CTC Ethical Standards & Professional Conduct 2

Question 1

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

Accepted Answer

Advise the client of the errors and recommend corrective action

Answer

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

Question 2

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

Accepted Answer

Making reasonable inquiries when information appears incorrect or incomplete

Answer

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

Question 3

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

Accepted Answer

Potential conflict of interest if the partners' positions diverge

Answer

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

Question 4

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

Accepted Answer

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

Answer

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

Question 5

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

Accepted Answer

Notify the client and consult legal counsel before producing records

Answer

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

(CTC) Chartered Tax Consultant Practice Test

(CTC) Chartered Tax Consultant Practice Test

CTC Ethical Standards & Professional Conduct 2