Ethics and Responsibility

Question 1

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?

Answer 1

Circular 230 requires that the tax accountant promptly inform the client of this error. The decision regarding how to respond to the error is the client’s.

Question 2

Under Circular 230, it is proper to delay as long as possible in fulfilling an IRS request for records or information if:

Answer 2

You have investigated and believe in good faith that the information is privileged.

Question 3

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

Answer 3

The practitioner may retain copies of the client’s records. But must return records needed for client to comply with federal tax obligations. Do not need to return documents prepared by practitioner if withholding such documents pending client paying.

Question 4

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

Answer 4

1) Establishing relevant facts
2) Evaluating the reasonableness of assumptions and representations
3) Arriving at a conclusion supported by the law and facts in a tax memorandum.

Question 5

Under Circular 230, which of the following describes improper activity by a CPA giving federal tax advice?

Answer 5

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

A CPA should never give tax advice turning upon the possibility that the IRS might not audit the client’s tax return.

Question 6

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?

Answer 6

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

Question 7

Circular 230

Answer 7

IRS rules of practice governing CPAs

Question 8

Which of the following will not get CPA Sandy in trouble with the IRS?

Answer 8

Failure to furnish her preparer’s identifying number to her clients.

Sandy must furnish the preparer’s identifying number to the IRS but not to her clients.

Question 9

CPA Monrew induced several rich tax clients to invest in a domesticated beaver tax shelter device. When the IRS sought to audit one of Monrew’s clients, he realized that among other difficulties, he had not had the client sign proper documentation. While an IRS agent sat in the waiting room of one of his clients, Monrew slipped in a back door and had the client sign a backdated document. When the government discovered all this, Monrew was indicted for tax fraud in violation of Section 7206. Which of the following is true?

Answer 9

Monrew clearly willfully aided in the preparation of a tax-related document that was fraudulently backdated and is probably guilty.

Question 10

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:

Answer 10

He is not compensated.

People are TRPs if

(a) they are paid
(b) to prepare or retain employees to prepare
(c) a substantial portion
(d) of any federal tax return.

Question 11

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

Answer 11

Disclose a conflict of interest.

The I.R.C. contains no penalty for failing to disclose a conflict of interest when preparing a tax return.

Question 12

Who is a tax return preparer (TRP)?

Answer 12

Requirements—People are TRPs if they:
Are paid
To prepare, or retain employees to prepare,
A substantial portion
Of any federal tax return or refund claim.

Question 13

Signing vs. non signing TRP

Answer 13

Signing TRPs are individual TRPs who bear “primary responsibility” for the overall accuracy of the return or claim for refund

Nonsigning TRPs are those other than the signing TRP who prepare all or a substantial portion of a return or claim for refund

Question 14

“Substantial portion” definition for nonsigning TRP:

Answer 14

Evaluates a corporate taxpayer’s just-completed transaction and concludes that it entitles the taxpayer to take a large deduction, he has prepared a “substantial portion” unless the deduction involves either:
Less than $10,000, or
Less than $400,000, which is also less than 20% of the gross income indicated on the return.

Question 15

Civil Penalties Imposed on TRPs

Answer 15

An undisclosed position is “unreasonable” if there is no substantial authority (<40% chance of being sustained) for the position.

If a position is disclosed, then it is “unreasonable” if there is no reasonable basis for the position (<20% chance)

If the position relates to a tax shelter, it is “unreasonable” unless it is more likely than not (MLTN) (>50% chance) that the position will be sustained.

The maximum civil fine per violation under Subsection (a) is the greater of $1,000 or 50% of the income derived by the TRP with respect to the return.

Question 16

Subsection (b) of 6694 imposes harsher punishments for willful or reckless understatements.

Answer 16

The penalty for a willful or reckless understatement is the greater of $5,000 or 75% of the income derived by the TRP with respect to the claim (per violation).

Question 17

Disclosure Provisions—Section 6695 punishes TRPs for, among other things:

Answer 17

1. Failure to furnish copy of return to taxpayer
2. Failure to sign return and show own identity
3. Failure to furnish identifying number to the IRS
4. Failure to keep a copy of the return
5. Failure to file correct information returns
6. Negotiation of check made out to the taxpayer (other than to deposit the full amount into the taxpayer’s bank account)
7. Failure to be diligent in determining eligibility for the earned income tax credit and the child tax credit

Question 18

Aiding and Abetting the Understatement of Tax Liabilities, In order to be liable, the TRP must:

Answer 18

Aid, assist, procure, or advise in preparation or presentation of any portion of any return or other document;

Know or have reason to know that it will be used in matters arising under tax law; and

Know that if the return or document is so used, an understatement of the tax liability of another person will result.

Question 19

Criminal Provisions (most criminal tax prosecutions fall under these two):

Answer 19

Tax Evasion (USC Section 7201)—This provision has been used to prosecute, among other wrongs:
Failure to file a return
Falsifying income
Falsifying amounts that reduce taxable income

Tax Fraud—26 U.S.C. 7206 punishes fraud and false statements by TRPs and others

Question 20

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

Answer 20

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

Question 21

When an ethics complaint carrying national implications arises, which entity typically handles it?

Answer 21

AICPA.

Typically, the AICPA handles:
Matters of national concern
Matters involving more than one state
Matters in litigation

Question 22

What is JEEP?

Answer 22

JEEP is the Joint Ethics Enforcement Program that divides ethics complaints and investigations between the AICPA and state societies.

Question 23

CPA Smithers has had some professional difficulties. Which of the following is true?

Answer 23

If the state board of accountancy revokes Smithers’ CPA license, s/he will be automatically expulsed from the AICPA. Only the state board can grant or take away CPA licenses.

Question 24

Iola has had a few serious professional problems. Which of the following will probably cause a state board of accountancy to revoke her license or order a lesser punishment?

Answer 24

Failing to complete required continuing professional education.

Failing to pay her own income tax.

Violating professional standards.

Question 25

One needs a CPA license to perform attest-related functions:

Answer 25

1) Any audit or other engagement to be performed in accordance with SAS (Statements on Auditing Standards)
2) Any review of a financial statement to be performed in accordance with SSARS (Statements on Standards on Accounting and Review Services)
3) Any examination of prospective financial information to be performed in accordance with SSAE (Statements on Standards for Attest Engagements)
4) Any engagement to be performed in accordance with the standards of the PCAOB (Public Company Accounting Oversight Board)

Question 26

One does not need a CPA license to perform such nonattest services as:

Answer 26

1. Preparation of tax returns
2. Management advisory services (consulting)
3. Preparing financial statements without issuing a report thereon

Question 27

Reasonable Cause and Good Faith Defense (Section 6664)

Answer 27

NO Section 6662 penalty is imposed if (a) there was “reasonable cause” for the underpayment and (b) the taxpayer acted with “good faith.”

Question 28

Reasonable Cause

Answer 28

Definition—The exercise of ordinary care
Judged objectively

Examples of reasonable cause:
Reliance on tax adviser and/or
Reliance on advice of IRS employee.

Belief requirement for reasonable cause related to tax positions:

1) Undisclosed position—“Substantial authority” (≥40% chance)
2) Disclosed position—“Reasonable basis” (≥ 20% chance)
3) Tax shelter position—“More likely than not” (>50% chance)

Question 29

Good Faith

Answer 29

Definition—Honesty of purpose
Judged subjectively

Examples:
Reliance on erroneous W-2, with no red flags to indicate its inaccuracy.
Reliance on erroneous advice of tax adviser where:
Adviser was given all facts and circumstances;
Advice was not based on unreasonable assumptions;
If the advice was that a regulation was invalid, the position was adequately disclosed.

Question 30

Substantiation—As noted, accuracy-related penalties may be imposed for underpayments caused by negligence, which include:

Answer 30

Failure to keep adequate books and records.

Failure to substantiate items that gave rise to the underpayment. (ex. large charitable donations)

Question 31

Late filing penalty:

Answer 31

Penalty is 5% of the net tax due per month (up to 25% of unpaid taxes).

If the failure to file is fraudulent, the penalty becomes 15% per month (up to 75% of unpaid taxes).

Question 32

Late Payment of Tax penalty:

Answer 32

Penalty is 0.5% of the net tax due per month (up to 25%).

Question 33

Understatement penalty (negligence, disregard, recklessness)

Answer 33

20% of understatement (reduced for amounts with substantial authority or reasonable basis)

NOT reduced by amounts if transaction involved is a tax shelter.

Question 34

Substantial understatement of taxes owed (individual):

Answer 34

One that exceeds the GREATER of:

1. 10% of the tax or
2. $5000

Question 35

Substantial understatement of taxes (corp):

Answer 35

One that exceeds the LESSER of:

1. 10% of tax (or $10,000) or
2. $10 million

Question 36

No reasonable/good faith defense when taxpayer commits fraud and penalty is:

Answer 36

75% of returns ENTIRE understatement

Question 37

Criminal issues for taxpayer:

Answer 37

Tax evasion: find of $100,000 and/or 5 yrs in jail

Tax fraud

Question 38

Which of the following type of regulations cannot be cited as authority to support a tax position?

Answer 38

Proposed regulations- do not have the effect of law, but they do provide an indication of the IRS’s view on a tax issue.

Question 39

All of the following are administrative sources of the tax law except:

Answer 39

Committee reports- are legislative sources of authority which provide insight into the intention of the House Ways & Means Committee, Senate Finance Committee, and Joint Conference Committee.

Question 40

Which of the following is NOT considered a primary authoritative source when conducting tax research?

Answer 40

IRS publications

Question 41

Which Senate committee considers new tax legislation?

Answer 41

Tax legislation in the Senate begins in the Senate Finance Committee.

Question 42

Which of the following is a list of courts that are referred to as courts of original jurisdiction, or trial courts, for tax matters?

Answer 42

There are three courts of original jurisdiction: the Tax Court, the U.S. District Court, and the U.S. Court of Federal Claims.

Question 43

Primary Authority vs. Secondary authority

Answer 43

Primary- sources of law (legislative, administrative, judicial)
Secondary- commentary and journals

Question 44

Legislative authority:

Answer 44

1. From congress
2. Constitution, Internal Revenue Code, Treaties, committee reports
3. House Ways and Means Committee and Senate Finance Committee

Weighting of authority: The highest source of tax authority is the U.S. Constitution
The next highest source is the Internal Revenue Code
If a treaty exists with a foreign country

Question 45

Administrative authority:

Answer 45

1. Treasury regulations
2. Revenue rulings- limited to given set of facts
3. Private letter rulings
4. Revenue procedures
5. Technical advice memoranda

Question 46

Treasury regulations

Answer 46

Regulations can be classified as:
Legislative— almost as much weight as the statute (IRC), since Congress has authorized the Treasury to develop regulations dealing with a specific issue.
Interpretative— general mandate given to Treasury to develop regulations to interpret the laws
Procedural—procedural issues such as the information required to be submitted
Regulations can also be classified as:
Proposed—Regulations must be issued as proposed regulations for at least 30 days before becoming final, do not have the effect of law, but they do provide an indication of the IRS’s view on a tax issue.
Temporary—These regulations do have the effect of law but only for three years. issued when taxpayers need immediate guidance
Final regulations effect of law until revoked.

Question 47

Judicial authority:

Answer 47

1. Courts of original jurisdication (US Tax Court, US District Court, US Court of Federal Claims)
2. Appellette courts (US Court of Appeals, US Court of Appeals for Federal Circuit)
3. US Supreme Court

Question 48

IRS has adopted an acquiescence policy for regular Tax Court decisions that it loses

Answer 48

Acquiescence indicates that the IRS will follow the decision in future situations, involving similar facts and issues. Nonacquiescence indicates that the IRS will not follow the decision and can be expected to litigate in situations involving similar facts and issues.

Question 49

An IRS agent has just completed an examination of a corporation and issued a “no change” report. Which of the following statements about that situation is correct?

Answer 49

After a “no change” report the IRS cannot reopen the examination unless the corporation has committed fraud.

Question 50

If a taxpayer receives a 30-day letter from the Internal Revenue Service, the taxpayer:

Answer 50

The taxpayer is not required to respond to a 30-day letter, although if there is no response the IRS will follow with a 90-day letter.

Question 51

A corporation’s tax year can be reopened after all statutes of limitations have expired if

Answer 51

The corporation prevails in a determination allowing a deduction in an open tax year that was taken erroneously in a closed tax year.

Question 52

Audit process

Answer 52

Discriminate Function System (DIF) scores tax returns for audit.

If taxpayer agrees to changes proposed in Revenue Agent’s Report (RAR), taxpayer CANNOT pursue relief through appeals process or tax court.

Once deficiency is paid, taxpayer can pursue refund in US District or Claims Court

Agreement not reached- 30 day letter sent
No response- 90 day letter sent, taxpayer must file with tax court or pay deficiency and can pursue refund through US District or Claims Court

Question 53

Appeals process

Answer 53

Taxpayer make written request for appellate conference.

IRS does NOT have to grant the appeal.

If settled, Form 870-AD signed and case cannot be reopened unless that is significant error or fraud.

Question 54

A C corporation had a federal income tax liability of $40,000 for each of the last five years, each covering a 12-month period. The tax for the current year is $48,000. What is the lowest amount that must have been paid as estimated taxes for the current year so that no penalty for underpayment is applicable?

Answer 54

To avoid an underpayment penalty, the corporation can pay the lower of 100% of the prior year’s tax liability ($40,000) or 100% of the current year’s tax liability ($48,000).

Question 55

A taxpayer filed his income tax return after the due date but neglected to file an extension form. The return indicated a tax liability of $50,000 and taxes withheld of $45,000.

On what amount would the penalties for late filing and late payment be computed?

Answer 55

The late filing and late payment penalty is based upon the balance due. $50,000 owed less $45,000 withheld = $5,000 net due.

Question 56

An accuracy-related penalty applies to the portion of tax underpayment attributable to

I. Negligence or a disregard of the tax rules or regulations.

II. Any substantial understatement of income tax.

Answer 56

BOTH

Question 57

Edge Corp., a calendar year C corporation, had a net operating loss and zero tax liability for its 2016 tax year. To avoid the penalty for underpayment of estimated taxes, Edge could compute its first quarter 2017 estimated income tax payment using the

Answer 57

Annualized method

Corporations owing $500 or more in income tax for the tax year are required to make estimated tax payments or be subject to an interest penalty. The payments must be equal to the lesser of 100% of the tax liability for the current year (i.e., the annualized income method) or the preceding year (i.e., the preceding-year method). The payments cannot be based on the preceding year if: (1) the corporation did not file a return showing a tax liability for that year (e.g., the corporation experienced a net operating loss); (2) the preceding year was less than 12 months; or (3) the corporation had taxable income of over $1,000,000.

Question 58

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

Answer 58

Make reasonable inquiries when taxpayer information appears incorrect.

Tax preparers are subject to civil penalty for each tax return or claim if: (1) any understatement of tax liability is based on an unrealistic position; (2) the preparer was aware of or should have been aware of the unrealistic position; and (3) the unrealistic position was not disclosed as required.

Question 59

Morgan, a sole practitioner CPA, prepares individual and corporate income tax returns.

What documentation is Morgan required to retain concerning each return prepared?

Answer 59

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

Other assessable penalties with respect to the preparation of income tax returns for other persons include:

(a) Failure to furnish copy to taxpayer; (b) Failure to furnish identifying number; (c) Failure to retain copy or list; (d) Failure to file correct information returns; (e) Negotiation of check

Question 60

Filing requirements=

Answer 60

Must file if gross income exceeds standard deductions+personal exemptions (includes 65+ exemption but NOT exemption for blind)

Question 61

Penalties

Answer 61

Nonfiling- 5% per month of tax DUE on return (25% max), if failure is fraudulent=15% per month, max 75%

Underpayment-difference between tax due and amt of tax paid on or before filing date+credits, 0.5% per month up to 25% total

Nonpayment (and Interest)-taxes shown on return are not paid on filing date, interest starts to accrue on due date for filing plus 0.5% underpayment penalty, NOT assessed if there is reasonable cause BUT interest still accrues

Accuracy-taxpayer disregards tax rules w/o reasonable cause, 20% penalty for negligence or substantial understatement (greater of 5000/10% tax due on return for indiv OR lesser of 10% or 10 million for corp)

Question 62

Required tax payments for individuals:

Answer 62

1) No penalty is imposed if the tax due with the return is less than $1,000.
2) No penalty is imposed if the tax payments during the year were:
At least 90% of current year taxes, or
100% of last year’s taxes. If the taxpayer’s AGI exceeds $150,000, then tax payments during the year must be at least 110% of last year’s taxes.
3) The penalty can also be avoided if the annualization exception is met. For this exception the actual income for each quarter is computed, and then each estimated tax payment is based on that income

Question 63

Required tax payments for corporate:

Answer 63

1) There is no estimated tax underpayment penalty if the payments are at least equal to the lower of:
100% of current year’s tax, or
100% of the preceding year’s tax.
The penalty can also be avoided if the annualization exception is met.
2) A corporation with $1 million or more of taxable income in any of its three preceding tax years can use the preceding year’s tax exception only for its first installment. The other installments must be based on the current year’s tax to avoid penalty.
3) If a taxpayer had a net operating loss in the previous tax year, the previous year’s tax liability exception cannot be used to avoid an underpayment penalty.

Question 64

Annualization method

Answer 64

The amount due with an installment is:
The tax due for the months ending before the due date of the installment, less
The amount required to be paid for previous installments.

Question 65

Misvaluation penality (20% for substantial and 40% for gross)

Answer 65

Substantial Misvaluation: This occurs if the property is stated at 150% or more of the correct amount.
Gross Misvaluation: This occurs if the property is stated at 400% or more of the correct amount.

Question 66

Preparer penalties

Answer 66

1. A tax return preparer who prepares a return or refund claim that includes an unreasonable position must pay a penalty of the greater of $1,000 or 50% of the income derived by the preparer for preparing the return.
2. If the understated tax liability is due to an unreasonable position and the preparer willfully attempts to understate the tax liability or recklessly or intentionally disregards rules or regulations, the penalty is the greater of $5,000 or 75% of the income earned by the tax preparer for preparing the return or claim.
3. If a tax preparer uses or discloses tax return information without the client’s explicit, written consent, each violation could result in a fine of up to $1,000, one year imprisonment, or both. Exceptions are provided for disclosures related to quality or peer reviews.

Question 67

A company engaged a CPA to perform the annual audit of its financial statements. The audit failed to reveal an embezzlement scheme by one of the employees. Which of the following statements best describes the CPA’s potential liability for this failure?

Answer 67

The CPA’s adherence to generally accepted auditing standards (GAAS) may prevent liability.

If a CPA adhered to GAAS, he or she acted according to professional standards and likely was not careless so as to create negligence-based liability.

Question 68

Hark CPA, failed to follow generally accepted auditing standards in auditing Long Corp.’s financial statements. Long’s management had told Hark that the audited statements would be submitted to several banks to obtain financing. Relying on the statements, Third Bank gave Long a loan.

Long defaulted on the loan.

In a jurisdiction applying the Ultramares decision, if Third sues Hark, Hark will

Answer 68

Win because there was no privity of contract between Hark and Third.

The Ultramares rule is applied in only a few jurisdictions. It normally allows recovery by a third party only if there was privity of contract between the accountant and third party.

Question 69

When performing an audit, a CPA

Answer 69

The standard that CPAs are held to is one of due care. They need not perform perfect work in every audit to live up to this standard. They must simply act as a reasonably prudent CPA would in the same circumstances.

Question 70

Bosco Corporation had a very complicated tax situation. It hired CPA Arnold to prepare its corporate income tax return. Arnold made an error that caused Bosco to overpay its taxes by $3,000. The payment could have been avoided had Arnold advised Bosco to structure a particular transaction in a slightly different way. Bosco paid $233,000 rather than the $230,000 that it might have paid. Upset with Arnold’s error, Bosco refused to pay the $20,000 fee specified in the engagement letter on grounds that Arnold had breached the contract by giving inaccurate advice. Which of the following is true regarding Arnold’s fee?

Answer 70

Because he substantially performed the contract, Arnold will recover his fee minus the damages his breach caused Bosco ($20,000 - $3,000 = $17,000).

Question 71

Under the position taken by a majority of the courts, to which third parties will an accountant who negligently prepares a client’s financial report be liable?

Answer 71

Any foreseen or known third party who relied on the report.

The majority view is the Restatement “limited class” approach, which generally allows recovery by third parties where the CPA had prior knowledge of the existence of a limited class of potential users (but not necessarily of their individual identities) and of the general purpose of their use of the audit. Prior knowledge is the key, so mere foresee ability is not enough, although this answer implies the contrary.

Question 72

Most significant common law issues/theories:

Answer 72

1. Breach of contract
2. Negligence
3. Fraud

Question 73

Elements of breach of contract that must be proven by plaintiff:

Answer 73

1. Enforceable contract (oral or written)
2. Client complied with contractual obligations
3. Defendant breached contract
4. Damages were caused by breach- can recover compensatory but NOT punitive damages

Burden of proof=preponderance of the evidence (>50% chance of being true)

Statute of limitations:
Oral contract- 2 years
Written-4 years

Major breach- cannot recover fee
Minor breach- recover fee minus damages

Question 74

Elements of Negligence (carelessness)

Answer 74

1. Defendant owed duty of care to plaintiff (client)
2. Defendant breached standard of care (carelessness does NOT have to be intentional)
3. Breach proximately causes an injury (would not have happened but for actions of defendant and injury was reasonably foreseeable)
4. Plaintiff suffers damages -can recover compensatory but NOT punitive damages

Statute of limitations- 2 years

Comparative negligence- plaintiff recovery reduced if they were also negligent

Question 75

Negligent misrepresentation

Answer 75

Like negligence except includes element that plaintiff relies on the information given that leads to damages.

Question 76

Elements of Fraud (intentional wrongdoing)

Answer 76

1. Defendant made false representation of fact, expert opinion (or omitted)
2. Misrepresented (or omitted) fact was material
3. Defendant knew or recklessly disregarded falsity
4. Defendant intended to and did induce plaintiff’s reasonable reliance on misstatement
5. Damages were caused - can recover compensatory AND punitive damages

Burden of proof is higher=clear and convincing evidence

NO comparative negligence

Statute of limitations=4 years

Question 77

Liability to 3rd parties:

Answer 77

1. Breach of contract- intended beneficiaries CAN sue (creditor or donee beneficiaries), incidental beneficiaries CANNOT sue
2. Negligence- held liable to one or limited class of nonclients if accountant knows information supplied will be given to 3rd party and will influence 3rd party
3. Fraud- wider liability, liable to anyone they can reasonably forsee will rely on their statements

Question 78

Salina wants to know which of the following recognizes an accountant-client testimonial privilege:

Answer 78

Although the state and federal courts have generally refused to recognize any sort of common law statutory privilege for client-accountant communications, Congress (in §7525) and about 15 states have statutorily enacted such privileges.

Question 79

Trego is a CPA. Under which of the following circumstances would it be permissible for Trego to share confidential client information?

Answer 79

Two recognized exceptions to the confidentiality requirement are disclosure to other firm members on a need-to-know basis and disclosure during an ethics examination.

Question 80

Which of the following is a correct statement about the circumstances under which a CPA firm may or may not disclose the names of its clients without the clients’ express permission?

Answer 80

Generally, the mere name of clients is not confidential information. Therefore, unless the accountant knows (or has reason to know, given the circumstances) that the client wishes to keep its identity as a client confidential, this information may be disclosed.

Question 81

Tax Practitioners’ Privilege-Section 7525 of the IRC extends a modest testimonial privilege to clients of tax advisers authorized to practice before the IRS. However, the privilege has several exceptions:

Answer 81

• Criminal matters;
• Matters not before the IRS or federal courts in cases brought by or against the United States;
• Tax advice on state or local matters; or
• Written advice in connection with promotion of a tax shelter.

Question 82

Confidential Communications:

Answer 82

General Rule—According to the AICPA Code of Professional Conduct, absent client consent, a CPA shall not disclose confidential information disclosed by clients.
Exceptions:
-GAAP calls for disclosure
-An enforceable subpoena or summons has been issued
-An ethical examination is being conducted
-A peer review requires disclosure
-Disclosure is to other firm members on a “need-to-know” basis

Question 83

Generally Accepted Privacy Principles—Voluntary guidelines that the profession developed to assist accounting firms in establishing procedures and policies that will protect clients’ information in their possession from hackers and others. There are 10 broad principles.

Answer 83

1. Management-assign accountability
2. Notice-of privacy policies
3. Choice and consent
4. Collection of information
5. Use, retention and disposal of information
6. Access for clients
7. Disclosure to 3rd parties
8. Security for privacy-secure information
9. Quality
10. Monitoring and enforcement