CTP Ethics & Professional Responsibilities 4

Question 1

A CTP who becomes aware that a client is using their tax advice to facilitate tax fraud should:

Accepted Answer

Withdraw from the representation promptly

Answer

When a practitioner learns their services are being used to further fraud, Circular 230 and professional ethics require withdrawal from the representation.

Question 2

Which of the following describes the 'substantial authority' standard under IRC §6662?

Accepted Answer

The weight of authorities in support exceeds the weight against, at approximately a 40% or more chance of success

Answer

Substantial authority exists when the weight of authorities supporting the position is substantial—often described as roughly a 40% or better chance of being sustained—even if not a majority.

Question 3

A CTP signs a return that understates tax due to a client's intentional omission of income the client told the practitioner was 'not important.' The practitioner is most likely to face penalties because they:

Accepted Answer

Ignored a red flag that should have prompted further inquiry

Answer

When clients make statements that raise red flags—like dismissing income sources—due diligence requires the practitioner to make further inquiries before signing.

Question 4

An Enrolled Agent (EA) whose IRS enrollment has been suspended may still lawfully:

Accepted Answer

Prepare tax returns for compensation

Answer

A suspended EA loses the right to practice before the IRS but may still prepare tax returns for compensation, as return preparation does not require Circular 230 authorization.

Question 5

A CTP is asked to provide a 'covered opinion' on a tax shelter. Under Circular 230, a covered opinion must:

Accepted Answer

Identify and address all significant Federal tax issues

Answer

Circular 230 §10.35 requires covered opinions to identify and analyze all significant Federal tax issues presented, ensuring comprehensive disclosure rather than selective analysis.

(CTP) Certified Tax Professional Practice Test

(CTP) Certified Tax Professional Practice Test

CTP Ethics & Professional Responsibilities 4