Tax Consulting Tax Ethics and Professional Standards

Question 1

Circular 230 governs the practice of whom before the Internal Revenue Service?

Accepted Answer

Attorneys, CPAs, enrolled agents, and other tax professionals authorized to practice before the IRS

Answer

Circular 230 establishes ethical and professional standards for all practitioners authorized to represent taxpayers before the IRS, including attorneys, CPAs, enrolled agents, and enrolled retirement plan agents.

Question 2

Under Circular 230, a practitioner must NOT do which of the following?

Accepted Answer

Willfully assist in the preparation of a return with a position lacking a reasonable basis

Answer

Circular 230 prohibits practitioners from willfully preparing or signing returns with positions that lack a reasonable basis, as this facilitates improper tax reporting.

Question 3

What is the 'reasonable basis' standard for a tax position under IRC Section 6662?

Accepted Answer

A roughly 5-10% chance of being sustained if challenged

Answer

A 'reasonable basis' standard is a relatively low bar—approximately a 5-10% chance of being upheld if challenged—sufficient to avoid the negligence penalty but not the substantial understatement penalty.

Question 4

Enrolled Agents (EAs) are authorized to practice before the IRS by:

Accepted Answer

Passing the Special Enrollment Examination or having former IRS employment

Answer

Enrolled Agents earn their status by passing the IRS's Special Enrollment Examination (SEE) covering individual, business, and representation topics, or by virtue of certain prior IRS employment.

Question 5

Under the AICPA Code of Professional Conduct, what is the primary obligation when a CPA discovers a prior year error in a client's tax return?

Accepted Answer

Inform the client of the error and its implications, and recommend corrective action

Answer

CPAs must promptly inform their client of the error and its potential consequences, recommend remedial action (such as filing an amended return), but cannot unilaterally disclose to the IRS without client consent.

Tax Consulting Practice Test

Tax Consulting Practice Test

Tax Consulting Tax Ethics and Professional Standards