SU 1.1

When an attorney, a CPA, or an enrolled agent *knows* that a *client has backdated a document* that the client wants the representative *to submit to the IRS*, the *representative has a duty to* do which of the following? A. Submit the document (providing the client has provided the representative a document declaring him or her free from malpractice liability). B. Notify the local district attorney of a possible crime. C. Submit another document that will offset the gain anticipated by the submission of the false document. D. Advise the client promptly of such noncompliance, error, or omission, as well as the consequences under the revenue laws.

D. *Advise* the client *promptly of such noncompliance*, error, or omission, as well as the *consequences* under the revenue laws.

While reviewing a new client's prior-year tax returns, a CPA became aware that the *client did not properly file all required federal income tax returns*. Under Treasury Circular 230, what should the *CPA do* in this situation? A. Notify the AICPA of the situation and request a ruling of continuance. B. Notify the Internal Revenue Service of the client's noncompliance. C. Resign from the engagement. D. Advise the client of the consequences of the noncompliance.

D. *Advise* the client of the *consequences* of the *noncompliance.*

A *CPA may be disbarred or suspended* from IRS practice for which of the following conduct? A. Criminal *conviction of an offense* under the *Internal Revenue Code.* B. *Misappropriation* of funds received from a client for the purpose of tax payments. C. *Disbarment or suspension* from practice as an attorney, CPA, accountant, or actuary. D. All of the answers are correct.

D. *All* of the answers are correct.

A *notice of disbarment* or suspension of a certified public accountant from practice before the Internal Revenue Service is *issued to which* of the following? A. *IRS employees.* B. Interested *departments and agencies* of the federal government. C. *State authorities*. D. All of the answers are correct.

D. *All* of the answers are correct.

The *Secretary of the Treasury* can censure, suspend, or disbar a practitioner from practice before the Internal Revenue Service for incompetence and/or disreputable conduct. Which one of the following is considered *disreputable conduct*? A. *Conviction* of any criminal offense under the *revenue laws* of the United States. B. *Conviction* of any criminal offense involving *dishonesty or breach of trust.* C. Giving *false or misleading information or participating in any way* in the giving of false or misleading information to the *Department of the Treasury or any officer* or employee thereof. D. All of the answers are correct.

D. *All* of the answers are correct.

Which of the following individuals qualifies as a *practitioner under Circular 230*? A. Certified public accountant. (CPA) B. Enrolled actuary. (EA) C. Attorney. D. All of the answers are correct.

D. *All* of the answers are correct.

All of the following are considered *examples of disreputable conduct* for which a *CPA can be disbarred* or suspended *except* A. Directly or indirectly attempting to influence the official action of any employee of the Internal Revenue Service by use of threats or false accusations or by bestowing any gift, favor, or thing of value. B. Misappropriation or failure to remit funds received from a client for the purpose of payment of taxes or other obligations due the United States. C. Knowingly aiding and abetting another person to practice before the Internal Revenue Service during a period of suspension or disbarment. D. Failure to timely pay personal income taxes.

D. *Failure* to *timely pay personal* income taxes.

Frank, a *certified public accountant*, has the right to make the following *solicitations of employment involving IRS* matters: A. Seeking *new business* from a *former client*. B. Communicating with a *family member*. C. *Targeting mailings.* D. All of the answers are correct.

D. All of the answers are correct.

*Lawson, a CPA, discovers material noncompliance* with a specific Internal Revenue Code (IRC) requirement *in the prior-year return of a new client*. Which of the following actions should *Lawson take*? A. Wait for the statute of limitations to expire. B. Discuss the requirements of the IRC with the client and recommend that the client amend the return. C. Contact the IRS and discuss courses of action. D. Contact the prior CPA and discuss the client's exposure.

B. *Discuss the requirements* of the IRC with the client and *recommend* that the client *amend* the return.

*Mike is a CPA. Widget, Inc., is an accrual-basis taxpayer*. In Year 3, while preparing Widget's Year 2 return, Mike discovered that Widget *failed to include income on its Year 1 return* that Widget received in Year 2 but that should have been *included in income in Year 1 under the accrual method* of accounting. What must *Mike do?* A. Advise Widget of the error and the consequences of the error. B. Include the income on the Year 2 return. C. Refuse to prepare Widget's Year 2 return until Widget agrees to amend its Year 1 return to include the amount of income. D. Change Widget to the cash method of accounting.

A. *Advise* Widget of the error and the *consequences* of the error.

The *IRS requested client records from a CPA* who does *not have possession or control* of the records. According to Treasury Circular 230, the *CPA must* A. Notify the IRS of the identity of any person who, according to the CPA's belief, could have the records. B. Require the client to submit the records to the IRS or withdraw from the engagement. C. Obtain the records from the client and submit them to the IRS. D. Contact all third parties associated with the records, such as banks and employers, to obtain the requested records for submission to the IRS.

A. *Notify the IRS* of the identity of *any person* who, according to the CPA's belief, could *have the records.*

All of the following are *examples of disreputable conduct* for which a *CPA may be disbarred* or suspended from practice before the Internal Revenue Service *except* A. Soliciting by mailings, the contents of which are designed for the general public. B. Suggesting that (s)he is improperly able to obtain special consideration from an Internal Revenue Service employee. C. Maintaining a partnership for the practice of tax law and accounting with a person who is under disbarment from practice before the Internal Revenue Service. D. Failing to properly and promptly remit funds received from a client for the purpose of payment of taxes.

A. *Soliciting by mailings*, the contents of which are designed for the *general public.*

*Ms. Smith hired Tom, a CPA*, to prepare her federal *income tax return for Year 3*. While gathering information to prepare the return, Tom discovered that Ms. Smith *failed to file* federal income tax returns for the *Year 1 and Year 2* tax years. Circular 230 requires that *Tom do the following:* A. Promptly advise Ms. Smith that she did not comply with the Internal Revenue laws by failing to file federal income tax returns for the Year 1 and the Year 2 tax years and of the consequences she may face under the Code and regulations. B. Refuse to prepare Ms. Smith's Year 3 federal income tax return unless she files her Year 1 and Year 2 Federal income tax returns. C. Inform the IRS that Ms. Smith did not file federal income tax returns for the Year 1 and Year 2 tax years. D. Refuse to prepare Ms. Smith's Year 3 federal income tax return unless she files her Year 1 and Year 2 Federal income tax returns and inform the IRS that Ms. Smith did not file federal income tax returns for the Year 1 and Year 2 tax years.

A. Promptly advise Ms. Smith that she *did not comply* with the Internal Revenue laws by failing to file federal income tax returns for the Year 1 and the Year 2 tax years and of the *consequences* she may face under the Code and regulations.

Under Treasury Circular 230, in which of the following situations is a *CPA prohibited from giving written advice* concerning one or more *federal tax issues*? A. The CPA takes into account the possibility that a tax return will not be audited. B. The CPA reasonably relies upon representations of the client. C. The CPA considers all relevant facts that are known. D. The CPA takes into consideration assumptions about future events related to the relevant facts.

A. The CPA takes into account the possibility that a *tax return will not be audited.*

A *tax preparer has advised a company* to take a *position on its tax return*. The tax preparer believes that there is a *75% possibility* that the position will be *sustained if audited* by the IRS. If the position is *not sustained, an accuracy-related penalty and a late-payment penalty would apply*. What is the *tax preparer's responsibility regarding disclosure* of the penalty to the company? A. The tax preparer is responsible for disclosing both penalties to the company. B. The tax preparer is responsible for disclosing only the accuracy-related penalty to the company. C. The tax preparer is responsible for disclosing only the late-payment penalty to the company. D. The tax preparer has no responsibility for disclosing any potential penalties to the company because the position will probably be sustained on audit.

A. The tax preparer is responsible for *disclosing both penalties* to the company.

A CPA prepared a tax return for a client who will *receive a refund check*. The client is *traveling abroad* and asked the *CPA to pick up the check* at the client's home address. Under Treasury Circular 230, any of the following actions, if taken by the CPA relating to the refund check, would be a *violation of the rules* of practice before the Internal Revenue Service, *except* A. Endorsing the check and depositing it into the client's bank account. B. Holding the check for safe keeping and awaiting the client's return. C. Holding the check until the client is billed, then endorsing and depositing the check into the CPA's account as payment for the bill. D. Endorsing the check and depositing it into an escrow account for the client's benefit.

B. *Holding* the check for *safe keeping* and awaiting the client's return.

*Sam is a CPA and a partner* in the firm of *Taxes-R-Us, LLP*. One of Sam's *former partners is under investigation* by the Office of Professional Responsibility for *disreputable conduct*. Sam has been asked by the Office of Professional Responsibility to provide information regarding his former partner. Sam must *provide all* the information requested *unless* A. He has credible evidence that his former partner is not guilty of the disreputable conduct. B. He believes in good faith and on reasonable grounds that the information requested is privileged or that the request is of doubtful legality. C. The partnership agreement prohibits him from providing the information. The conduct in question relates to one of Sam's clients. D. The conduct in question relates to one of Sam's clients.

B. He believes in *good faith and on reasonable grounds* that the information requested is *privileged* or that the request is of *doubtful legality.*

Under Treasury Circular 230, which of the following *correctly represents* the requirements related to the *communication of fee* information from a *tax practitioner to a taxpayer*? A. It may be communicated only through the confidential engagement letter between the tax practitioner and the taxpayer. B. It may be communicated in a number of ways, including in professional lists, telephone directories, mailings, and electronic mail. C. It must be communicated as an estimate before the engagement begins, with the understanding that the actual amount of the fee will not be determined until the engagement ends. D. It may not be communicated by television, radio, or hand-delivered flyers.

B. It may be communicated in a number of ways, including in *professional lists, telephone directories, mailings, and electronic mail.*

Pursuant to Treasury Circular 230, which of the following statements about the *return of a client's records is correct*? A. The client's records are to be destroyed upon submission of a tax return. B. The practitioner may retain copies of the client's records. C. The existence of a dispute over fees generally relieves the practitioner of responsibility to return the client's records. D. The practitioner does not need to return any client records that are necessary for the client to comply with the client's federal tax obligations.

B. The *practitioner may retain copies* of the client's records.

A *tax advisor with what responsibility* should take reasonable steps to ensure that the *firm's procedures* for all members, associates, and employees are *consistent with the best practices?* A. Overseeing a firm's practice of providing advice concerning federal tax issues. B. Preparing or assisting in the preparation of submissions to the IRS. C. Both overseeing a firm's practice of providing advice concerning federal tax issues and preparing or assisting in the preparation of submissions to the IRS. D. Neither overseeing a firm's practice of providing advice concerning federal tax issues nor preparing or assisting in the preparation of submissions to the IRS.

C. *Both overseeing* a firm's practice of *providing advice concerning federal tax issues* and *preparing or assisting* in the preparation of *submissions to the IRS.*

Which of the following is *not* an example of *disreputable conduct* (as described in Sec. 10.51 of Circular 230) for which a *CPA may be suspended or disbarred* from practice before the IRS? A. Knowingly giving false or misleading information to the Treasury Department. B. Willful failure to make a federal tax return in violation of federal revenue laws. C. Failure to respond to a request by the Director of the Office of Professional Responsibility to provide information. D. Misappropriation of funds received from a client for the purpose of payment of federal tax.

C. *Failure to respond* to a request by the *Director of the Office of Professional Responsibility* to provide information.

While preparing a *tax return for a new client* and reviewing the client's prior-year return, a CPA noticed an *error* made by the client's *former tax preparer.* According to Treasury Department Circular 230, which of the following is the *CPA specifically required to do* in this case? A. Contact the tax preparer who made the error and suggest that an amended return be prepared for the client. B. Inform the client of the error and insist that the return be amended. C. Inform the client of the error and advise of the consequences. D. Advise the client to contact the tax preparer of the prior-year return.

C. *Inform the client* of the error and *advise of the consequences.*

Which of the following is *not* an example of *disreputable conduct* for which a *CPA may be disbarred* or suspended from practice before the Internal Revenue Service? A. Maintaining a partnership for the practice of tax law and accounting with a person who is under disbarment from practice before the Internal Revenue Service. B. Being convicted of any offense involving dishonesty or breach of trust. C. Soliciting new business in matters relating to the Internal Revenue Service through the publishing of a range of fees for particular services. D. Circulating or publishing malicious or libelous matter in connection with practice before the Internal Revenue Service.

C. *Soliciting new business* in matters relating to the Internal Revenue Service through the *publishing of a range of fees for particular services.*

*Frank Maple, CPA*, represents his *brother Joe Maple* and Joe's business partner Bill Smith. Joe Maple and Bill Smith are *equal shareholders* in the Joe & Bill Corporation. The Internal Revenue Service examined the corporation and determined that one of the shareholders *committed fraud, but could not determine which* shareholder it was. *Frank has made an appointment with the Internal Revenue Service* to determine which partner was guilty. Which of the following statements reflects what *Frank should do in accordance with Circular 230*? A. Frank should meet with the Internal Revenue Service and try to convince the examiner that each shareholder is equally guilty. B. Advise Joe & Bill that they should dissolve the corporation, thereby making it difficult for the Internal Revenue Service to pursue the issue. C. Advise Joe & Bill that he cannot represent them because there is a conflict of interest. D. Advise Joe & Bill on creating documents that will convince the Internal Revenue Service that neither shareholder is guilty of fraud.

C. Advise Joe & Bill that he *cannot represent* them because there is a *conflict of interest.*

Identify the individual below *from whom a CPA*, in practice before the Internal Revenue Service, may *knowingly accept assistance.* A. An individual who is under disbarment from practice before the Internal Revenue Service. B. An individual who is under suspension from practice before the Internal Revenue Service. C. An individual who has temporary recognition to practice before the IRS. D. A former government employee where any federal law would be violated.

C. An individual who has *temporary recognition* to practice before the IRS.

According to Circular 230, which of the following statements may *not be used when a CPA advertises*? A. Name, address, and office hours. B. Names of associates of the firm. C. Claims of quality of service that cannot be verified. D. Membership in professional organizations.

C. Claims of *quality of service* that *cannot be verified*.

Under Treasury Circular 230, which of the following actions of a *CPA tax advisor* is characteristic of a *best practice in rendering tax advice*? A. Requesting written evidence from a client that the fee proposal for tax advice has been approved by the board of directors. B. Recommending to the client that the advisor's tax advice be made orally instead of in a written memorandum. C. Establishing relevant facts, evaluating the reasonableness of assumptions and representations, and arriving at a conclusion supported by the law and facts in a tax memorandum. D. Requiring the client to supply a written representation, signed under penalties of perjury, concerning the facts and statements provided to the CPA for preparing a tax memorandum.

C. Establishing *relevant facts*, evaluating the *reasonableness of assumptions* and representations, and arriving at a *conclusion supported by the law* and facts in a tax memorandum.

*Sam, a CPA, is representing Fred* before the *Examination Division* of the Internal Revenue Service. The Internal Revenue Service is questioning Fred on his *Schedule C gross income* that is listed on the 2016 tax return. While reviewing the documentation Fred provided, *Sam discovers income that was omitted from the tax return*. What is the appropriate action for Sam to take? A. Sam must immediately advise the Internal Revenue Service examiner of the omitted income. B. Sam must notify the Internal Revenue Service that he is no longer representing Fred by withdrawing his Form 2848. C. Sam must advise Fred promptly of the omission and the consequences provided by the Internal Revenue Code and regulations for such omission. D. Sam must advise Fred on how to keep the omission from being discovered by the Internal Revenue Service.

C. Sam must *advise Fred promptly of the omission and the consequences* provided by the Internal Revenue Code and regulations for such omission.

Which of the following statements is *true* with respect to a client's *request for records of the client* that are *necessary* for the *client to comply* with his or her Federal *tax obligations?* A. The practitioner may never return records of the client to the client even if the client requests prompt return of the records. B. The existence of a dispute over fees always relieves the practitioner of his or her responsibility to return records of the client to the client. C. The practitioner must, at the request of the client, promptly return the records of the client to the client unless applicable state law provides otherwise. D. The practitioner must, at the request of the client, return the records of the client to the client within 3 months of receiving the request.

C. The *practitioner* must, at the request of the client, *promptly return* the records of the client to the client *unless applicable state law* provides otherwise.

The *Secretary of the Treasury* can censure, suspend, or disbar a practitioner from practice before the Internal Revenue Service for incompetence and/or disreputable conduct. Which one of the following is *considered disreputable conduct*? A. Being indicted for any criminal offense under the revenue laws of the United States. B. Having your motor vehicle license suspended as a result of numerous traffic violations. C. Being indicted of any felony under federal or state law for which the conduct involved renders the practitioner unfit to practice before the Internal Revenue Service. D. Giving false or misleading information, or participating in any way in the giving of false or misleading information to the Department of the Treasury or any officer or employee thereof.

D. Giving *false or misleading information, or participating in any way* in the giving of false or misleading information to the *Department of the Treasury or any officer or employee* thereof.

Identify the appropriate action that a *practitioner should take* when (s)he becomes *aware of an error* or omission on a *client's return.* A. Amend the return and provide it to the client. B. Inform the IRS of the noncompliance, error, or omission. C. Do nothing. D. Promptly advise the client of such noncompliance, error, or omission and the consequences thereof.

D. Promptly *advise* the client of such *noncompliance*, error, or omission and the *consequences* thereof.