SU 1

Which of the following is least likely to result in a tax practitioner's suspension or disbarment from practice before the IRS?

A CPA refuses to return practitioner-prepared documents upon client request because of a fee dispute.

All of the following are tax return preparers except

A person who gives an opinion about theoretical events that have not occurred.

Under Treasury Circular 230, the IRS requires that certain records be returned to a client by the tax practitioner even though no payment for services has been received. Records of the client for this purpose do not include

A schedule prepared by the practitioner that provides mathematical details of a particular amount included in a client's tax return.

Which entity has the authority to prohibit an individual from practicing public accounting?

A state board of accountancy.

Which of the following bodies ordinarily would have the authority to suspend or revoke a CPA's license to practice public accounting?

A state board of accountancy.

Which of the following persons would be subject to the penalty for improperly negotiating a taxpayer's refund check?

A tax return preparer who operates a check cashing agency that cashes, endorses, or negotiates tax refund checks for returns he prepared.

Which of the following is considered a tax return preparer?

A woman who prepares tax returns in her home during filing season and accepts payment for her services.

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

Advertising the hourly rates of the CPA.

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?

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

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?

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

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?

Advise the client of the consequences of the noncompliance.

A tax return preparer whose client has not complied with the revenue laws of the U.S. is required to

Advise the client of the noncompliance.

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?

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

A compensated tax return preparer has prepared a substantial portion of a client's filed tax return. If the preparer has discovered an omission in the return, the preparer must notify the client (taxpayer) and is also required to

Advise the taxpayer of the consequences of the error or omission.

Debbie, CPA, is representing Mary and Matthew, a married couple, before the IRS. Debbie has been the couple's CPA for the past 20 years. If Mary and Matthew have started divorce proceedings, Debbie may continue to represent their conflicting interests before the IRS if the

Affected parties provide informed, written consent.

A CPA may be disbarred or suspended from IRS practice for which of the following conduct?

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?

All of the answers are correct.

Circular 230, Sec. 10.34, discusses standards for advising clients with respect to tax return positions and for preparing or signing returns. Which of the statements below is true?

All of the answers are correct.

In accordance with Treasury Department Circular 230, a practitioner who has committed a willful violation may be

All of the answers are correct.

In which of the following situations may the tax return preparer disclose the tax return information requested without first obtaining the consent of the taxpayer/client?

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?

All of the answers are correct.

Which of the following individuals qualifies as a practitioner under Circular 230?

All of the answers are correct.

Identify the individual below from whom a CPA, in practice before the Internal Revenue Service, may knowingly accept assistance.

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

A penalty may be assessed on any preparer or

Any person who prepares and signs a tax return or claim for refund and the individual with overall supervisory responsibility for the advice given by the firm with respect to the return or claim.

A penalty may be assessed against an income tax return preparer who takes an unreasonable position that causes an understatement of liability on a return. For purposes of assessing the penalty, "understatement of liability" means

Any understatement of the tax liability or overstatement of the amount to be refunded or credited.

Arnie is a Certified Public Accountant who prepares income tax returns for his clients. One of his clients submitted a list of expenses to be claimed on Schedule C of the tax return. Arnie qualifies as a return preparer and, as such, is required to comply with which one of the following conditions?

Appropriate inquiries are required to determine whether the client has substantiation for travel and entertainment expenses.

Mike is a CPA. For the past 5 years, the information that Anne provided Mike to prepare her return included a Schedule K-1 from a partnership showing significant income. However, Mike did not see a Schedule K-1 from the partnership among the information Anne provided to him this year. What does due diligence require Mike to do?

Ask Anne about the fact that she did not provide him with a Schedule K-1.

Which of the following acts, if any, constitute grounds for a tax preparer penalty?

At the taxpayer's suggestion, the tax preparer deducted the expenses of the taxpayer's personal domestic help as a business expense on the taxpayer's individual tax return.

Baner, a CPA, is preparing a tax return for Affleck, a new client. During the course of the interview, Baner asks to inspect Affleck's source documents. Affleck responds that the supporting information is not readily available but assures Baner that the summary information is reliable. Which of the following statements best describes how Baner should proceed?

Baner can accept the representations but should make reasonable inquiries to determine if the information appears to be incorrect, incomplete, or inconsistent.

A tax return preparer may disclose or use tax return information without the taxpayer's consent to

Be evaluated by a quality or peer review organization.

Tax preparers who aid and abet federal tax evasion are subject to

Being prohibited from acting as tax preparers - Yes; General federal criminal prosecution - Yes.

A penalty applies to the portion of tax underpayment attributable to I. Negligence of the tax rules or regulations II. A disregard of the tax rules or regulations

Both I and II.

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 refund

Both I and II.

By what date must a tax return preparer furnish a copy of the original return to a taxpayer?

By the date the tax return is presented for the signature of the taxpayer.

According to Circular 230, which of the following statements may not be used when a CPA advertises?

Claims of quality of service that cannot be verified.

Clark, a professional tax return preparer, prepared and signed a client's federal income tax return that resulted in a $600 refund. Which one of the following statements is true with regard to an Internal Revenue Code penalty Clark may be subject to for endorsing and cashing the client's refund check?

Clark will be subject to the penalty if Clark endorses and cashes the check.

The Securities and Exchange Commission (SEC) may discipline accountants. Under its disciplinary powers, the SEC may suspend an accountant's right to practice before it. What is a basis for suspension?

Conviction of a felony.

Tax return preparers can be subject to penalties under the Internal Revenue Code for failure to do any of the following, except

Disclose a conflict of interest.

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?

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

A tax return preparer is not required to

Discuss the tax return with a third party after oral consent by the client-taxpayer.

Under Treasury Circular 230, which of the following actions of a CPA tax advisor is characteristic of a best practice in rendering tax advice?

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.

The Internal Revenue Code and the Regulations do not impose penalties on tax return preparers for which of the following?

Failure to notify a taxpayer about an inadvertent error on a tax return filed 10 years ago.

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?

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

All of the following are considered examples of disreputable conduct for which a CPA can be disbarred or suspended except

Failure to timely pay personal income taxes.

When must a tax return preparer obtain the consent of the taxpayer to release information?

George is planning to start a business with Ted. George asks to see Ted's tax returns to verify his financial position.

Which one of the following is considered disreputable conduct under Circular 230?

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.

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

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

Louis, the volunteer treasurer of a nonprofit organization and a member of its board of directors, compiles the data and fills out its annual Form 990, Return of Organization Exempt From Income Tax. Under the Internal Revenue Code, Louis is not considered a tax return preparer because

He is not compensated.

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

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

If a tax return preparer discloses taxpayer information without the taxpayer's consent, the preparer can incur a penalty of I. A $250 fine per disclosure up to $10,000 per year II. Up to 1 year in prison and up to a $1,000 fine III. Up to 3 years in prison and up to a $250,000 fine IV. A fine of 50% of income to be derived from the taxpayer

I and II.

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?

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

Joe is the trustee of a trust set up for his father. Under the Internal Revenue Code, when Joe prepares the annual trust tax return, Form 1041, he

Is not considered a tax return preparer.

Jack, a return preparer, did not retain copies of all returns that he prepared but did keep a list that reflected the taxpayer's name, identification number, tax year, and type of return for each of his clients. Which of the following statements best describes this situation?

Jack is in compliance with the provisions of the tax code, provided he retains the list for a 3-year period after the close of the return period in which the return was signed.

During a meeting with his client, Susan, John Rawley, CPA, recommended that Susan amend her prior-year tax return. What is the most likely reason for John's advice?

John has discovered an error in Susan's prior-year tax return.

A CPA who prepares clients' federal income tax returns for a fee must

Keep a completed copy of each return for a specified period of time or keep a summarized list of specified return information.

The SEC can suspend or revoke the right of an accountant to sign any document filed by an SEC registrant if the accountant

Lacks integrity - Yes; Engages in unethical conduct - Yes.

To avoid tax return preparer penalties for a return's understated tax liability due to an intentional disregard of the regulations, which of the following actions must a tax preparer take?

Make reasonable inquiries if the taxpayer's information is incomplete.

A penalty for understated corporate tax liability can be imposed on a tax preparer who fails to

Make reasonable inquiries when taxpayer information appears incorrect.

If an ethics complaint is filed against a CPA, the matter

May be handled, in most cases, by either the AICPA or a state CPA society.

According to the Rules of Conduct before the IRS, a tax practitioner

May charge a contingent fee for an IRS examination of a claim for refund.

Under its legal authority, the SEC

May prohibit an accounting firm from accepting SEC clients.

William, a taxpayer, refuses to pay Sara, CPA, for the preparation of his tax return unless Sara changes the return to reduce William's tax liability. The CPA

May withhold the documents she prepared from the client.

With respect to any given tax return, which of the following statements is correct?

More than one person may be deemed to be a preparer of a tax return.

Which of the following is a tax return preparer according to the tax return preparer rules?

Mr. A engages a number of persons to prepare tax returns on a commission basis but does not himself prepare returns.

Teri is an attorney who is a member in good standing of the bar of the highest court in her state of residence. In her practice before the IRS, Teri

Must file a written declaration for each party represented

Which of the following statements is correct concerning a penalty for a tax return preparer who understates a taxpayer's liability?

No penalty is imposed if it is shown that there is reasonable cause for the understatement and the tax return preparer acted in good faith.

Jane is a Certified Public Accountant who specializes in preparing federal tax returns. Which of the following returns would not qualify Jane as a tax return preparer?

None of the answers are correct.

Which of the following situations describes a disclosure of tax return information by a tax return preparer that would subject the preparer to a penalty?

None of the answers are correct.

Starr, CPA, prepared and signed Cox's current-year federal income tax return. Cox informed Starr that Cox had paid doctors' bills of $20,000 although Cox actually had paid only $7,000 in doctors' bills during the year. Based on Cox's representations, Starr computed the medical expense deduction that resulted in an understatement of tax liability. Starr had no reason to doubt the accuracy of Cox's figures and did not ask Cox to submit documentation of the expenses claimed. Cox orally assured Starr that sufficient evidence of the expenses existed. In connection with the preparation of Cox's tax return, Starr is

Not liable to the IRS for any penalty or interest.

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

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

You are a CPA retained by the manager of a cooperative retirement village to prepare its tax returns. In performing the work, you discover that there are no invoices to support $25,000 of the manager's claimed disbursements. The manager informs you that all the disbursements are proper. What should you do?

Notify the owners that some of the claimed disbursements are unsupported and withdraw if the situation is not satisfactorily resolved.

Which of the following statements is false regarding tax return preparers?

Only a person who signs a return as the preparer may be considered the preparer of the return.

A CPA must sign the preparer's declaration on a federal income tax return

Only when the CPA prepares a tax return for compensation.

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?

Overseeing either a firm's practice of (1) providing advice concerning federal tax issues or (2) preparing or assisting in the preparation of submissions to the IRS.

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:

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.

Identify the appropriate action that a practitioner should take when (s)he becomes aware of an error or omission on a client's return.

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

A CPA prepares income tax returns for a client. After the client signs and mails the returns, the CPA discovers an error. According to Treasury Circular 230, the CPA must

Promptly advise the client of the error.

A CPA will be liable to a tax client for damages resulting from all of the following actions except

Refusing to sign a client's request for a filing extension.

Which of the following situations describes a disclosure of tax information by an income tax preparer that would subject the preparer to a penalty?

Ron died after furnishing tax return information to his tax return preparer. Ron's tax return preparer disclosed the information to Jerry, Ron's nephew, who is not the fiduciary of Ron's estate.

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 2017 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?

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

A tax return preparer is subject to a penalty for knowingly or recklessly disclosing corporate tax return information if the disclosure is made

So that a potential acquirer can analyze the business value.

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?

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

Which of the following is considered a tax preparer under the tax preparer regulations?

Someone who employs another person to prepare, for compensation, a substantial portion of any return of tax under the income tax provisions of the Code.

Which of the following is not a tax return preparer?

Someone who prepares a return or claim for refund for his or her employer.

Which of the following is not a tax return preparer?

Someone who prepares, as a fiduciary, a return or claim for refund for any person.

Which of the following professional bodies has the authority to revoke a CPA's license to practice public accounting?

State board of accountancy.

A tax preparer filed a return for a taxpayer and used the taxpayer's detailed check register containing both business and personal expenses. If the tax preparer knowingly included personal expenses as deductible business expenses on the taxpayer's business, then the

Tax preparer will be liable for penalties arising from an understatement due to willful or reckless conduct.

Which of the following statements is true regarding records required to be maintained by return preparers?

Tax return preparers are required to maintain a complete copy of each return or claim for refund they have filed for 3 years after the return period, or are required to maintain a list of the names, identification numbers, and tax years for whom returns are prepared and to keep this list for 3 years after the return period.

Morgan, a sole practitioner CPA, prepares individual and corporate income tax returns. What documentation is Morgan required to retain concerning each return that Morgan has prepared?

Taxpayer's name and identification number or a copy of the tax return.

When preparing a client's Form 1040, U.S. Individual Income Tax Return, a CPA determined that there was documentation supporting only $12,000 of the $20,000 travel expenses claimed by the client. Which of the following courses of action taken by the CPA would be in compliance with Treasury Circular 230?

The CPA makes reasonable inquiries to obtain the needed documentation if the information as furnished appears to be incorrect or incomplete.

A CPA prepares a client's tax return containing business travel expenses without inquiring about the existence of documentation for the expenses. Which statement best describes the consequence of the CPA's lack of inquiry?

The CPA may be assessed a tax return preparer penalty.

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?

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

A husband prepared his own tax return as married filing separately. His wife hired a CPA to prepare her tax return as married filing separately and asked the CPA not to disclose the information to anyone. The CPA was not retained by the husband for any tax work. The husband believed that his wife's tax return was negligently prepared and that he was financially harmed. He hired an attorney, without his wife's consent, to pursue a negligence claim against the CPA. The CPA hired an attorney to defend against the negligence claim. To which party, if any, may the CPA disclose the wife's tax return information without the wife's consent?

The CPA's attorney, for the evaluation of the negligence claim.

Which agency is responsible for determining the continuing professional education requirements for licensed CPAs?

The board of accountancy for the state in which the licensed CPA practices.

Identify the item below that does not describe information a preparer must maintain about every return prepared.

The date the return or claim for refund was prepared.

A tax return preparer must complete the paid preparer's area of the return if

The individual was paid to prepare, assist in preparing, or review the tax return.

In which of the following circumstances would a tax return preparer be prohibited from disclosing a client's tax return information?

The information will be provided to a section 501(c)(3) charity.

Pursuant to Treasury Circular 230, which of the following statements about the return of a client's records is correct?

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

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?

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.

During an interview conducted by the tax return preparer, the client stated that he had paid $1,500 for deductible travel expenses and $3,000 for charitable contributions. The preparer asked if documentation existed in support of the deductions and was assured by the client that adequate documentation did exist. When the client's return was later examined by the IRS, a tax deficiency resulted due to the client's lack of supporting documentation for the travel expenses. Which of the following statements best describes this situation?

The preparer is not subject to a penalty under Sec. 6694 because she is not required to examine or review the client's books and records in order to verify the client's information.

To whom must a CPA pay license fees in order to maintain a CPA license?

The state board of accountancy of the CPA's state of licensure.

Which of the following bodies has the authority to suspend or revoke a CPA's license for acts discreditable to the profession?

The state board of accountancy.

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?

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

Penalties may be imposed on a tax return preparer for an understatement of tax liability because of a position for which there is not a reasonable belief that there is substantial authority that the position will be sustained on its merits. But the penalties may be excused if

There is reasonable cause and good faith.

Which of the following acts by a CPA will not result in a CPA's incurring an IRS penalty?

Understating a client's tax liability as a result of an error in calculation.

A CPA received a notice regarding a client from a person claiming to be a field agent with the IRS. The notice demanded all of the client's records in the CPA's possession. If the CPA has a reasonable, good-faith belief that the request is not proper and lawful, the CPA most likely should

Withhold the client's records because the request is not proper and lawful.