Ethical Standards & Professional Conduct Flashcards

Under IRC §6694, a return preparer faces a penalty for an 'unreasonable position' unless the preparer:

Answer: Had reasonable cause and acted in good faith, or the position met the applicable standard and was adequately disclosed

IRC §6694 penalties do not apply if the preparer had reasonable cause and good faith, or if the position met the applicable standard (substantial authority or reasonable basis with disclosure).

A tax practitioner who promotes an abusive tax shelter may face which penalty under the Internal Revenue Code?

Answer: A civil penalty under IRC §6700 for promoting abusive tax shelters

IRC §6700 imposes civil penalties on persons who organize or sell abusive tax shelters, separate from any Circular 230 sanctions.

When a new client presents documents showing a very large charitable deduction, the practitioner notices the documentation appears inconsistent. Under professional standards, the practitioner should:

Answer: Ask probing questions to resolve the inconsistency before claiming the deduction

Practitioners must make reasonable inquiries when information appears inconsistent, per Circular 230 §10.22 due diligence requirements.

A practitioner who wishes to represent a client before the IRS but is not a CPA, attorney, or enrolled agent may do so by:

Answer: Qualifying as an enrolled retirement plan agent or enrolled actuary for limited matters, or passing the SEE to become an enrolled agent

To gain full practice rights before the IRS, a non-CPA/non-attorney must pass the Special Enrollment Examination (SEE) to become an enrolled agent.

The 'more likely than not' standard for tax return positions means:

Answer: The position has greater than a 50% likelihood of being sustained on the merits

The 'more likely than not' standard requires that the position has a greater than 50% probability of being sustained if challenged.

A practitioner who receives a client referral from another professional and pays that professional a referral fee must:

Answer: Ensure the fee arrangement complies with applicable state law and professional rules, as Circular 230 does not specifically regulate referral fees

Circular 230 does not specifically address referral fees; practitioners must comply with applicable state professional rules and tax reporting requirements.

A tax professional who prepares a return knowing that it includes a fraudulent deduction may be subject to:

Answer: Criminal prosecution under IRC §7206 for aiding and assisting in the preparation of a false return

IRC §7206(2) makes it a felony to willfully aid or assist in the preparation of a false or fraudulent return, with penalties up to 3 years imprisonment.