Ethics, Standards & IRS Representation Flashcards

Under the AICPA's Statements on Standards for Tax Services (SSTS), which standard addresses a CPA's responsibility when a client will not correct a prior-year error?

Answer: SSTS No. 6 — Knowledge of Error: Return Preparation and Administrative Proceedings

SSTS No. 6 specifically governs a practitioner's obligations when they become aware of an error on a previously filed return and the client declines to correct it.

A CTC is approached by two individuals who are co-owners in a dispute over the allocation of partnership income. Representing both simultaneously would most likely create:

Answer: A conflict of interest that may require informed written consent from both parties

Representing adverse parties creates a conflict of interest under Circular 230 §10.29; the practitioner may proceed only with informed written consent from each client after full disclosure.

Which IRS collection action requires the IRS to provide a taxpayer with a Collection Due Process (CDP) hearing notice at least 30 days before proceeding?

Answer: Both levy and lien filing trigger separate CDP notice requirements

IRC §§6320 and 6330 require CDP hearing notices—§6320 for lien filings and §6330 for levy actions—giving taxpayers 30 days to request a hearing.

Which penalty under IRC §6694 applies when a tax return preparer understates a taxpayer's liability due to an unreasonable position?

Answer: $1,000 or 50% of the income derived, whichever is greater

IRC §6694(a) imposes a penalty of the greater of $1,000 or 50% of the income derived by the preparer for an unreasonable position that the preparer knew or should have known lacked substantial authority.

A practitioner who is disbarred from practice before the IRS may petition for reinstatement after:

Answer: Five years from the date of disbarment

Circular 230 §10.81 provides that a disbarred practitioner may petition for reinstatement no sooner than five years after disbarment.

A CTC signs a client's federal return as paid preparer. The return contains a math error that understates the tax. Who is primarily liable for the accuracy-related penalty under IRC §6662?

Answer: The taxpayer, because the return is the taxpayer's legal obligation

Accuracy-related penalties under IRC §6662 are imposed on the taxpayer, not the preparer; preparer penalties under §6694 are separate and apply to the preparer's own conduct.

Under Circular 230, which of the following best describes 'competence' as required of a tax practitioner?

Answer: Having the legal knowledge, skill, thoroughness, and preparation reasonably necessary for the representation

Circular 230 §10.35 defines competence as possessing the legal knowledge, skill, thoroughness, and preparation reasonably necessary for the matter undertaken.