Area I: Ethics & Tax Procedures

A CPA is representing a client in an IRS examination regarding a complex tax shelter transaction. The CPA discovers that the client had omitted a significant amount of income related to the transaction on the filed return. Under Treasury Department Circular No. 230, which of the following actions must the CPA take?

A tax return preparer is facing a penalty for an understatement of tax liability on a client's return. The understatement resulted from a position that did not have substantial authority but had a reasonable basis. The position was NOT disclosed on the return. Which of the following statements is correct regarding the preparer's liability under IRC §6694?

Taxpayer L received a Statutory Notice of Deficiency (90-day letter) from the IRS regarding a tax dispute of $75,000. L wishes to contest the liability in court but does not have the funds to pay the tax in advance. Which court must L petition?

A CPA is sued for common law negligence by a third party who relied on the CPA's audit report. The jurisdiction follows the 'Ultramares' doctrine. Under this doctrine, the CPA will generally be liable to the third party only if:

Which of the following communications between a CPA and a client would generally be protected by the federally authorized tax practitioner privilege under IRC §7525?

A taxpayer filed their Year 1 tax return on March 15, Year 2. The return reported gross income of $100,000 and tax liability of $20,000. The taxpayer inadvertently omitted $26,000 of gross income from the return. The IRS wishes to assess additional tax. What is the latest date the IRS can assess additional tax for Year 1?

Under the Uniform Accountancy Act (UAA), which of the following is a ground for a State Board of Accountancy to revoke a CPA's license?

Which of the following acts by a CPA would most likely result in the assessment of a penalty for 'willful or reckless conduct' under IRC §6694(b)?

Which of the following is a primary authority for tax purposes?

Under Circular 230, a practitioner may charge a contingent fee in which of the following situations?

A CPA is preparing an original tax return for a client who is claiming a refund based on a position that has a reasonable basis but does not meet the substantial authority standard. Under Treasury Department Circular No. 230, which of the following actions must the CPA take to avoid a violation?

A practitioner is representing a taxpayer in an IRS examination. The taxpayer has a 25% ownership interest in a partnership that is also being audited. The practitioner determines that representing both the taxpayer and the partnership would create a conflict of interest. Under Circular 230, the practitioner may continue to represent both parties only if:

A tax return preparer willfully attempts to understate the tax liability on a client's return by intentionally omitting income shown on a Form 1099-MISC. The preparer did not disclose this position. Which of the following penalties is the IRS most likely to assess against the preparer?

Which of the following scenarios would most likely result in the assessment of a penalty for failure to sign a tax return under IRC §6695?

Regarding the disciplinary authority of State Boards of Accountancy, which of the following statements is correct?

A taxpayer filed their Year 1 tax return on March 15, Year 2. The return omitted $6,000 of gross income. The total gross income reported on the return was $20,000. Assuming no fraud was involved, what is the latest date the IRS can assess additional tax?

A taxpayer disagrees with a proposed deficiency from the IRS and wishes to litigate the matter. The taxpayer wants to have a jury trial. Which court must the taxpayer petition?

A CPA is sued for negligence by a third party who relied on the CPA's audited financial statements. The jurisdiction follows the 'Ultramares' doctrine. Under this doctrine, the CPA will generally be liable to the third party only if:

Which of the following authorities carries the highest weight in the federal tax hierarchy?

A taxpayer failed to file their tax return by the due date (including extensions). The tax due was $10,000. The return was filed 40 days late. The taxpayer had no reasonable cause. What is the total failure-to-file and failure-to-pay penalty assessed?

Which of the following acts generally requires the filing of a Currency Transaction Report (CTR) by a financial institution?

A CPA is representing a client in an IRS examination. The client has requested that the CPA not provide certain documents to the Revenue Agent, claiming they are irrelevant. The CPA determines that the documents are indeed relevant and not privileged. Under Circular 230, which of the following is the CPA's required course of action?

A tax return preparer is engaged to prepare a tax return for a client who has a significant deduction that is not supported by substantial authority. The preparer determines there is a reasonable basis for the position. To avoid the penalty for an understatement of taxpayer liability due to an unreasonable position under IRC §6694, which of the following actions must the preparer take?

Regarding the burden of proof in a civil tax proceeding, which of the following statements is correct regarding the shift of the burden of proof to the IRS under IRC §7491?

A taxpayer filed their Year 1 individual income tax return on April 1, Year 2. The return reported gross income of $100,000 and tax liability of $20,000. The taxpayer inadvertently omitted $26,000 of gross income from the return. No fraud was involved. What is the latest date the IRS can assess additional tax for Year 1?

Under the Ultramares doctrine regarding a CPA's liability for negligence to third parties, which of the following parties would most likely be able to recover damages from a CPA who negligently prepared a financial statement?

Which of the following communications between a CPA and a client would generally be protected by the tax practitioner privilege under IRC §7525?

A taxpayer owes the IRS $50,000 in unpaid taxes. The taxpayer files a petition with the U.S. Tax Court to challenge the deficiency. Which of the following statements regarding the U.S. Tax Court is correct?

Under the Uniform Accountancy Act, which of the following is generally a requirement for a CPA to practice across state lines (mobility) without obtaining a new license?

Which of the following is a 'primary authority' for tax research purposes?

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?

A tax return preparer is engaged to prepare a return for a client who has engaged in a transaction that lacks economic substance but generates a substantial tax loss. The preparer determines there is no 'substantial authority' for the position, but there is a 'reasonable basis' for it. The client refuses to disclose the position on Form 8275. If the preparer signs the return, which penalty is the preparer MOST likely subject to?

Which of the following statements accurately describes the disciplinary authority of a State Board of Accountancy compared to the AICPA?

A taxpayer filed their Year 1 individual income tax return on March 15, Year 2. The return showed a gross income of $100,000. The taxpayer inadvertently omitted $26,000 of gross income from the return. No fraud was involved. What is the latest date the IRS can assess additional tax for Year 1?

A taxpayer disagrees with a proposed IRS deficiency and wishes to litigate the matter. The taxpayer wants to have a jury trial. Which court MUST the taxpayer petition?

A taxpayer owes $50,000 in taxes for Year 1. The return was filed on time, but the tax was not paid until 3 months after the due date. No extension was filed. Assuming no fraud and no reasonable cause, what is the total failure-to-pay penalty?

In the hierarchy of tax authority, which of the following carries the GREATEST authoritative weight?

A CPA firm negligently prepared a financial statement for a client. The firm knew the client intended to use the statement to obtain a loan from Bank A. However, the client actually used the statement to obtain a loan from Bank B. Bank B relied on the statement and suffered a loss. In a jurisdiction that follows the 'Ultramares' doctrine, is the CPA firm liable to Bank B?

In which of the following situations does the tax practitioner privilege under IRC §7525 apply?

Which of the following is a 'primary' source of tax authority?

Under Circular 230, which of the following fees is generally PROHIBITED for a tax practitioner preparing an original tax return?