Tax Ethics and Professional Standards Flashcards

Tax evasion is best defined as:

Answer: Illegal concealment of income or fraudulent deductions to avoid paying taxes

Tax evasion is the illegal, intentional non-payment or underpayment of taxes through concealment or fraud, as opposed to legal tax avoidance.

Under Circular 230, written tax advice provided to clients must:

Answer: Not be based on unreasonable factual or legal assumptions

Written tax advice under Circular 230 must not be based on unreasonable factual or legal assumptions or known misleading statements.

A tax preparer who recklessly or intentionally disregards IRS rules and regulations on a return may face a preparer penalty of:

Answer: $1,000 per return or 75% of income from the return, whichever is greater

Under IRC Section 6694(b), willful or reckless disregard of tax rules carries a penalty of $5,000 or 75% of preparer income from the return, whichever is greater.

The taxpayer penalty for substantial understatement of income tax is:

Answer: 20% of the portion of the underpayment attributable to the substantial understatement

The accuracy-related penalty for substantial understatement of income tax is 20% of the understatement attributable to the substantial understatement.

Which of the following IRS documents provides a legally binding ruling on how the tax law applies to a specific taxpayer's transaction?

Answer: Private letter ruling (PLR)

A Private Letter Ruling is issued by the IRS to a specific taxpayer and is legally binding on the IRS with respect to that taxpayer's transaction.

An enrolled agent (EA) obtains their license to practice before the IRS by:

Answer: Passing the Special Enrollment Examination (SEE) or working for the IRS for at least 5 years

Enrolled agent status is obtained by passing the three-part Special Enrollment Examination or by virtue of working for the IRS in certain technical positions for at least five years.