CTC Ethical Standards & Professional Conduct 3 — Questions and Answers
Question 1: A CTC's long-time client asks the practitioner to notarize a document and falsely attest to facts the practitioner knows are untrue. The correct response is to:
- Comply as a courtesy to maintain the client relationship
- Refuse, as doing so would constitute fraud and violate professional ethics (Correct answer)
- Comply only if the client signs an indemnification agreement
- Refer the client to a notary without disclosing the underlying issue
Correct answer: Refuse, as doing so would constitute fraud and violate professional ethics
Attesting to known falsehoods is fraud; no client relationship or indemnification agreement can ethically or legally justify such conduct.
Question 2: Which of the following best describes the CTC's duty of competence?
- Passing the CTC examination is a lifetime guarantee of competence in all tax matters
- Maintaining the legal, technical, and ethical ability to handle each specific engagement undertaken (Correct answer)
- Competence is only required for federal tax matters, not state tax issues
- Competence can be satisfied by always referring complex matters to attorneys
Correct answer: Maintaining the legal, technical, and ethical ability to handle each specific engagement undertaken
Competence is a continuous, engagement-specific duty requiring that the practitioner possess or acquire the legal, technical, and ethical skills needed for each matter.
Question 3: A practitioner's firm merges with another firm that represents a client with adverse interests. What must the practitioner do?
- Continue representing both clients since the conflict arose from a merger, not the practitioner's conduct
- Conduct a conflict check and obtain informed written consent from affected clients or withdraw (Correct answer)
- Simply disclose the merger to both clients and proceed
- Transfer one client's file to a third-party firm without further action
Correct answer: Conduct a conflict check and obtain informed written consent from affected clients or withdraw
A merger creates new conflicts of interest that require immediate conflict checks, and affected clients must provide informed written consent or the practitioner must withdraw from one representation.
Question 4: What is the IRS Office of Professional Responsibility (OPR) primarily responsible for?
- Auditing tax returns filed by tax professionals
- Enforcing Circular 230 standards of conduct for tax practitioners (Correct answer)
- Setting tax policy and issuing new tax regulations
- Processing penalty abatement requests from enrolled agents
Correct answer: Enforcing Circular 230 standards of conduct for tax practitioners
The OPR is the IRS body that investigates practitioner misconduct and enforces Circular 230, including imposing sanctions such as censure, suspension, or disbarment.
Question 5: A CTC prepares a return using a position that has a 15% chance of prevailing if challenged. Under Circular 230, what must the practitioner do?
- File the return without disclosure because the practitioner believes the position is correct
- Not sign the return; the position lacks the required realistic possibility of success (Correct answer)
- File the return and disclose the position only if the client requests disclosure
- Seek a private letter ruling before filing
Correct answer: Not sign the return; the position lacks the required realistic possibility of success
Circular 230 requires that a position have at least a realistic possibility of being sustained (roughly one-in-three) or, if disclosed, not be frivolous; a 15% chance fails both standards.
Question 6: A CTC learns that a colleague in the same firm is helping clients commit tax fraud. What is the CTC's ethical obligation?
- Ignore the conduct to preserve firm collegiality
- Take appropriate remedial action within the firm and, if necessary, refuse to participate or report through proper channels (Correct answer)
- Immediately report the colleague to the Department of Justice
- Warn clients away from the colleague without informing firm management
Correct answer: Take appropriate remedial action within the firm and, if necessary, refuse to participate or report through proper channels
Professional standards require the CTC to take internal remedial action, refuse participation in the fraud, and escalate appropriately — the response must be proportional and not condone the misconduct.
Question 7: Which of the following is an acceptable basis for a CTC to withdraw from a client engagement?
- The client refuses to follow the practitioner's advice to take an illegal deduction (Correct answer)
- The practitioner discovers the client has failed to pay the practitioner's invoice once
- The client asks the practitioner to provide a second opinion on another practitioner's work
- The client's tax situation becomes more complex than initially estimated
Correct answer: The client refuses to follow the practitioner's advice to take an illegal deduction
A practitioner may withdraw when a client insists on a course of action the practitioner considers illegal or unethical, as continued representation would violate professional standards.
CTC Ethical Standards & Professional Conduct 3
A CTC's long-time client asks the practitioner to notarize a document and falsely attest to facts the practitioner knows are untrue.
The correct response is to: