CPA · Question 01 · Area I: Ethics & Tax Procedures
A CPA is representing a client, TechSolutions Inc., in an IRS examination regarding a large research and development credit claim. The CPA discovers that the client's CFO has omitted material facts in the documentation provided to the IRS, which significantly overstates the credit. The CFO refuses to correct the omission. Under Treasury Department Circular No. 230, which of the following is the CPA's REQUIRED course of action?
Answer options:
Immediately withdraw from the engagement and notify the IRS of the withdrawal and the specific reason for it.
Advise the client of the noncompliance and the consequences of such noncompliance.
Notify the IRS of the error immediately to avoid preparer penalties under IRC §6694.
Continue the representation but sign the tax return with a disclaimer regarding the R&D credit.
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