Statements on Standards

Question 1

When are use of estimates permitted on a tax return?

Answer 1

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 2

In what situation are inquiries by the tax preparer appropriate?

Answer 2

Inquiries should be made if there is a need to determine that a specifically required condition by the IRC 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 3

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

Answer 3

Examples:

1. ) Numerous transactions involving very small amounts
2. ) Records are missing/precise information unavailable

Question 4

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

Answer 4

No standard format required.

Question 5

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

Answer 5

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 6

What is the tax preparer’s responsibility to inform the IRS of an error in a prepared tax return?

Answer 6

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

Question 7

When are written communications with the client preferable?

Answer 7

Preferable for important or complicated matters

Question 8

Reasonable Basis = ?

Answer 8

Greater than 20% chance

Question 9

Realistic Possibility = ?

Answer 9

Greater than 33% chance

Question 10

What things should a CPA never tell a tax client?

Answer 10

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

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

Question 11

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

Answer 11

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

Question 12

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

Answer 12

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 13

What is the rationale for the AICPA’s statements on standards No 2?

Answer 13

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

Question 14

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

Answer 14

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

Question 15

What does the AICPA statements on standards No 2 state?

Answer 15

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 16

What does the AICPA statements on standards No 3 state?

Answer 16

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

Question 17

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

Answer 17

1. ) There’s a realistic possibility it will be sustained

2. ) A reasonable basis and it is disclosed