SSTS

Question 1

What things should a CPA never tell a tax client?

Answer 1

• This isn’t right, but the IRS never checks.

* This isn’t right, but we’ll use it to bargain the IRS down.

Question 2

What is the rationale for the American Institute of Certified Public Accountants’ Statements on Standards for Tax Services No. 2?

Answer 2

1. Omission tends to detract from the quality of the return; and
2. Member must sign the preparer’s declaration stating that the return is true, correct, and complete.

Question 3

Under what circumstances can a CPA recommend a tax position to a tax client?

Answer 3

• There’s a realistic possibility it will be sustained, or

* A reasonable basis and it is disclosed.

Question 4

What is the responsibility of a CPA regarding errors contained in a previously filed tax return?

Answer 4

Advise a client of errors contained in a previously filed tax return.

Question 5

What is the tax preparer’s responsibility to inform the Internal Revenue Service (IRS) of an error in a prepared tax return?

Answer 5

Member need not, and may not, do so without client’s permission, except where required by law.

Question 6

In what situations is it impractical for a tax payer to obtain exact data for the preparation of their tax returns?

Answer 6

1. Numerous transactions involving very small amounts;

2. Records are missing/precise information unavailable.

Question 7

What is a preparer’s obligation regarding verifying information provided by the tax payer?

Answer 7

A preparer should not ignore the implications of information furnished and should make reasonable inquiries if the information furnished appears to be incorrect, incomplete, or inconsistent either on its face or on the basis of other facts known to the tax preparer. Further, a member should refer to the taxpayer’s returns for one or more prior years whenever feasible.

Question 8

What does the American Institute of Certified Public Accountants’ Statements on Standards for Tax Services No. 2 state?

Answer 8

A member should make a reasonable effort to obtain from the taxpayer the information necessary to provide appropriate answers to all questions on a tax return before signing as preparer.

Question 9

List the grounds on which a CPA can omit an answer on a tax return.

Answer 9

1. Information not readily available and answer is not significant in terms of liability;
2. Genuine uncertainty as to meaning of the question in relation to particular return;
3. Answer is voluminous and return states that data will be supplied upon examination.

Question 10

When are use of estimates permitted on a tax return?

Answer 10

When:

1. Obtaining exact figures would be excessively expensive or impractical;
2. The estimate is reasonable given known facts;
3. The estimates do not imply greater accuracy than exists.

Question 11

What format should a tax preparer’s advice to a client be given in?

Answer 11

No standard format required.

Question 12

Realistic possibility =

Answer 12

> 33% chance (33-50%).

Question 13

What does the American Institute of Certified Public Accountants’ Statements on Standards for Tax Services No. 3 state?

Answer 13

A member may in good faith rely without verification upon information furnished by client or third parties provided members’ obligations are met.

Question 14

Reasonable basis =

Answer 14

> 20% chance (20-33%).

Question 15

When are written communications with the client preferable?

Answer 15

Preferable for complicated or important matters.

Question 16

In what situation are inquiries by the tax preparer appropriate?

Answer 16

Inquiries should be made if there is a need to determine that a specifically required condition by the Internal Revenue Code or other legislation, such as maintaining books and records or substantiating documentation, has been satisfied and to obtain information when the material furnished appears to be incorrect, incomplete, or inconsistent.

Question 17

List the circumstances in which use of estimates on a tax return must be disclosed.

Answer 17

1. Taxpayer has died/is ill at time of filing;
2. Taxpayer has not received a K-1 for a flow-through entity at time of filing;
3. Litigation bearing on return is pending;
4. Relevant records have been destroyed.