Circular 230 rules, even though they also have their own codes of professional conduct.

Question 3

CPA Norma and her client Colin hold a privilege of confidentiality from the IRS,as to their tax planning discussions about completing Colin's tax returns.The IRS cannot successfully subpoena records concerning these discussions.

Accepted Answer

The privilege of confidentiality between a CPA and their client regarding tax planning discussions is protected by law and cannot be broken by a subpoena from the IRS.

Question 4

Jenny prepared Steve's income tax returns for no compensation for 2013 and 2014.Jenny is Steve's mother.In 2016,the IRS notifies Steve that it will audit his returns for 2013 and 2014.Jenny cannot represent Steve during the audit of the returns,as she is not a "registered tax return preparer."

Accepted Answer

The answer of Jenny prepared Steve's income tax returns for...

Question 5

Latrelle prepares the tax return for Whitehall Corporation.Latrelle includes a $5,000 deduction on the return.This type of deduction previously has been disallowed by the Tax Court,although there is a 15% chance that the holding will be reversed on an appeal by Whitehall.The return does not make any special disclosure that the deduction is being claimed.Whitehall paid Latrelle a fee of $8,000 for preparing the Form 1120.Latrelle will be assessed a preparer penalty of $4,000 for taking an unreasonable position on the Whitehall return.

Accepted Answer

Latrelle took an unreasonable position by claiming a deduction that has previously been disallowed by the Tax Court and did not make any special disclosure. The fact that there is a 15% chance of reversal on appeal does not justify taking an unreasonable position. Therefore, Latrelle will be assessed a preparer penalty.

Question 6

Under Circular 230,Burke cannot complete a client's original Form 1040 and charge a fee equal to one-third of the resulting refund.

Accepted Answer

The answer of Under Circular 230,Burke cannot complete a client's...

Question 7

Yang,a calendar year taxpayer,did not file a tax return for 2007 because she honestly believed that no additional tax was due.In 2016,Yang is audited by the IRS and the agent assesses a deficiency of $17,000 for 2007.Yang need not pay this deficiency,since the three-year statute of limitations expired on April 15,2011,meaning that the IRS no longer can adjust Yang's tax for the 2007 tax year.

Accepted Answer

The answer of Yang,a calendar year taxpayer,did not file a...

Question 8

Circular 230 requires that a tax preparer provide training for the tax staff as to the latest changes in the tax law.

Accepted Answer

Circular 230 states that tax preparers are required to establish procedures for ensuring that their employees or contractors are competent to perform their duties and must provide ongoing training to keep up with the latest changes in tax law.

Question 9

In the case of bad debts and worthless securities,the statute of limitations on claims for refund is three years.

Accepted Answer

The statute of limitations for claims for refund related to bad debts and worthless securities is actually seven years from the date the original return was filed or two years from the date the tax was paid, whichever is later.

Question 10

A CPA can take a tax return position for a client that is contrary to current IRS interpretations of the law.

Accepted Answer

A CPA can take a reasonable and defensible tax return position for a client, even if it differs from current IRS interpretations of the law. However, the CPA must be able to provide support for their position and be prepared to defend it if challenged.

Question 11

Circular 230 requires that a paid tax preparer apply a thorough quality review system in preparing tax returns for her clients.

Accepted Answer

Circular 230 sets forth rules and regulations governing the practice of attorneys, certified public accountants, enrolled agents, and other tax professionals. These rules require a tax preparer to exercise due diligence and competence in preparing tax returns and to apply a thorough quality review system to ensure the accuracy and completeness of the return before it is filed with the IRS.

Question 12

As part of a tax return engagement for XYZ Partnership,Enrolled Agent Wang can draft an amendment to the XYZ partnership agreement.

Accepted Answer

As an enrolled agent, Wang is not authorized to draft or make changes to partnership agreements. Only licensed attorneys or other designated professionals are authorized to do so.

Question 13

In a criminal fraud case,the burden is on the taxpayer to show that he or she was innocent "beyond the shadow of any reasonable doubt."

Accepted Answer

In a criminal fraud case, the burden is on the prosecutor to prove the defendant's guilt beyond a reasonable doubt, not on the taxpayer to prove their innocence beyond a reasonable doubt.

Question 14

Keepert uses "two sets of books." She only reports one-half of her cash sales on the records that she uses to complete her Federal income tax return.The statute of limitations for Keepert's return is six years.

Accepted Answer

The fact that Keepert is using two sets of books and only reporting half of her cash sales on her income tax return indicates that she is committing tax fraud. The statute of limitations for tax fraud is six years. Therefore, this statement is true.

Question 15

Jaime's negligence penalty will be waived,under the reasonable cause exception.He told the court,"My taxes were wrong because I couldn't understand the tax law."

Accepted Answer

Ignorance or misunderstanding of the tax law is not considered a reasonable cause for failing to comply with tax obligations.

Question 16

Fiona,a VITA volunteer for her college's tax clinic,is not a tax preparer as defined by the Code.Thus,Fiona is exempted from the Code's tax preparer penalties.

Accepted Answer

Since Fiona is not a tax preparer as defined by the Code, she is exempted from the Code's tax preparer penalties.

Question 17

Because he undervalued property that he transferred by gift,Dan owes additional gift taxes of $4,000.The penalty for undervaluation does not apply in this situation,because the tax understatement was too small.

Accepted Answer

The answer of Because he undervalued property that he transferred...

Question 18

In the context of civil tax fraud litigation,the burden of proof is on the taxpayer to show the court by a "preponderance of the evidence" that he or she was not acting with an intent to evade a tax.

Accepted Answer

In civil tax fraud litigation, the burden of proof is on the IRS (or the taxing authority) to prove by clear and convincing evidence that the taxpayer acted with fraudulent intent to evade taxes.

Question 19

The Statements on Standards for Tax Services apply to members of the AICPA,a state bar association,and all Enrolled Agents.

Accepted Answer

The answer of The Statements on Standards for Tax Services...

Question 20

The AICPA's Statements on Standards for Tax Services provide principles-based guidelines as to how a tax professional should conduct business.

Accepted Answer

The answer of The AICPA's Statements on Standards for Tax...

Quiz 26: Tax Practice and Ethics