REG 2 - Ethics and Responsibility in Tax Practice 2

Question 1

CPA Monrew induced several rich tax clients to invest in a domesticated beaver tax shelter device. When the IRS sought to audit one of Monrew’s clients, he realized that among other difficulties, he had not had the client sign proper documentation. While an IRS agent sat in the waiting room of one of his clients, Monrew slipped in a back door and had the client sign a backdated document. When the government discovered all this, Monrew was indicted for tax fraud in violation of Section 7206. Which of the following is true?
A. Monrew is probably guilty.
B. Monrew is probably not guilty, because the client bears the blame here.
C. Monrew is probably not guilty because his actions, while not praiseworthy, do not violate the statute.
D. B and C.

Answer 1

A. Monrew clearly willfully aided in the preparation of a tax-related document that was fraudulently backdated.

Question 2

Tory researched a position that her tax client wished to take and concluded in good faith that there was a 25% chance that the IRS would sustain the position if it reviewed it. Which of the following is true?
A. Tory may sign a return taking this position with or without disclosure.
B. Tory may sign a return taking this position, but she should disclose it.
C. Tory may take the position, even if it involves a tax shelter transaction.
D. All of the above.

Answer 2

B. Because the position meets the “reasonable basis” test, but not the “substantial authority” test, Tory may sign a return taking this position only if she discloses it.

Question 3

Joe is the trustee of a trust set up for his father. Under the Internal Revenue Code, when Joe prepares the annual trust tax return, Form 1041, he
A. Must obtain the written permission of the beneficiary prior to signing as a tax return preparer.
B. Is not considered a tax return preparer.
C. May not sign the return unless he receives additional compensation for the tax return.
D. Is considered a tax return preparer because his father is the grantor of the trust.

Answer 3

B. A trustee who prepares a tax return for his/her trust is not considered a tax return preparer.

Question 4

Louis, the volunteer treasurer of a nonprofit organization and a member of its board of directors, compiles the data and fills out its annual Form 990, Return of Organization Exempt from Income Tax. Under the Internal Revenue Code, Louis is not considered a tax return preparer because:
A. He is a member of the board of directors.
B. The return does not contain a claim for a tax refund.
C. He is not compensated.
D. Returns for nonprofit organizations are exempt from the preparer rules.

Answer 4

C. People are TRPs if (a) they are paid, (b) to prepare or retain employees to prepare, (c) a substantial portion, (d) of any federal tax return. Because Louis was not paid specifically to prepare the return, he does not satisfy the first requirement to be a TRP.

Question 5

Pittsburg does not have a CPA license. Which of the following activities may he properly perform?
A. Auditing.
B. Preparing tax returns.
C. Examining prospective financial information in accordance with SSAE.
D. All of the above.

Answer 5

B. No CPA license is needed to prepare a tax return.

Question 6

What does JEEP stand for?

Answer 6

JEEP is the Joint Ethics Enforcement Program that divides ethics complaints and investigations between the AICPA and state societies.

Question 7

When an ethics complaint carrying national implications arises, which entity typically handles it?
	A.  	SEC.
	B.  	PCAOB.
	C.  	State CPA society.
	D.  	AICPA.

Answer 7

D. The AICPA handles ethical complaints with national implications.

Question 8

T/F: The most common education requirement for a CPA license is a BA+30.

Answer 8

True