Regulatory Framework & Compliance Flashcards

Under Circular 230, which standard governs whether a tax practitioner may rely on information provided by a client without further verification?

Answer: Practitioners may rely on client information unless it appears incorrect, inconsistent, or incomplete

Circular 230 §10.34 allows practitioners to rely on client-furnished information absent reason to believe it is inaccurate or incomplete.

A CTC discovers a client made an error on a prior-year return that resulted in a $25,000 underpayment. The client refuses to amend the return. What is the CTC's primary obligation?

Answer: Advise the client of the consequences and potentially withdraw from the engagement

Under Circular 230, a practitioner who learns of an uncorrected error must promptly advise the client of the error and its consequences, and may need to withdraw if the client refuses to correct it.

Which IRS form must a tax preparer complete to register as an Authorized IRS e-file Provider?

Answer: Form 8633

Form 8633 (Application to Participate in the IRS e-file Program) is used to register as an Authorized IRS e-file Provider.

The penalty under IRC §6694(b) for a tax preparer who willfully or recklessly understates a taxpayer's liability is:

Answer: $5,000 or 75% of the income derived, whichever is greater

IRC §6694(b) imposes a penalty of the greater of $5,000 or 75% of income derived from the return for willful or reckless understatements.

Under the Bank Secrecy Act, which threshold triggers a currency transaction report (CTR) filing requirement?

Answer: Transactions exceeding $10,000

Financial institutions must file a CTR for cash transactions exceeding $10,000 in a single business day.

A taxpayer who disagrees with an IRS examination finding and wants to bypass the IRS Appeals Office can petition which court without first paying the disputed tax?

Answer: U.S. Tax Court

The U.S. Tax Court is the only federal court where a taxpayer can contest a deficiency without first paying the disputed tax.

Which of the following best describes the 'reasonable basis' standard for tax return positions under IRC §6662?

Answer: A position with approximately a 25% or greater likelihood of being sustained

Reasonable basis is a relatively low standard—approximately 20-25% probability of success—that avoids the accuracy-related penalty when adequately disclosed.