R4, M1 Circuit 230 Flashcards
Pursuant to 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.
Generally, at the request of the client, the practitioner must return all client records. An exception is if state law allows the practitioner to retain the records in the case of a fee dispute, the practitioner may do so. However, the practitioner must (1) return to the client those records that must be attached to the tax return, and (2) allow the client to review and copy the practitioner-retained client records related to the client’s federal tax obligation.
There is no requirement for the tax preparer to destroy client records upon submission of a tax return.
Vee Corp. retained Walter, CPA, to prepare its income tax returns for Years 4–6. During the Year 6 engagement, Walter discovered that he had made a mistake on Vee’s Year 4 income tax return. What is Walter’s professional responsibility under Circular 230 regarding Vee’s incorrect Year 4 income tax return?
Advise Vee of the associated penalties that may be incurred as a result of the error.
Upon discovery of an error in a previously filed return the tax practitioner should promptly notify the client (either orally or in writing) of the error, noncompliance, or omission and advise the client of reasonably likely penalties.
Tax practitioner cannot advise a client to disobey the law because it violates a tax practitioner’s ethical responsibilities.
Circular 230 does not stipulate that a tax practitioner should consider withdrawing from an engagement until an error is corrected.
Requirement for written advice under Circular 230.
The practitioner must base written advice on reasonable factual and legal assumptions, including assumptions as to future events.
The practitioner must not rely on representations, statements, findings, or agreements of the taxpayer if reliance on them would be unreasonable.
The practitioner may not, in evaluating a federal tax matter, take into account the possibility that a tax return will not be audited.
Leslie Ponzi has just received written tax advice from her attorney, Dewey H. Cheatem. Which of the following statements is not a requirement of written advice under Circular 230 of the Internal Revenue Service?
The practitioner may not provide written advice in the form of electronic communications.
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.
If the practitioner (CPA) know that someone have the client information
The can disclose it to the IRS.
A practitioner can rightfully withhold to release information to the IRS if she believes in good faith to be privilege.
A reportable transaction is one with respect to which additional information is required to be included with a federal income tax return because the transaction is of a type, according to an IRS determination, that has:
The potential for tax avoidance or evasion.
The term “reportable transaction” is any transaction that the Secretary of the U.S. Treasury Department has determined as having a potential for either tax avoidance or tax evasion.
Under Circular 230, a covered opinion would include:
covered opinion = is written advice (including electronic communications) that concerns one or more Federal tax issues arising from: (1) a listed transaction; (2) any plan or arrangement, the principal purpose of which is the avoidance or evasion of any tax; or (3) any plan or arrangement, a significant purpose of
Electronic advice on a listed tax transaction.
A covered opinion includes any written or electronic advice concerning transactions specified by the IRS as listed transactions.
With respect to Circular 230 requirements for written advice:
The practitioner must use reasonable efforts to identify and ascertain the facts relevant to written advice on each federal tax matter.
The practitioner must use reasonable efforts to solicit the necessary information to identify and ascertain the facts relevant to written advice. The practitioner has a responsibility to ask the client the appropriate questions to obtain those facts. The practitioner must determine if the information provided by the client seems incomplete or incorrect; if it does, additional inquiries must be made.
The practitioner must base the written advice on reasonable factual and legal assumptions, including assumptions as to future events.
Which of the following types of tax-exempt organizations qualify as Section 501(c)(3) organizations?
Both private foundations and public charities
Both private foundations and public charities are Section 501(c)(3) organizations.
