R4 M1- Circular 230

Question 1

In preparing a client’s current-year individual income tax return, a tax practitioner discovers an error in the prior year’s return. Under the rules of practice, the tax practitioner:

A.	Must file an amended return to correct the error.
B.	Is required to notify the IRS of the error.
C.	Must advise the client of the error.
D.	Is barred from preparing the current year's return until the prior-year error is rectified.

Answer 1

Explanation

Choice “C” is correct. Upon discovery of an error in a previously-filed return or the client’s failure to file a required 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 the appropriate measures to be taken (e.g., advise the client to file the tax return). If the client does not rectify the error, the tax practitioner should consider withdrawing from the engagement.

Choice “A” is incorrect. The tax practitioner is not required to file an amended return but should consider withdrawing from the engagement if the client refuses to do so.

Choice “B” is incorrect. The tax practitioner is not required to notify the IRS of the error.

Choice “D” is incorrect. The tax practitioner is not barred from preparing the current year’s return.

Question 2

Which of the following is not required conduct by a preparer of an income tax return?

A.	Inform the taxpayer about how to correct the situation of the taxpayer's failure to file an income tax return.
B.	Verify that the information the client provides is correct.
C.	Abide by the tax code and legally minimize the taxpayer's tax liability.
D.	Notify the client if the preparer becomes aware of an error in a tax return

Answer 2

Choice “B” is correct. All of the other choices are required conduct by a preparer of an income tax return. A preparer must make a reasonable attempt to obtain the necessary information from the taxpayer and make inquiries if the information appears to be incorrect or incomplete. The preparer is not responsible for verifying taxpayer-provided information. The taxpayer is actually responsible to provide the preparer with accurate information.

Choices “C”, “D”, and “A” are incorrect, as they are all required conduct by a preparer of an income tax return. A preparer must:

Legally minimize the taxpayer’s tax liability and abide by the tax code.
Make a reasonable effort to obtain the necessary information from the taxpayer and make inquiries if the information appears to be incorrect or incomplete.

Recommend a tax return position only if the preparer has a good faith belief that the position has a realistic possibility of being sustained, if challenged.

Notify the taxpayer if he/she becomes aware of a tax return error.

Inform the taxpayer on how to correct the situation of the taxpayer having failed to file a tax return.

Consider withdrawing from the engagement if the taxpayer does not correct the error or file the return the preparer advised him/her about.
Not inform the IRS without the taxpayer’s permission.

Question 3

Which of the following is not required conduct by a preparer of an income tax return?

A.	Inform the taxpayer about how to correct the situation of the taxpayer's failure to file an income tax return.
B.	Verify that the information the client provides is correct.
C.	Abide by the tax code and legally minimize the taxpayer's tax liability.
D.	Notify the client if the preparer becomes aware of an error in a tax return.

Answer 3

Choice “B” is correct. All of the other choices are required conduct by a preparer of an income tax return. A preparer must make a reasonable attempt to obtain the necessary information from the taxpayer and make inquiries if the information appears to be incorrect or incomplete. The preparer is not responsible for verifying taxpayer-provided information. The taxpayer is actually responsible to provide the preparer with accurate information.
Choices “C”, “D”, and “A” are incorrect, as they are all required conduct by a preparer of an income tax return. A preparer must:

Legally minimize the taxpayer’s tax liability and abide by the tax code.
Make a reasonable effort to obtain the necessary information from the taxpayer and make inquiries if the information appears to be incorrect or incomplete.
Recommend a tax return position only if the preparer has a good faith belief that the position has a realistic possibility of being sustained, if challenged.
Notify the taxpayer if he/she becomes aware of a tax return error.
Inform the taxpayer on how to correct the situation of the taxpayer having failed to file a tax return.
Consider withdrawing from the engagement if the taxpayer does not correct the error or file the return the preparer advised him/her about.
Not inform the IRS without the taxpayer’s permission.

Question 4

A practitioner may give written advice (including by means of electronic communication) concerning one or more federal tax matters

The practitioner must:

Answer 4

-Base the written advice on reasonable fact and legal assumptions
-Reasonably consider relevant facts and circumstances the practitioners knows.
-use reasonable effort to find out the facts to written advice on each federal tax matter
-not just rely on statements, findings or agreement of a taxpayers or others if the reliance (or information) does not add up (unreasonable)
-Relate applicable law and authorities to facts
-Must not, in analyzing a federal tax matter, take into account the possibility that a tax return will not be looked or audited.