CTA Tax Ethics and Professional Standards 2

Question 1

Tax evasion is best defined as:

Accepted Answer

Illegal concealment of income or fraudulent deductions to avoid paying taxes

Answer

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

Question 2

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

Accepted Answer

Not be based on unreasonable factual or legal assumptions

Answer

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

Question 3

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

Accepted Answer

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

Answer

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.

Question 4

The taxpayer penalty for substantial understatement of income tax is:

Accepted Answer

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

Answer

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

Question 5

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

Accepted Answer

Private letter ruling (PLR)

Answer

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.

CTA - Certified Tax Advisor Practice Test

CTA - Certified Tax Advisor Practice Test

CTA Tax Ethics and Professional Standards 2