Ethical Standards & Professional Conduct Flashcards

A CTC practitioner discovers mid-engagement that a client's prior-year returns contain material errors. What is the practitioner's primary obligation?

Answer: Advise the client of the errors and recommend corrective action

Circular 230 and professional standards require the practitioner to promptly advise the client of discovered errors and recommend corrective measures.

Which of the following best describes the concept of 'due diligence' as it applies to a CTC preparing a tax return?

Answer: Making reasonable inquiries when information appears incorrect or incomplete

Due diligence requires reasonable inquiry when information appears incorrect, inconsistent, or incomplete — not blind acceptance or exhaustive verification of every item.

A tax consultant is approached to represent two business partners in a partnership audit. What ethical concern arises?

Answer: Potential conflict of interest if the partners' positions diverge

Representing both partners creates a potential conflict of interest because their interests may diverge during the audit, requiring informed consent or separate representation.

Under Circular 230, a practitioner who charges a contingent fee for preparing an original tax return is:

Answer: Prohibited, as contingent fees for original returns are generally not allowed

Circular 230 prohibits contingent fee arrangements for preparing original tax returns because they create incentives to inflate refunds or understate liabilities.

A CTC receives a subpoena requesting a client's tax records. What should the practitioner do first?

Answer: Notify the client and consult legal counsel before producing records

Before producing any records under a subpoena, the practitioner should notify the client and seek legal guidance, as privileges or client rights may apply.

Which action by a CTC would constitute 'disreputable conduct' under Circular 230?

Answer: Willfully failing to file a personal federal tax return

Willful failure to file a required federal tax return is explicitly listed as disreputable conduct under Circular 230, which can lead to suspension or disbarment.

When a CTC consultant gives a client a written opinion on a tax shelter, what standard governs the quality of that opinion?

Answer: The opinion must meet the 'covered opinion' standards of Circular 230, requiring a realistic possibility analysis

Tax shelter opinions qualify as 'covered opinions' under Circular 230 and must meet heightened standards, including analysis of whether the position is more likely than not to prevail.