Ethics & Professional Responsibilities Flashcards
7 cards from real CTP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Ethics & Professional Responsibilities flashcards as text
Under Circular 230, a tax practitioner who discovers a client made an error on a prior year return must:
Answer: Promptly advise the client of the error and its consequences
Circular 230 §10.21 requires practitioners to promptly advise clients of errors or omissions and the consequences, but does not require the practitioner to file amendments.
Which of the following best describes 'due diligence' as required of a CTP when preparing a tax return?
Answer: Making reasonable inquiries when information appears incorrect or incomplete
Due diligence requires practitioners to make reasonable inquiries when information seems inconsistent or incomplete, not to audit clients but to ensure accuracy.
A CTP who signs a tax return as a paid preparer is subject to penalties under IRC §6694 if the return contains an understatement due to:
Answer: An unreasonable position taken without adequate disclosure
IRC §6694 imposes penalties on preparers who take unreasonable positions—those lacking substantial authority—without adequate disclosure on the return.
When a client insists on claiming a deduction the CTP believes has no legal basis, the CTP should:
Answer: Refuse to include it and explain the professional and legal reasons
A CTP must not include positions lacking legal basis; the correct action is to refuse and explain the ethical and legal grounds for that refusal.
The IRS Office of Professional Responsibility (OPR) has authority to sanction practitioners for all of the following EXCEPT:
Answer: Making honest mistakes on a return
OPR sanctions practitioners for willful or reckless conduct, not for honest mistakes made without negligence or bad intent.
A CTP who is also an Enrolled Agent receives a subpoena from a state court seeking client tax records. The practitioner should first:
Answer: Consult with an attorney and notify the client
Receiving a subpoena requires the practitioner to consult legal counsel and inform the client before taking any action on disclosing records.
Which action by a tax professional most clearly violates the conflict-of-interest rules under Circular 230?
Answer: Representing both spouses in an audit when their interests diverge
Representing both spouses when their interests conflict—such as during a joint return audit where fault may differ—is a direct conflict of interest under Circular 230 §10.29.