Ethics, Professional and Legal Responsibilities

Question 1

If a position is frivolous, then a tax payer should:

Answer 1

NEVER take the position.

Question 2

When should a taxpayer inquire further about client prepared documents?

Answer 2

Existence of red flags. New client would not be a red flag.

Question 3

What are good sources to decide a tax position on?

Answer 3

Well reasoned articles
Treatises
IRC general counsel memorandas

Question 4

When can a CPA inquire further about something?

Answer 4

When there are requirements to be met about deductibility

Question 5

When should a CPA disclose use of estimates?

Answer 5

• Taxpayer is ill
• K-1 for a partnership is missing
• Corporation that the taxpayer is a major shareholder is tied up in bankruptcy

Question 6

TRP requirements

Answer 6

Paid
Retained to Prepare
A Substantial Part of
Any Federal Return

Question 7

What is the standard of liability to third parties?

Answer 7

Ultramares: Only with privity of contract
Normal standard: KNOWN users of the audit report
Fraud: Any reasonable foreseeable user

Question 8

What must be proven by the third party for a negligence suit?

Answer 8

1. Known user (unless fraud)
2. Negligence
   3 Reliance