M2-Professional Responsibilities and Tax Return Preparer Penalties

Question 1

Use of a taxpayer’s return information to assist a third party to solicit business subjects a return preparer to penalty. (true or false)

Answer 1

True

Disclosure can properly be made in these cases by a return preparer without penalty:

• for peer review
• to enable the tax processor to electronically compute the taxpayer’s liability
• under an administrative order by a state agency that registers tax return preparers

Question 2

Only a state board of accountancy has the authority to suspend or revoke a CPA’s license to practice public accounting. (true or false)

Answer 2

true

The SEC may only suspend or revoke a CPA’s authority to practice before the SEC with respect to public companies.

The AICPA and a state society may only suspend or revoke a CPA’s membership in the AICPA or the state society, respectively.

Question 3

A CPA must retain a completed copy of each return for 3 years after the close of the return period (IRC Section 6107). (true or false)

Answer 3

true

Question 4

For each tax return prepared, a tax preparer must retain either the taxpayer’s name and identification number, or a copy of the return. (true or false)

Answer 4

true

Question 5

The due diligence requirement for the earned income credit address eligibility checklists, computation worksheets, record retention, and also reasonable inquiries to the taxpayer. (true or false)

Answer 5

true

The penalty for failure to comply with the IRS’ “due diligence” requirements with respect to determining a client’s eligibility for the earned income credit is a penalty of $500 for each such failure. This is the same penalty as that for failure to comply with the “due diligence” requirements with respect to determining a client’s eligibility for the earned income credit.

Question 6

With respect to the penalty for aiding and abetting an understatement of tax liability on a tax return, the burden of proof shifts to the IRS from the taxpayer. Unless the law expressly states otherwise, the taxpayer has the burden of proof to establish by the preponderance of the evidence that the law and the evidence do not support the position of the IRS. (true or false)

Answer 6

true

With respect to any criminal action, the government has the burden of proof to establish by evidence beyond a reasonable doubt that the taxpayer is guilty of the charges. Note that these burdens of proof are different; criminal (beyond a reasonable doubt) is considerably higher than civil (preponderance of the evidence).

Question 7

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. (true or false)

Answer 7

true

Question 8

More than one person can be deemed to be a preparer of a tax return because anyone who prepares a substantial portion of a return will be treated as a preparer. (true or false)

Answer 8

true