CTP Ethics & Professional Responsibilities 3

Question 1

Circular 230 prohibits practitioners from charging 'unconscionable fees.' Which factor is LEAST relevant in determining whether a fee is unconscionable?

Accepted Answer

The result obtained for the client

Answer

Circular 230 focuses on the nature of the work and effort involved; while results may be a consideration, a contingent fee based purely on outcome is separately restricted.

Question 2

A client asks their CTP to use an aggressive valuation for donated property that the CTP believes is inflated. Under Circular 230, the CTP may:

Accepted Answer

Use the valuation only if there is a reasonable basis for it

Answer

Practitioners may take a position only if there is a reasonable basis for it; a client-provided appraisal alone does not override the practitioner's duty of due diligence.

Question 3

Which of the following is a permissible contingent fee arrangement for a CTP under Circular 230?

Accepted Answer

A fee contingent on the size of a refund generated through an amended return for an IRS examination

Answer

Circular 230 §10.27 permits contingent fees in connection with IRS examinations or proceedings, including amended returns filed in response to such examinations.

Question 4

A CTP who solicits a former client's business six months after the representation ended:

Accepted Answer

May solicit if the contact is not false, misleading, or coercive

Answer

Circular 230 §10.30 permits solicitation of former clients as long as it is truthful, not misleading, and not coercive—there is no mandatory waiting period.

Question 5

If a CTP learns that a client has failed to file tax returns for three prior years, the practitioner's primary obligation is to:

Accepted Answer

Advise the client to file the delinquent returns and explain the consequences of not doing so

Answer

Under Circular 230 §10.21, the practitioner must promptly advise the client of the noncompliance and its consequences; they cannot unilaterally report the client to the IRS.

(CTP) Certified Tax Professional Practice Test

(CTP) Certified Tax Professional Practice Test

CTP Ethics & Professional Responsibilities 3