Chapter 1 - Ethics and Professional Responsibilities

Question 1

A person is practicing before the IRS if she/he

Answer 1

A) communicates with the IRS for a taxpayer regarding taxpayer rights under laws and regulations administered by the IRS.
B) represents a taxpayer at conferences, hearings, or meetings with the the IRS
C) Prepares necessary documents and files them with the IRS for a taxpayer
D) Renders written advice with respect to any entity, transaction, plan, or arrangement or other plan or arrangement having a potential for tax avoidance or evasion.

Question 2

Not included in practicing before the IRS are:

Answer 2

A) Preparing a tax return, an amended return, or a claim for refund.
B) Furnishing information upon request of the IRS
C) Appearing as a witness for a person

Question 3

To practice before the IRS, an attorney or a CPA must

Answer 3

1) File a written declaration for each party (s)he represents that (s)he
A) is currently qualified
B) has been authorized to represent the party
2) Not be suspended or disbarred.

Question 4

A ________,properly authorized by the taxpayer, who signed a return as having prepared it for the taxpayer or who prepares a return but is not required to sign the return may represent the taxpayer with respect to tax liability for the period covered by the return.

Answer 4

A Practioner

Question 5

A Practitioner may represent conflicting interests before the IRS only if

Answer 5

A) All directly affected parties provide formed, written consent at the time the existence of the conflict is known by the practitioner (written consent must be within 30 days of informed consent)
B) The representation is not prohibited by law; and
C) the practitioner reasonably believes that (s)he can provide competent and diligent representation to each client.

Question 6

The return preparer is not required to disclose the conflict of interest.

True/False

Answer 6

True

Question 7

Diligence must be exercised in preparing and assisting in preparing, approving, and filing returns, documents, and other papers relating to IRS matters.

Answer 7

1) Diligence is presumed if the practitioner relies upon the work product of another person and if (s)he uses reasonable care in engaging, supervising, training and evaluating the person.
2) A practitioner may not unreasonably delay the prompt disposition of any matter before the IRS

Question 8

Information or records properly and lawfully requested by a duly authorized officer or employee of the IRS must be promptly submitted.

Answer 8

1) however, if reasonable basis exists for a good-faith belief that the information is privileged or that the request is not proper and lawful, the practitioner is excused from submitting the requested information.
2) A practitioner is also required to provide information regarding the identity of persons that the practitioner reasonably believes may have possession or control of the requested information if the practitioner does not have possession or control of the documents.

Question 9

An attorney, CPA, or enrolled agent may be censured (public reprimand), suspended or disbarred from practice before the IRS for

Answer 9

Willful violations of any of the regulations contained in Circular 230

Question 10

The Secretary of the Treasury may censure, suspend, or disbar from practice before the IRS any attorney, CPA, or enrolled agent who

Answer 10

1) Is shown to be incompetent or disreputable
2) Refuses to comply with the rules and regulations relating to practice before the IRS
3) Willfully and knowingly, with intent to defraud, deceives, misleads, or threatens any claimant or potential claimant.

Question 11

A CPA is permitted to publish the availability of a written schedule of fees for representation of the taxpayer before the IRS

Required/not required

Answer 11

Required

Question 12

A practitioner will be presumed to have exercised due diligence if the practitioner relies on the work product of another person and the practitioner used reasonable care in engaging, supervising, training, and evaluating the person, taking proper account of the nature of the relationship between the practitioner and the person.

Required/not required

Answer 12

Required

Question 13

To be absolutely certain that (s)he will not be sanctioned for failing to exercise due diligence, a CPA personally must complete all tasks involved with the representation of a taxpayer.

Required/not required

Answer 13

Not required

Question 14

A practitioner must exercise due diligence in determining the correctness of oral or written representation made by the practitioner to clients with reference to any matter administered by the IRS

Required/not required

Answer 14

Required

Question 15

Practitioners must promptly submit records or information upon lawful request by a duly authorized officer or employee of the IRS unless the practitioner believes in good faith and on reasonable grounds that such records or information is privileged or the request is not lawful and proper.

Required/not required

Answer 15

Required

Question 16

Practice before the IRS comprehends all matters connected with a presentation to the IRS or any of its officers or employees relating to a taxpayers rights, privileges, or liabilities under laws or regulations administered by the IRS. Such presentations include,but are not limited to, preparing and filing documents, corresponding and communicating with the IRS, and representing a client at conferences,hearings, and meetings.

Required/not required

Answer 16

Required

Question 17

Practice before the IRS includes

Answer 17

Presenting to the IRS or any of its officers or employees all matters relating to a client’s rights privileges, or liabilities.

Question 18

Susan, CPA, prepared a frivolous tax return for one of her clients.

SAB, SEC, PCAOB, AICPA, IRS

Answer 18

State Accountancy Board, AICPA and IRS

Question 19

Jim, CPA, issued an unmodified opinion on financial statements that were not in accordance with GAAP

SAB, SEC, PCAOB, AICPA, IRS

Answer 19

State Accountancy Board, SEC, PCAOB, AICPA

Question 20

Joh, CPA, was convicted of preparing fradulent income tax return.

SAB, SEC, PCAOB, AICPA, IRS

Answer 20

State Accountancy Board, SEC, PCAOB, AICPA, IRS

Question 21

Mary practiced as a CPA and represented taxpayers before the IRS. Her license as a CPA and her CPA firm’s license were revoked by the state accountancy board.

SAB, SEC, PCAOB, AICPA, IRS

Answer 21

SEC, PCAOB, AICPA, IRS

Question 22

Jeff, CPA, discovered that his client filed a frivolous return last year, so he immediately reported it to the IRS.

Circular 230, AICPA (SSTS), SEC/PCAOB, No selections

Answer 22

Circular 230, SSTS

Question 23

Jessica, CPA, returned all of her client’s tax documents but did not include documents she prepared.

Circular 230, SSTS, SEC/PCAOB, No selections

Answer 23

No Selections

Question 24

Veronica, CPA, completed a waiter’s personal tax return. This waiter explained that what the IRS did not know could not hurt them and that he did not receive any cash tips. Veronica completed the waiter’s return.

Circular 230, SSTS, SEC/PCAOB, No selections

Answer 24

Circular 230, SSTS

Question 25

During a nontax proceeding, a CPA refused to divulge information the IRS requested.

Circular 230, SSTS, SEC/PCAOB, No selections

Answer 25

No Selections

Question 26

Bob, CPA, has a client with a strong belief that he is correct about an aggressive but creative tax position. Bob thinks otherwise and has documented his position. Box files the tax return as his client wishes but also includes disclosure on his client’s position. There is no substantial authority on this tax position. The client agrees with Bob that the position should be disclosed to the IRS.

Circular 230, SSTS, SEC/PCAOB, No selections

Answer 26

SSTS

Question 27

Eric emails a client advising on the deductability of travel expenses to and from rental property for the purpose of making repairs to the rental property. Eric reasonable assumes the client meets the qualified rental property requirements.

Complies/Violates

Answer 27

Complies

Question 28

Eric emails a client concerning offshore bank accounts and the possibility of foreign sources of income not being repatriated to the U.S. Eric promotes his advice based on the low likelihood of a tax audit.

Complies/Violates

Answer 28

Violates

Question 29

Eric emails a client who is starting a business that will allow its investors significant losses. The client is asking for an opinion on the legality of his business. Eric’s advice relies in good faith on the reasonable advice of another practitioner.

Complies/Violates

Answer 29

Complies

Question 30

One of Eric’s clients has asked Eric to provide written advice on a particular matter. Eric’s response relies on the advice of a practitioner with unresolved conflicts of interest.

Complies/Violates

Answer 30

Violates

Question 31

Ms. Smith hired Tom, CPA, to prepare her federal income tax return for Year 3. While gathering information to prepare the return, Tom discovered that although Ms. Smith was required to file federal income tax returns for the Year 1 tax year and the Year 2 tax year under the federal tax laws, she did not file these returns. Tom promptly advised Ms. Smith that she did not comply with the Internal Revenue laws by failing to file her federal income tax returns for the Year 1 tax year and the Year 2 tax year, and he advised her of the consequences of failing to file under the Code and regulations.

Acceptable/Unacceptable

Answer 31

Acceptable

Question 32

On December 17 of last year, Stan, CPA, placed an ad in the local newspaper and a trade magazine that he would prepare a complex Form 1040 for $200. On January 2 of this year, the owner of Stan’s office building unexpectedly increased his rent by a large amount. Stan determined he would have to charge $230 to make a profit. Stan changed his rate to $230 on January 10.

Acceptable/Unacceptable

Answer 32

Unacceptable

Question 33

Nancy, CPA, wanted to have Fay as a new client. Without invitation, Nancy approached Fay at a local fitness spa, explained how she could assist Fay with her federal tax matters, and stated that she would like to have Fay as a client.

Acceptable/Unacceptable

Answer 33

Acceptable

Question 34

Tony, CPA, advises prospective clients that he is able to obtain approval of qualified retirement plans with unique vesting provisions because of his close relationship with the IRS territory manager of the Tax Exempt Government Entities operating unit in his locality.

Acceptable/Unacceptable

Answer 34

Unacceptable

Question 35

Joseph, CPA, has represented Stephen before the Internal Revenue Service and also prepared returns for Stephen in each of the last 3 years. Stephen was divorced last year, and his ex-wife, Lindsay, stopped by Joseph’s office and asked Joseph to represent her before the Internal Revenue Service with respect to the examination of her return that she filed separately from her husband in a year in which they were separated but not yet divorced. Because the representation involved a tax return for which Lindsay filed separately and because they were separated at the time, Joseph undertook the representation of Lindsay without disclosing the situation to Stephen.

Acceptable/Unacceptable

Answer 35

Unacceptable