Section 1 MCQ Flashcards
Decisions by which of the levels of courts listed would result in the definitive answer on a tax issue?
When the Tax Court reaches a decision with all the judges agreeing, then the result is a _?
U.S. Supreme Court
strong decision.
The only way a Supreme Court decision can be changed is when ?
Congress disagrees and changes the tax law.
Gross negligence is the extreme, flagrant, or reckless _____ of due care and competence in performing or reporting upon professional engagements
What is gross negligence also called?
departure from the standards
constructive fraud
The IRS requested client records from a CPA who does not have possession or control of the records. According to Treasury Circular 230, the CPA must:
notify the IRS of the identity of any person who, according to the CPA’s belief, could have the records.
What is the penalty for failure to provide the taxpayer with a copy of her return?
$50 for each failure, but no more than $26,000 in a return period
Compensated tax return preparers must furnish the taxpayer with a copy of the prepared return no later than the time the ____
original return is presented for signing
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, IRS Form 1041, IS HE CONSIDERED A TAX RETURN PREPARER?
is not considered a tax return preparer.
Is privity required if the accountant is guilty of fraud/gross negligence
no
On what basis may a client sue a CPA for errors in the tax return that result in penalties or other sanctions due to the CPA’s wrongful action?
Tort of negligence or breach of contract
When preparing a client’s Form 1040, U.S. Individual Income Tax Return, a CPA determined that there was documentation supporting only $12,000 of the $20,000 travel expenses claimed by the client. Which of the following courses of action taken by the CPA would be in compliance with Treasury Circular 230?
Make reasonable inquires to obtain the needed documentation
An individual taxpayer (whose adjusted gross income is BELOW $150,000 in the previous year) may avoid the penalty for failure to pay estimated tax by:
paying at least ________ of the tax shown on the current year’s return or
________ of the tax shown on the prior year’s return (assuming that the prior year’s return was for a full 12-month period).
90%
100%
Complaints can be filed against CPAs in most jurisdictions through online reporting sites or the state site itself. Reporting a violation requires that the person reporting:
has an attorney file the complaint.
lists his or her name for verification of the complaint.
file the appropriate complaint form.
None of the answer choices are correct.
None of the answers are correct - each jurisdiction has its own standards. Nothing is uniform.
Negligence is the failure to do what an ordinary, reasonable, prudent CPA would do in similar circumstances. To establish negligence, the plaintiff (client) must establish: (3)
CPA owed legal duty to plaintiff
CPA Breached their legal duty
CPA’s action caused injury to the client/plaintiff
Compliance with a court summons, a subpoena, laws, or government regulations would be an exception to the ____
Confidential Client Information Rule
The Ultramares decision upheld the ___defense for negligence: the accountant is not liable to an unidentified third party for ___negligence.
privity , simple
The ultramares decison states that when the degree of negligence is so gross as to amount to the inference of fraud (constructive fraud/gross negligence), ______
the auditor could then be liable to third parties.
According to Treasury Circular 230, can a monetary penalty be imposed on a practitioner in addition to censure, sanction, or disbarment?
Who imposes this?
Yes, monetary penalties are allowed, but the amount shall not exceed the gross income derived (or to be derived) from the conduct giving rise to the penalty.
Secretary of Treasury OR a delegate (note: they don’t determine the monetary amount)
What is the definition of a writ of certiorari?
A petition for the Supreme Court to review a lower court’s decision
Generally, a corporation must make installment payments equal to the lesser of (1) __% of the tax shown on its return for the current year, or (2) ___% of the tax shown on its return for the preceding year.
100%
a corporation cannot base its estimated tax payments for the tax year on the prior tax year if (3)
- filed return in the PY showing $0 in taxes due to NOL
- PY was less than 12 months
- Large corporation ($1M or more in taxable income)
ICPA Code of Professional Conduct, the CPA may disclose confidential client information only pursuant to: (4)
Client consent
Subpoena
AICPA/State CPA Society authorization
Inquiry from investigatory/disciplinary body (not IRS/State agency)
CONFIDENTIAL CLIENT DATA
Generally accepted accounting principles (GAAP) do not require such disclosure although the prohibition against disclosure does not relieve the CPA of professional obligations under generally accepted auditing standards (GAAS).
This is saying “GAAP Doesn’t require, but GAAS does”
American Corp. retained Baker, CPA, to conduct an audit of its financial statements to obtain a bank line of credit. American signed an engagement letter drafted by Baker that included a disclaimer provision. As a result of Baker’s failure to detect a material misstatement in American’s financial statements, the audit report contained an unmodified opinion. Based on American’s audited financial statements, National extended credit to American. American filed a petition in bankruptcy shortly thereafter. National sued Baker for damages based on common-law fraud. What would be Baker’s best defense?
lacked intent to deceive
What is the maximum prison sentence for willful attempt to evade or defeat tax? How much is the fine?
Same questions, but for a corporation
5 years - $100,000
No imprisonment for corporations - $500,000
Which of the following statements is generally correct regarding the liability of a CPA who negligently gives an opinion on an audit of a client’s financial statements?
The CPA is only liable to those third parties who are in privity of contract with the CPA.
The CPA is only liable to the client.
The CPA is liable to anyone in a class of third parties who the CPA knows will rely on the opinion.
The CPA is liable to all possible foreseeable users of the CPA’s opinion
Liable to anyone in a class of third parties who the CPA knows will rely on the opinion
AICPA professional ethics division’s activities are performed within the ___ (JEEP), in which 48 state CPA societies participate.
T/F: The ethics division is authorized to start an investigation based on information from such sources as written complaints, reports in the media, or referrals from government agencies.
joint ethics enforcement program (JEEP),
The penalty for underpayment of estimated taxes is imposed for making inadequate tax payments during the year. There are several exceptions to the penalty:
(below are lists where no penalties for underpayments)
If the amount of unpaid tax is $1,000 or less
If there was no tax liability on the prior-year tax return and the return was for a full year
If at least 90% of the current-year tax is paid
If at least 100% of the tax liability on the prior-year tax return is paid (if AGI is over $150,000—110% of the prior-year tax)
Waiver for various circumstances such as retirement or disability
MEmorize bruh
When CPAs fail in their duty to carry out their contracts for services, liability to clients may be based on:
breach of contract.
strict liability.
Only breach of contract
Strict liability
Strict liability does not require a finding of ___
fault
A CPA firm issues an unmodified opinion on financial statements not prepared in accordance with GAAP. The CPA firm will have acted with scienter in all the following circumstances, except where the firm:
intentionally disregards the truth.
has actual knowledge of fraud.
negligently performs auditing procedures.
intends to gain monetarily by concealing fraud.
Negligently performs auditing procedures
What is the first-tier penalty for which a compensated preparer may be liable for each tax return or claim for refund that understates the taxpayer’s liability due to unreasonable positions?
The greater of $1,000 or 50% of income derived by the taxpayer
(Note that there is also a second-tier penalty of $5,000 or 75% penalty of income derived if the preparer willfully or recklessly understated the liability.)
The business gift deduction is limited to $___ per donee, per year. Engraving, gift wrapping, mailing, and delivery charges may be deducted in addition to the $__ per donee, per year.
$25
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:
Where does he sign?
he isn’t compensated
He doesn’t sign b/c he isn’t a tax return preparer
Chris Baker’s adjusted gross income on her current-year tax return was $160,000. The amount covered a 12-month period. For the current tax year, Baker may avoid the penalty for the underpayment of estimated tax if the timely estimated tax payments equal the required annual amount of:
90% of the tax on the return for the current year, paid in four equal installments.
110% of prior year’s tax liability, paid in four equal installments.
Either one. Note: This is b/c it exceeds $150K
The accountant owns the workpapers and generally may disclose them as the accountant sees fit.
The accountant owns the workpapers but generally may not disclose them without the client’s consent or a court order.
Which sounds better?
Second one
A husband prepared his own tax return as married filing separately. His wife hired a CPA to prepare her tax return as married filing separately and asked the CPA not to disclose the information to anyone. The CPA was not retained by the husband for any tax work. The husband believed that his wife’s tax return was negligently prepared and that he was financially harmed. He hired an attorney, without his wife’s consent, to pursue a negligence claim against the CPA. The CPA hired an attorney to defend against the negligence claim. To which party, if any, may the CPA disclose the wife’s tax return information without the wife’s consent?
A. The husband, for the evaluation of the negligence claim
B. The CPA’s attorney, for the evaluation of the negligence claim
C. The husband’s attorney, for the evaluation of the negligence claim
D. No one, because all disclosures must be made with the wife’s consent
B
What is a Schedule UTP used for?
What does UTP Stand for?
Multiple tax positions affecting a single line item must be reported ___on the Schedule UTP.
To disclose specific information regarding uncertain tax positions
UTP stands for “uncertain tax position.”
individually
According to the standards of the profession, which of the following statements is correct regarding the action to be taken by a CPA who discovers an error in a client’s previously filed tax return?
Advise the client of the error and recommend the measures to be taken.
Withdraw from the professional relationship regardless of whether or not the client corrects the
Only Advise the client of the error.
Not required to withdraw, but should consider.
f the financial reports are primarily for the benefit of a third party, the ___may be held liable.
Under the position taken by a majority of the courts, to which third parties will an accountant who negligently prepares a client’s financial report be liable?
CPA
Any foreseen or known 3rd party who relied on the report
Correct
Fraud has four elements: (
1) intentional (2) misrepresentation (lying) of a (3) material fact that (4) harms someone else.
Definition of fraud?
Fraud is the intentional misrepresentation of a material fact with resultant harm to someone.
Which, if any, of the following could result in penalties against an income tax return preparer?
Knowing or reckless disclosure or use of tax information obtained in preparing a return
A willful attempt to understate any client’s tax liability on a return or claim for refund
Both
When must a practitioner exercise due diligence?
In determining the correctness of oral or written representations in any matter administered by the IRS
In preparing, approving, and filing returns
In determining the correctness of oral or written representations by the practitioner to the Department of the Treasury
All are correct
A taxpayer makes a noncash contribution to charity; a qualified appraisal regarding the value of the property is also required if the contribution exceeds what amount?
$5000
If the taxpayer donates noncash gifts valued at more than $500, THEN ____
additional substantiation must be provided with the taxpayer’s return, including a description of how the property was acquired and the taxpayer’s basis in the property
Which of the following courts listens to an appeal from a taxpayer or the government when there is a disagreement with the trial court’s decision?
US Federal Court of Appeals
The Court of Appeals hears both tax and nontax cases.
Who cannot represent a taxpayer for a tax appeal
conference?
Can a taxpayer represent a taxpayer for the tax appeal conference?
An unenrolled agent.
Yep
According to the standards of the profession, which of the following sources of information should a CPA consider before signing a client’s tax return?
Information actually known to the CPA from the tax return of another client
Information provided by the client that appears to be correct based on the client’s returns from prior years
Both
In the U.S. Tax Court, where may cases be heard?
Various Cities across the U.S
For tax courts outside of Washington, D.C what form must be submitted to move the court to a different city?
Request for Place of Trial
Where are tax courts originally located?
Washington, D.C
For a federal tax dispute, there are three trial courts in which the case may be heard
(1) Tax Court, (2) U.S. District Court, and (3) U.S. Court of Federal Claims.
In terms of tax matters, courts of original jurisdiction (or trial courts) include (3)
Tax Court, the U.S. District Court, and the U.S. Court of Federal Claims.
What is a work product doctrine?
A doctrine that protects work product from detection (protects certain work to be admitted into tax case)
One of the accuracy-related penalties is for negligence or disregard of rules and regulations. The penalty is a percentage of the underpayment. What is that percentage?
When can the penalty not apply?
20%
Penalty wont apply if the taxpayer can show a reasonable basis for the position taken
If the prior year was less than 12 months or there was no tax liability in the prior year, the preceding year method is available. T/F
True
A corporation that anticipates a year-end tax bill of $__or more must estimate its income tax liability for the current tax year and pay ____estimated tax installments during that year
$500
4 quarterly
If a taxpayer disclosed the tax return position, abd the taxpayer can show a ____ basis for the position that was taken on the return, and the position is not related to a _____, any _____ penalty may be reduced or eliminated.
reasonable
tax shelter
accuracy-related
What is the penalty for a taxpayer who fails to timely file a tax return (including extensions)?
A penalty of 5% a month (up to a maximum of 25%) of the deficiency on the tax return (when filed)
Working papers are subject to the privileged communication rule which, in most jurisdictions, prevents any third-party access to the working papers.
T/F
False - The AICPA Code of Professional Conduct’s Confidental Relationship Rule protects it.
Working papers are not transferable to a purchaser of a CPA practice unless the client consents.
T/F
True
What is the extent of the hearing authority of the United States Tax Court? Only _____ tax disputes
Federal Tax Disputes (does not do income tax disputes)
To whom must a CPA pay license fees in order to maintain a CPA license?
The state board of accountancy of the CPA’s state of licensure.
Under Treasury Circular 230, which of the following correctly represents the requirements related to the communication of fee information from a tax practitioner to a taxpayer?
It may be communicated in a number of ways, including in professional lists, telephone directories, mailings, and electronic mail.
A practitioner may not persist in attempting to contact a prospective client if the prospective client has made it known to the practitioner that he or she does not desire to be solicited…..t/f
true
A CPA’s adjusted gross income (AGI) for the preceding 12-month tax year exceeds $150,000. Which of the following methods are available to the CPA to compute the required annual payment of estimated tax for the current year in order to make timely estimated tax payments and avoid the underpayment of estimated tax penalty?
The annualization method (define)
The seasonal method (Define
Both
Annualization Method - Computed on actual income & expense of the current year. No income limitations
Seasonal Method - doesnt say
Which agency is responsible for determining the continuing professional education requirements for licensed CPAs and retaining the documentation?
The board of accountancy for the state in which the licensed CPA practices
The state boards will perform a ____to determine if the matter should be pursued.
full investigation
A “safe harbor” provision allows that no penalty for ____of estimated taxes will be imposed on a corporation if the estimated tax deposits equal the lesser of __% of the current-year tax or ___% of last year’s tax.
underpayment
100% to both
orp., a calendar-year C corporation, made qualifying Year 4 estimated tax deposits equal to its actual Year 3 tax liability. Bass filed a timely automatic extension request for its Year 4 corporate income tax return. Estimated tax deposits totaled $7,600. This amount was 100% of the total tax shown on Bass’s final Year 3 corporate income tax return. Bass paid $400 additional tax on the final Year 4 corporate income tax return filed before the extended due date. Bass was subject to:
interest on the $400 tax payment made with tax return.
a penalty for underpayment of estimated taxes.
Interest on the $400 tax payment accrued from the original due date through the date of payment
A client suing a CPA for negligence must prove each of the following factors except:
To establish negligence, a client must show that:
Reliance
Must show: Legal duty, Breached duty, proximate cause, Damges/injuries/losses
The ability to transfer licensing credential from one state to another is controlled by state boards and reciprocity is not guaranteed. Individuals seeking a particular state’s licensing credential must present:
authorization for release of score information.
State boards are able to dictate what information is available to the general public, but more likely than not, this information is limited in nature. Generally, the available information includes: (5)
Name/address/type of license/license #/Date of expiration
A routine review of a received return by the IRS looks for all of the following except:
failure to report a 1099.
failure to calculate the math correctly.
failure of the taxpayer to sign the return.
failure to submit a tax return.
Fail to submit tax return - A routine review cannot be performed on a tax return if one has not been submitted to the IRS.
What is the penalty if fraud is the reason for failure to timely file?
A penalty of 15% per month (with a maximum of 75%) of the deficiency on the tax return (when filed)
According to the profession’s ethical standards, a CPA preparing a client’s tax return may rely on unsupported information furnished by the client, without examining underlying information, unless the information:
appears to be incomplete on its face.
Hark, CPA, failed to follow generally accepted auditing standards in auditing Long Corp.’s financial statements. Long’s management had told Hark that the audited statements would be submitted to several banks to obtain financing. Relying on the statements, Third Bank gave Long a loan. Long defaulted on the loan. In a jurisdiction applying the Ultramares decision, if Third sues Hark, Hark will:
win because there was no privity of contract between Hark and Third.
(third parties can sue if they receive a benefit from the audit. In this case, they dont)
The Ultramares court ruled that even if a CPA firm knows that the audited financial statements are to be used by a creditor to make lending decisions, the third-party user ____with the CPA firm and (can/cant) recover for negligence.
lacks privity
cant
A tax communication should include: (4)
Breif Statement of facts
Each tax issue listed
Separate conclusion for each tax issue
Where the conclusions came from (reasonings)
Ethical or Unethical?
Purchasing a product from a third party and reselling it to a client
Ethical
The ____ carries the greatest authoritative value for tax planning transactions.
Internal Revenue Code
Ford & Co., CPAs, issued an unmodified opinion on Owens Corp.’s financial statements. Relying on these financial statements, Century Bank lent Owens $750,000. Ford was unaware that Century would receive a copy of the financial statements or that Owens would use them to obtain a loan. Owens defaulted on the loan. To succeed in a common-law fraud action against Ford, Century must prove, in addition to other elements, that Century was:
justified in relying on the financial statements.
A corporation’s penalty for underpaying federal estimated taxes is deductible or non-deductible
non-deductible
Note: A fine or a penalty paid to any government for the violation of any law is not a deductible business expense.
Which of the following is not an example of a type of IRS examination?
Correspondence examinations
Office examinations
Field examinations
Review examinations
Review examinations
What are the three IRS Examinations? Include what these examinations consist of
Correspondence examinations - When items on a return are in question
Office examinations - Few complex issues (they stay home)
Field examinations - Many complex issues (they come to you)
A CPA who fraudulently performs an audit of a corporation’s financial statements will probably be liable to any person who ____
suffered a loss as a result of the fraud.
A written protest needs to be filed when an appeals conference is requested. The protest must include:
the taxpayer’s name, address, and daytime phone number,
a statement requesting the appeal on the IRS findings,
a copy of the letter showing the findings,
the tax periods or years involved,
a list of the proposed changes the taxpayer does not agree with and why,
the facts to support the taxpayer’s position,
the law or authority supporting the taxpayer’s position, and
a signature from the taxpayer stating that it is true, under the penalties of perjury
When may individuals who are not CPAs, attorneys, or enrolled agents engage in limited practice before the IRS?
Taxpayer representing himself if they present necessary identification.
PRACTICING BEFORE THE IRS
T/F
An individual may represent a member of her immediate family provided such member is present at any conference or meeting with an agent of the IRS.
A part time employee of an individual employer may represent the employer provided such part time employee works for the employer at least 20 hours per week.
Any partner may represent the partnership of which she is a member before the IRS.
False -They dont have to be there
False - THey have to be full-time
Technically False – Any partner OR employee can represent the partnership
To avoid tax return preparer penalties for a return’s understated tax liability due to an intentional disregard of the regulations, which of the following actions must a tax preparer take?
Is an audit required?
Make reasonable inquiries to determine if the taxpayer’s information is incomplete.
Audit isn’t required
If a practitioner is disbarred from practice before the IRS, when may a practitioner petition for reinstatement?
After 5 years
Tax communications to a client should be (detailed or precise) … why?
Less detailed/precise … b/c taxpayers don’t understand the language of tax. Shouldn’t contain too much detail so you don’t confuse them…..LOL
An accuracy-related penalty applies to the portion of tax underpayment attributable to both ___
negligence or a disregard of the tax rules or regulations and any substantial understatement of income tax.
A practitioner may represent conflicting interests provided that each affected client waives the conflict by:
Notary Needed?
informed, written consent.
No notary needed
Under Treasury Circular 230, a practitioner may be (3)
censured, suspended, or disbarred.
A CPA prepares a client’s tax return containing business travel expenses without inquiring about the existence of documentation for the expenses. Which statement best describes the consequence of the CPA’s lack of inquiry?
he CPA may be assessed a tax return preparer penalty.
The CPA may be charged with preparing a fraudulent return.
The client will not owe an understatement penalty if the return is audited and the expenses disallowed.
The client will not be subject to a fraud penalty.
The CPA may be assessed a tax return preparer penalty.
The preparer should make reasonable inquiries if the information appears to be incorrect, incomplete, or inconsistent on the basis of known facts. Since documentation is required to deduct automobile expenses, the CPA may receive a tax return preparer penalty.
Which of the following bodies ordinarily would have the authority to suspend or revoke a CPA’s license to practice public accounting?
The SEC
The AICPA
A state CPA society
A state board of accountancy
State Board of Accountancy
A CPA will most likely be negligent when the CPA fails to:
correct errors discovered in the CPA’s previously issued audit reports.
detect all of a client’s fraudulent activities.
include a negligence disclaimer in the CPA’s engagement letter.
warn a client’s customers of embezzlement by the client’s employees.
Correct errors discovered in the CPA previous issued audit report
A CPA has no duty to warn a client’s customers of embezzlement on the part of the client’s employees.
T/F
If the client was aware of the fraud and did not rely on the opinion, the client would not be successful in holding the CPA liable, even for fraud.
True
The National Association of State Boards of Accountancy (NASBA) is in place to establish standards for providers of _____) units throughout the country. The organization also works to:
require CPE program sponsors to provide program-level content.
The CPA does not incur liability for an IRS penalty if the client’s tax liability is understated as a result of a mere error in calculation. However, there may well be liability to the ___for such an error.
client
Negotiating a client’s tax refund check when the CPA prepared the tax return
Will this get a tax IRS penalty?
Yes
Which of the following is not considered a primary authoritative source when conducting tax research?
Internal Revenue Code
Tax Court cases
IRS publications
Treasury Regulations
IRS Publication
IRS publications are not considered a primary authoritative source when conducting tax research.
A CPA will be liable to a tax client for damages from
failing to timely file a client’s return,
failing to advise a client of certain tax deductions, and
neglecting to evaluate the option of preparing joint or separate returns that would have resulted in substantial tax savings for a married client.
Memorize
Starr, CPA, prepared and signed Cox’s 20X1 federal income tax return. Cox informed Starr that Cox had paid doctors’ bills of $20,000 although Cox actually had paid only $7,000 in doctors’ bills during 20X1. Based on Cox’s representations, Starr computed the medical expense deduction that resulted in an understatement of tax liability. Starr had no reason to doubt the accuracy of Cox’s figures and Starr did not ask Cox to submit documentation of the expenses claimed. Cox orally assured Starr that sufficient evidence of the expenses existed. In connection with the preparation of Cox’s 20X1 return, Starr is:
Not liable -for any penalty or interest – this is b/c the CPA had no reasons to doubt the accuracy of cox’s figures. If he had reason to doubt, he would make inquiries.
In common law, is there any federal privilege that an accountant or client may invoke to prevent disclosures?
No - There is no general federal accountant-client privilege
Rules of accountancy differ from state to state and are difficult to understand. Where can a candidate find information that will allow him or her to maintain licensure records and view requirements for multiple jurisdictions?
NASBA tools for accounting compliance
What is the civil penalty if a taxpayer claims withholding allowances that are based upon false information?
$500
Which of the following acts constitute(s) grounds for a tax preparer penalty?
I. Without the taxpayer’s consent, the tax preparer disclosed taxpayer income tax return information under an order from a state court.
II. At the taxpayer’s suggestion, the tax preparer deducted the expenses of the taxpayer’s personal domestic help as a business expense on the taxpayer’s individual tax return.
II. Only – this is an attempt to understate a tax liability. $1000 Fine
Common Law CPA Defenses (5)
.
- Contributory negligence of the client caused the loss.
- The CPA adhered to GAAS and planned audit examination to search for material fraud.
- The error was immaterial.
- The proximate cause of loss was not the erroneous financial statements.
- The CPA was not negligent or fraudulent
if a taxpayer agrees to changes made during an examination and he signs an agreement, but does not pay the taxes due….when will he not have to pay more in interest/penalties
If the taxpayer pays the amount due within 21 calendar days of the billing date and the amount is less than $100,000……if above $100K, then they will receive a bill w/ interest.
If over $100k & If they pay when the agreement is signed, interest is figured in from the due date to the date of payment
An IRS agent has just completed an examination of a corporation and issued a “no change” report. Which of the following statements about that situation is correct?
The taxpayer may not amend the tax return for that taxable year.
The IRS generally does not reopen the examination except in cases involving fraud or other similar misrepresentation.
The IRS may not reopen the examination.
The IRS may not examine any other tax return of the corporation for a period of one year
The IRS generally does not reopen the examination except in cases involving fraud or other similar misrepresentation.
The IRS examines some federal tax returns to determine if income, expenses, and credits are being reported accurately. Once an examination is concluded and the taxpayer agrees, the case will generally not be reopened unless there has been fraud or misrepresentation of a material fact.
The Secretary of the Treasury, after notice and opportunity for a hearing, may censure, suspend, or disbar any practitioner in which of the following circumstances?
The practitioner is shown to be incompetent or disreputable.
The practitioner refuses to comply with any rules in Circular 230.
The practitioner, with intent to defraud, willfully and knowingly misleads or threatens a client or prospective client.
All of the answer choices are correct.
All correct
Which of the following fee arrangements generally would not be permitted under the ethical standards published in the Treasury Department Circular 230?
A referral fee paid by a CPA to obtain a client
A commission for compiling a client’s internal-use financial statements
A contingent fee for preparing a client’s income tax return
A contingent fee for representing a client in tax court
Contingent Fee for prepping client’s income return
Referral fees to obtain clients & commission for INTERNAL-USE F/S are permitted
Communications w/ IRS agents should be
more detailed
Of the various administrative sources available from the IRS, which is held to be the strongest and most important source?
Revenue Rulings
Revenue Procedures
Treasury Regulations
Letter Rulings
Treasury Regulations -Treasury Regulations have the most weight in interpreting the IRS Code
When researching tax law for a client, which committee report would not be used as a source of tax law?
House Ways and Means Committee Report
Accounting and Review Services Committee Report
Senate Finance Committee Report
Joint Conference Committee Report
Accounting and Review Services Committee Report
The Committee on Accounting and Review Services is not a source of information for the tax law. It is concerned with entity accounting rules for unregistered companies and those CPAs providing review services.
What are the three committees involved w/ writing hte tax laws of the US
Senate Finance
Joint Confernce
House Ways & Means
JHS ( Jeff Highschool)
At what level must all tax cases start?
Trial
State boards typically require that the licensees attest to their jurisdiction that they have ____
completed the requirements for continuing education
A CPA, while employed as an employee in a securities company, prepares misleading financial records for the company at his superior’s directive. He knows what the correct entry should be, yet does not make the correct entry, although the actual making of such an entry is under his control. The CPA has chosen to look the other way due to his superior’s orders. Which of the choices listed is the best answer concerning the CPA’s responsibilities?
The CPA has no responsibility since he prepared the materials under the orders of his superior. The superior has the responsibility.
The CPA has responsibility only if he has not documented his objection.
The CPA is a bad person and should be fired since he made incorrect entries.
The CPA is responsible for the accuracy of the financial records prepared by himself.
The CPA is responsible for the accuracy of the financial records prepared by himself.
If the Internal Revenue Service is forced to seize an individual’s weekly paycheck in order to pay past-due taxes owed by the individual, the individual has the legal right to keep an amount of weekly income equal to:
the individual’s standard deduction divided by 52.
Generally, what are the terms of IRC Section 7525?
terms are limited to the words of the statute.
What is the Appeals Division of the IRS?
A division of the IRS which settles disputes based upon the hazards of litigation – recognizes all cases cant go to court.
Appeals Division of IRS
If the proposed tax deficiency is $25,000 or less, the taxpayer only has to file a ____; if the total amount of proposed adjustment is over $25,000, ___is required.
small case request
a formal written protest
A tax preparer has advised a company to take a position on its tax return. The tax preparer believes that there is a 75% possibility that the position will be sustained if audited by the IRS. If the position is not sustained, an accuracy-related penalty and a late-payment penalty would apply. What is the tax preparer’s responsibility regarding disclosure of the penalty to the company?
A practitioner must inform a client of any and all penalties that are likely to apply to the client with respect to a position taken on a tax return.
A tax preparer filed a return for a taxpayer and used the taxpayer’s detailed check register containing both business and personal expenses. If the tax preparer knowingly included personal expenses as deductible business expenses on the taxpayer’s business, then the:
tax preparer will be liable for penalties arising from an understatement due to willful or reckless conduct.
They intentionally understated the TP’s liability. - this is reckless.
What must a third-party beneficiary prove to hold a CPA liable for unaudited financial statements?
Fraud or gross negligence
In a principal-agent relationship that is not contractual, which of the following remedies is not available to the agent whose principal is guilty of violating a duty owed the agent?
Recovery for past services
Recovery for future damages
Specific performance
Withholding further performance
In a principal-agent relationship that is not contractual, specific performance is not available to the agent whose principal is guilty of violating a duty owed the agent.
Specific performance is an order by a court to complete a previously established transaction in a contract. Specific performance has a unique matter stated in the contract.
A taxpayer received a notice of deficiency from the IRS. If the tax underpayment is not the result of the taxpayer’s mathematical or clerical error, how long does the taxpayer have to file a petition with the Tax Court for a redetermination of the deficiency?
90 days - known as the 90 day letter
A corporation must file IRS Schedule UTP if it: (4)
filed Form 1120, 1120-L, or 1120-PC,
has assets equal to or exceeding $10 million,
issued audited financial statements, and
has one or more tax positions that must be reported.
What does the professional ethics division of the AICPA do?
Interprets the Code of Professional Conduct
Investigates potential disciplinary action
Presents disciplinary cases before the AICPA joint trial board
All of the answer choices are correct.
All correct
Under Treasury Circular 230, a practitioner may be sanctioned for what? (3)
Willful/reckless violation of regulations
Gross incompetence
Prohibited solicitation of employment
Thorp, CPA, was engaged to audit Ivor Co.’s financial statements. During the audit, Thorp discovered that Ivor’s inventory contained stolen goods. Ivor was indicted and Thorp was subpoenaed to testify at the criminal trial. Ivor claimed accountant-client privilege to prevent Thorp from testifying.
Which of the following statements is correct regarding Ivor’s claim?
Ivor can claim an accountant-client privilege only in states that have enacted a statute creating such a privilege.
Ivor can claim an accountant-client privilege only in federal courts.
The accountant-client privilege can be claimed only in civil suits.
The accountant-client privilege can be claimed only to limit testimony to audit subject matter.
Ivor can claim an accountant-client privilege only in states that have enacted a statute creating such a privilege.
The “accountant-client” privilege does not generally exist, although some states have adopted statutes providing for such a privilege.
A 20% “accuracy-related” civil penalty applies to the portion of an understatement of tax on a tax return that is due (absent reasonable cause) to:
___or a disregard of rules or regulations,
substantial ___of income tax,
substantial _misstatement,
substantial __of pension liabilities, or
substantial ___or gift tax valuation understatement.
negligence understatement valuation overstatements estate
T/F
The U.S. Supreme Court is the ultimate judicial authority on tax law unless Congress disagrees and changes the Internal Revenue Code.
A decision of a U.S. Circuit Court is given more weight than that of a U.S. District Court.
The decisions of the U.S. Tax Court are appealable to a Circuit Court of Appeals.
True to all
T/F
Working papers are subject to the privileged communication rule which, in most jurisdictions, prevents any third-party access to the working papers.
While working papers are the property of the CPA, not the client, they are not considered “privileged” and a CPA may be required to turn over such documents for peer review or when subject to a subpoena
