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.

Accepted Answer

According to SSTS No. 1, a CPA may sign a return that has a tax position that has a realistic possibility of being sustained on the merits. However, the CPA must follow due diligence in reaching that position and must inform the client of any potential penalties that may result if the IRS rejects the position. Option A is incorrect because a CPA may rely on certain authorities that have not been approved by the IRS, as long as they are reasonable and well-supported. Option C is incorrect because the CPA must ensure that all tax positions on the return are adequately disclosed, but not necessarily fully disclosed.

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

Accepted Answer

Due diligence requires that the tax practitioner uses reasonable effort to comply with the tax laws, including staying current with changes in tax laws and regulations. Efficiency, respect for IRS officials, and reasonable fees are important aspects of a tax practitioner's responsibilities, but they are not the primary focus of due diligence.

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

Accepted Answer

According to Rule 101 of the AICPA Rules of Professional Conduct, a CPA in public practice must be independent of his or her clients. This means that the CPA must not have any financial, business, or personal relationships with the client that could compromise their objectivity, integrity, or professional judgement. The other choices, while important, are not specifically required by Rule 101. Rule 301 requires that a CPA maintain client confidentiality, but this does not apply to Rule 101. Circular 230 outlines ethical standards for tax practitioners, but it is not applicable to all CPA engagements. Lastly, disclosing conflicts of interest is important, but it is not the primary requirement of Rule 101.

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

Accepted Answer

The scope of tax planning in a closed transaction is more limited as compared to an open transaction because in a closed transaction, the transaction has already occurred, leaving little room for tax planning opportunities. However, tax planning in a closed transaction is still possible within the limits of presenting the taxpayer's facts to the government in the most favorable, legal manner. Therefore, the correct answer is 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

Accepted Answer

Open transactions refer to transactions that are not yet completed, and therefore, the tax consequences are not yet determined. A practitioner can suggest changes to achieve a better tax result, and may have some degree of control over the client's tax liability. However, the practitioner cannot fix the problem by amending the client's tax return for open transactions, as the tax consequences are not yet final.

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

Accepted Answer

According to Circular 230, the "best practices" rules are not mandatory, but rather aspirational goals for tax practitioners to strive towards. They are not restricted to attorneys and CPAs and non-compliance does not result in 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

Accepted Answer

The Statements on Standards for Tax Services (SSTS) are issued by the American Institute of Certified Public Accountants (AICPA).

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

Accepted Answer

The answer of Who can represent a taxpayer before the...

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.

Accepted Answer

Circular 230 is a set of legal and ethical standards established by the Treasury Department for individuals who practice before the IRS. It outlines requirements for tax professionals such as attorneys, accountants, and enrolled agents, including rules for preparing and submitting tax returns and representing their clients before the IRS.

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

Accepted Answer

The answer of A contingent fee is:
A) always allowed by...

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

Accepted Answer

Tax litigation refers to resolving tax-related disputes in a court of law. It is typically used when an administrative audit or other attempts to resolve the issue with the tax authorities have failed. Tax litigation can involve both civil and criminal cases, and the outcome can have significant financial and legal implications for the taxpayer.

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

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.

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

Accepted Answer

An unenrolled tax return preparer can represent the taxpayer only before the Examination Division of the IRS, not before Appeals and Collection Division, SB/SE Division, or Criminal Investigation Division.

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

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 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

Accepted Answer

SSTS contain advisory guidelines for CPAs who provide tax services. While enrolled agents and attorneys may also provide tax services, they are not specifically mentioned as intended users of the SSTS. IRS authorities are not intended users of the SSTS, but may consider them when evaluating tax returns and the work of CPAs who provide tax services.

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

Accepted Answer

Option B implies that the CPA can use unethical means to influence an IRS official for the benefit of the client, which is a violation of the rules of professional conduct. Option C promises a specific result without rationalization, which is misleading for the client. Options A and D are incorrect as there are no rules regarding the frequency of advertising.

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

Accepted Answer

An EA must renew his or her enrollment card on a 3-year cycle.

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

Accepted Answer

Tax compliance involves all of the above actions, including filing necessary tax returns, gathering financial information to report taxable income, and representing a taxpayer at an IRS audit.

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

Accepted Answer

Tax evasion involves deliberate and illegal nonpayment, underpayment, or concealment of taxes that a taxpayer owes to the government. It is a fraudulent act and is illegal. Tax planning aims to minimize tax liability within the legal framework, while tax evasion aims to avoid paying taxes altogether, which is illegal. Deferring tax payments to future periods is not tax evasion unless it involves manipulation or concealment of income or assets. Tax avoidance is legal, while tax evasion is not.

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

Accepted Answer

The Statements on Standards for Tax Services (SSTS) are intended to supplement the AICPA Code of Professional Conduct and Circular 230. They provide guidance to tax practitioners in areas such as tax return accuracy, due diligence, and confidentiality.

Quiz 1: Introduction to Tax Practice and Ethics

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) :

Due diligence, in essence, means a tax practitioner:

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

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

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

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

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

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

Which of the following statements best describes Circular 230?

A contingent fee is:

Tax litigation is a process of:

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

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

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:

Standards for Tax Services SSTS) contain advisory guidelines for:

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

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

Tax compliance is the process of:

Tax evasion is:

The Statements on Standards for Tax Services are: