R6 - Ethics

Question 1

Circular 230: DEFINITION

Answer 1

“Regulations Governing Practice before the IRS”

Question 2

Circular 230: RULE

Answer 2

A preparer is not required to see supporting documentation but must make inquiries if information provided by client is questionable.

If they don’t they can be assessed a penalty

Question 3

Revoking CPA License: NOTE

Answer 3

Only the state board has the authority to do this.

Question 4

Tax Returns: Retention Period

Answer 4

3 years after return is submitted

Question 5

Tax Returns: Aiding and Abetting Understatement of Tax Liability

Answer 5

• Burden of proof lies with IRS

- $1,000 personal penalty and $10,000 corporate

Question 6

State Board of Accountancy: POWER and Misconduct

Answer 6

3 Categories:

• Misconduct while providing services
• Misconduct outside the scope of providing services
• Criminal conviction
• They can revoke your license.
• Must find by “preponderance” of evidence that someone is guilty of misconduct

Question 7

Tax Returns: Tax Return Preparer vs Trustee

Answer 7

If you are a trustee of a Trust and prepare a tax return you aren’t considered a “tax preparer”. Only those that get compensation for preparing returns are considered “tax preparers”

Question 8

Federal Tax: Highest Tax Law

Answer 8

IRC (Internal Revenue Code)

Question 9

Federal Tax: Extending deadline and amount owed

Answer 9

By extending a filing date, this doesn’t extend when the payment is due, so any amount paid after the original filing date has to have interest applied.

Question 10

Federal Tax: Reasonable Basis Accrual

Answer 10

When accruing for an income item in year 1 based on a reasonable estimate and find out the exact amount in year 2, the difference is include-able in your year 2 tax return.

Question 11

US District Court: RULE

Answer 11

District court cases are held in front of one judge not a panel

Question 12

District Court: More-Likely-Than-Not Rule

Answer 12

The chance of a positive outcome is at least 50% or more.

Question 13

Court of Original Jurisdiction

Answer 13

First courts taxpayers bring claims against the IRS to:

• Tax Court
• District Court
• Federal Claims Court

Question 14

Ethics: Ultramares Rule

Answer 14

Limits the accountants liability for negligence to:

• Parties in privity
• Intended third party beneficiaries

Parties who are merely “foreseen” don’t count

Question 15

Ethics: CPA’s best Defense for Wrong Opinion

Answer 15

Lack of Scienter

-Scienter: knew opinion was wrong or recklessly
disregarded the truth

Question 16

Ethics: Majority Rule

Answer 16

CPA is liable to anyone in a class of third parties who the CPA knows will rely on the opinion.

Question 17

Ethics: Negligence

Answer 17

4 Elements:

• Duty of care
• breach (lack of due care)
• Causality
• Injury

Question 18

Ethics: Breach of Contract

Answer 18

Money damages are paid

Question 19

Ethics: Plaintiff Must Prove what to hold an accountant liable for negligence?

Answer 19

4 things:

• owed a duty of care to client
• breach of duty
• breach caused injury
• damages

Question 20

Ethics: Elements of Fraud

Answer 20

5 elements:

• misrepresentation of fact
• intent to deceive
• actual and justifiable reliance on misrepresentation
• intent to induce reliance
• damages