CTP Ethics & Professional Responsibilities 2

Question 1

Under Circular 230, a tax practitioner who discovers a client made an error on a prior year return must:

Accepted Answer

Promptly advise the client of the error and its consequences

Answer

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.

Question 2

Which of the following best describes 'due diligence' as required of a CTP when preparing a tax return?

Accepted Answer

Making reasonable inquiries when information appears incorrect or incomplete

Answer

Due diligence requires practitioners to make reasonable inquiries when information seems inconsistent or incomplete, not to audit clients but to ensure accuracy.

Question 3

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:

Accepted Answer

An unreasonable position taken without adequate disclosure

Answer

IRC §6694 imposes penalties on preparers who take unreasonable positions—those lacking substantial authority—without adequate disclosure on the return.

Question 4

When a client insists on claiming a deduction the CTP believes has no legal basis, the CTP should:

Accepted Answer

Refuse to include it and explain the professional and legal reasons

Answer

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.

Question 5

The IRS Office of Professional Responsibility (OPR) has authority to sanction practitioners for all of the following EXCEPT:

Accepted Answer

Making honest mistakes on a return

Answer

OPR sanctions practitioners for willful or reckless conduct, not for honest mistakes made without negligence or bad intent.

(CTP) Certified Tax Professional Practice Test

(CTP) Certified Tax Professional Practice Test

CTP Ethics & Professional Responsibilities 2