CTRS Ethical and Professional Responsibilities 2 — Questions and Answers
Question 1: A CTRS practitioner discovers that a client provided falsified documents during the tax resolution process. What is the practitioner's primary obligation?
- Continue representation without disclosing the fraud
- Withdraw from representation and notify the IRS immediately
- Withdraw from representation and, if required by law, take steps to avoid furthering the fraud (Correct answer)
- Submit the falsified documents and let the IRS discover the issue
Correct answer: Withdraw from representation and, if required by law, take steps to avoid furthering the fraud
A practitioner must withdraw from representation when a client commits fraud, and must take legally required steps to avoid furthering the fraudulent conduct.
Question 2: Under Circular 230, which of the following constitutes 'disreputable conduct' that could result in sanctions?
- Filing an extension request on behalf of a client
- Willfully failing to e-file returns when required (Correct answer)
- Charging a contingency fee for an audit reconsideration
- Requesting a Collection Due Process hearing
Correct answer: Willfully failing to e-file returns when required
Willfully failing to e-file returns when required by the IRS constitutes disreputable conduct under Circular 230.
Question 3: A client asks their CTRS practitioner to prepare a tax return that claims a deduction the practitioner believes has no legal basis. The practitioner should:
- Prepare the return as requested since the client bears responsibility
- Refuse to prepare the return and terminate the engagement
- Only prepare the return if there is at least a reasonable basis for the position (Correct answer)
- Prepare the return but add a disclaimer to avoid liability
Correct answer: Only prepare the return if there is at least a reasonable basis for the position
Under Circular 230, a practitioner may only prepare a return with a tax position if there is at least a reasonable basis for that position.
Question 4: Which duty does a CTRS practitioner owe to future clients when accepting a new engagement?
- Duty to disclose all prior clients' information
- Duty to check for conflicts of interest before accepting the engagement (Correct answer)
- Duty to guarantee a favorable outcome
- Duty to inform the IRS of the new representation immediately
Correct answer: Duty to check for conflicts of interest before accepting the engagement
Before accepting a new engagement, a practitioner must perform a conflicts-of-interest check to ensure no adverse representation issues exist.
Question 5: A CTRS practitioner is representing a taxpayer in an Offer in Compromise. The taxpayer asks the practitioner to omit some assets from the OIC application. The practitioner should:
- Omit the assets if the taxpayer insists and signs the application
- Refuse to omit assets and explain that accurate disclosure is required (Correct answer)
- Submit the OIC without those assets since the IRS can find them independently
- Report the client to TIGTA for attempting to defraud the IRS
Correct answer: Refuse to omit assets and explain that accurate disclosure is required
Practitioners must ensure OIC applications are accurate and complete; omitting assets constitutes fraud and violates Circular 230.
Question 6: What is the maximum period a non-attorney CTRS practitioner is generally required to retain client records after the conclusion of a matter?
- 1 year
- 2 years
- 3 years (Correct answer)
- 5 years
Correct answer: 3 years
Circular 230 generally requires practitioners to retain records related to their practice for a period of three years.
Question 7: A CTRS practitioner receives a subpoena for a client's tax records held in the practitioner's file. The practitioner should first:
- Immediately comply with the subpoena and send all records
- Notify the client and seek legal guidance before producing records (Correct answer)
- Destroy the records to protect client confidentiality
- Contact the IRS Office of Professional Responsibility
Correct answer: Notify the client and seek legal guidance before producing records
Upon receiving a subpoena, the practitioner should notify the client and seek legal guidance to determine what may be protected by privilege before complying.
CTRS Ethical and Professional Responsibilities 2
A CTRS practitioner discovers that a client provided falsified documents during the tax resolution process.
What is the practitioner's primary obligation?