CTC Documentation & Legal Requirements 3

Question 1

Under the Circular 230 rules, a tax practitioner who discovers a client's error on a previously filed return must:

Accepted Answer

Promptly advise the client of the error and its potential consequences

Answer

Circular 230 §10.21 requires practitioners to promptly notify the client of noncompliance, error, or omission and advise of the consequences, but does not require the practitioner to report to the IRS.

Question 2

A taxpayer with foreign financial accounts totaling more than $10,000 at any point during the year must file which form?

Accepted Answer

FinCEN Form 114 (FBAR)

Answer

FinCEN Form 114 (FBAR) must be filed electronically by April 15 (with auto-extension to October 15) when aggregate foreign account balances exceed $10,000.

Question 3

What is the penalty for failure to file a correct information return (e.g., 1099) by the applicable deadline under IRC §6721?

Accepted Answer

The penalty tiers increase from $50 to $290 per return depending on lateness, with annual caps by business size

Answer

IRC §6721 imposes tiered penalties ($50/$110/$290 per return for increasing lateness), with separate annual caps for small and large businesses.

Question 4

A taxpayer claims a charitable contribution deduction of $300 in cash. What is the minimum documentation required?

Accepted Answer

A bank record or written communication from the charity showing the amount and date

Answer

For cash contributions under $250, a bank record (canceled check, credit card statement) or written communication from the charity suffices under IRC §170(f)(17).

Question 5

Which document establishes a qualified plan's tax-exempt status and outlines its legal structure for IRS compliance purposes?

Accepted Answer

The plan document and adoption agreement

Answer

The plan document (and adoption agreement for prototype plans) is the governing legal instrument that defines the plan's terms and must meet IRC §401(a) requirements.

(CTC) Chartered Tax Consultant Practice Test

(CTC) Chartered Tax Consultant Practice Test

CTC Documentation & Legal Requirements 3