Ethical Standards & Professional Conduct Flashcards

A CTC advertises that they guarantee clients will receive a tax refund. This advertisement is:

Answer: Prohibited because guaranteeing results is misleading and violates advertising ethics

Guaranteeing specific outcomes in tax matters is misleading advertising that violates Circular 230 and professional ethics standards because tax results depend on many uncontrollable factors.

Under the concept of professional independence, a CTC should:

Answer: Exercise objective judgment even when the conclusion is unfavorable to the client

Professional independence requires objective judgment; a practitioner who simply validates whatever the client wants is not providing genuine professional service.

A client provides a CTC with cash receipts to document deductible business expenses. The practitioner notices the amounts appear inflated. What should the practitioner do?

Answer: Make further inquiry and, if the client cannot substantiate the amounts, exclude or adjust the entries

When data appears suspicious, due diligence requires inquiry; if the client cannot substantiate the amounts, the practitioner must not include unsupported deductions.

Which of the following describes 'pattern of disregard' under Circular 230?

Answer: Repeated failures to follow IRS rules or regulations across multiple engagements

A pattern of disregard involves repeated, intentional failures to comply with IRS rules across multiple returns or matters, which is a basis for sanctions under Circular 230.

A CTC is asked to sign a tax return prepared entirely by the client. Before signing as preparer, the practitioner must:

Answer: Review the return and ensure it meets the same standards as if the practitioner had prepared it

A practitioner who signs a return as preparer takes responsibility for its accuracy and must apply the same due diligence standards regardless of who originally drafted it.

What is the key difference between a 'practitioner' and a 'tax return preparer' under Circular 230?

Answer: Practitioners are authorized to practice before the IRS; tax return preparers have limited or no representation rights

Practitioners (attorneys, CPAs, EAs, CTCs with proper authorization) can represent clients before the IRS, while most tax return preparers are limited to preparing and signing returns.

A client wants to claim a deduction that is technically allowable but that the CTC believes serves no business purpose and is purely tax-motivated. The practitioner should:

Answer: Analyze the transaction under applicable law and advise the client of the risks, including potential penalties

Tax-motivated transactions are not automatically prohibited, but the practitioner must assess the risk of challenge, substance-over-form arguments, and penalties and advise the client accordingly.