Ethical issues Related to Circular 230 Flashcards
(18 cards)
Test
- Tax advisors with firm-wide responsibilities for the firm’s practice of providing advice concerning federal tax issues should: a. advocate firm-wide practices that are consistent with best practices for tax advisors b. unilaterally determine what constitutes best practices for the firm c. review and sign off on all advice provided to clients by the members of the firm d. avoid direct contact with clients so he or she can apply an objective approach to evaluating firm practices used in advising clients
Answer: a. advocate firm-wide practices that are consistent with best practices for tax advisors Obviously, the best way to structure a firm providing tax advising services is to adopt the best practices for tax advisors. Application of these best practices is the way to promote relevant and consistent results.
Test
- When providing tax advice to a tax client, what should tax advisors do?
a. Give advice that is most likely to satisfy the client.
b. Be sure the advice is unique to the client being served and is not something the tax advisor has given to other clients.
c. Ensure they clearly understand the client’s issues so that the form and scope of their advice is sound.
d. Have at least one independent source who is not related to the client review the advice for relevance, reliability, and correctness.
Best practices for tax advisors include all of the following EXCEPT:
a. establishing facts
b. evaluating the reasonableness of any assumptions or representations
c. determining which facts are relevant
d. eliminating facts that are difficult to verify
Answer: d. eliminating facts that are difficult to verify
Because a particular fact is difficult to verify doesn’t mean it should be discounted. Such a practice would generate inaccurate as well as questionable results.
- In which of the following situations would a tax advisor be allowed to sign a client’s tax return?
a. A position taken in the return lacks a reasonable basis.
b. A position taken in the return is considered an unreasonable position.
c. A position taken in the return is based solely on the fact that the position has never been challenged in previous tax returns filed by the tax advisor.
d. A position taken in the return greatly benefits the client economically and the issue in question is in a section of the return that is rarely subject to review or analysis by the IRS.
Answer: c. A position taken in the return is based solely on the fact that the position has never been challenged in previous tax returns filed by the tax advisor.
If the tax advisor has applied the position in previous returns and he or she is not trying to avoid liability or to advocate an unreasonable position, then he or she would be justified in signing the return.
- Which of the following is prohibited in a practitioner’s written schedule of fees?
(Search Chapter 6)
a. fixed fees for specific routine services
b. average fees charged to the ten largest clients and the ten smallest clients
c. a range of fees for particular services
d. fees charged for an initial consultation
Answer: b. average fees charged to the ten largest clients and the ten smallest clients
A presentation of the average fees charged to the ten largest and ten smallest clients tends to be misleading because the average might not clearly indicate the specific fee a client could anticipate in his or her individual case.
- Pat is an enrolled agent and has decided to revise his fee structure. He has created new proposals for several of his current clients. Which of the following creative approaches is Pat prohibited from using for his clients?
(Search Chapter 6)
a. Pat charges 25 percent of the refund Peggy received for her Form 1040 return.
b. Pat charges 35 percent of the amount by which Rick’s underpayment penalties are reduced.
c. Pat charges a $200 bonus if Marietta’s audit case is closed by the IRS within 60 days.
d. Pat charges $1,000 for representing Jonathan at tax court, and $1,000 extra if the court finds in Jonathan’s favor.
Answer:
a. Pat charges 25 percent of the refund Peggy received for her Form 1040 return.
Although there are specific cases where a contingent fee approach may be used, Pat is not permitted to charge a contingent fee for an original tax return.
- Concerning an IRS matter, a tax advisor may use a public communication method that includes ______ information.
(Search Chapter 6)
a. deceptive
b. controversial
c. misleading
d. coercive
Answer:
b. controversial
A public communication by a tax advisor that includes controversial information regarding an IRS matter does not violate any rule or practice.
- A practitioner must, at the request of a client, promptly return any and all of the client’s records that
(Search Chapter 6)
a. are solely concerned with revenue issues of the client.
b. are related to the tax return unless a fee dispute has arisen during the engagement.
c. are copies made by the practitioner of the original documents.
d. are necessary for the client to comply with his or her federal tax obligation.
Answer:
d. are necessary for the client to comply with his or her federal tax obligation.
The records that are necessary for the client to comply with his or her federal tax obligation must be returned to the client upon request.
Test
- Best practices include all of the following EXCEPT: (Search Chapter 4)
a. communicating clearly with the client regarding terms of the engagement
b. establishing the facts
c. making every effort to generate a high refund for the client
d. acting with integrity before the IRS
My Answer:
C. making every effort to generate a high refund for the client
- A practitioner may not willfully sign a tax return that: (Search Chapter 5)
a. is beneficial to the client
b. results in a greater refund than the client anticipated
c. includes items that the client doesn’t fully understand
d. contains a position that lacks a reasonable basis
My Answer
d. contains a position that lacks a reasonable basis
Test
- A practitioner may advise a client to take a position on a document, affidavit, or other paper submitted to the IRS that: (Search Chapter 5)
a. is not frivolous
b. contains or omits information in a way that demonstrates an intentional disregard of a rule
c. purposefully delays federal tax laws from being administered
d. purposefully impedes federal tax laws from being administered
My Answer
a. is not frivolous
Test
4. Regarding a position on a tax return, what should a practitioner advise a client of?
(Search Chapter 5)
- a. the manner in which the position was determined
- b. any penalties that are likely to apply based on the position
- c. all alternatives considered in arriving at the position
- d. the portion of the fee related to developing the position
My answer:
b. any penalties that are likely to apply based on the position
TEST
5. A practitioner may not charge a fee in connection with any matter before the IRS that is:
(Search Chapter 6)
- a. unconscionable
- b. based on hours worked
- c. negotiated with the client
- d. different from fees charged by other practitioners for the same effort
My answer:
a. unconscionable
TEST
6. When a conflict of interest exists in relation to two clients, a practitioner may still represent the client to whom the conflict applies if
(Search Chapter 6)
- a. the clients are unaware of the existence of the conflict.
- b. the practitioner reasonably believes that he/she will be able to provide competent and diligent representation, the representation is not prohibited by law, and the clients waive the conflict.
- c. the practitioner is able to keep the clients and their interests separate from one another and he/she is competent.
- d. the practitioner assigns one of the clients to his/her subordinate and only reviews the final output of the engagement.
My answer:
b. the practitioner reasonably believes that he/she will be able to provide competent and diligent representation, the representation is not prohibited by law, and the clients waive the conflict.
7. Which of the following ad copies run by a tax practitioner would be acceptable under the current solicitation rules?
(Search Chapter 6)
- a. We find deductions where other practitioners never look.
- b. Our services will save you money, or we’ll pay the difference.
- c. We have never lost when representing a client before the IRS.
- d. Are you dissatisfied with your current tax professional? We may be the firm you’re looking for. Call us for a consultation.
My answer:
d. Are you dissatisfied with your current tax professional? We may be the firm you’re looking for. Call us for a consultation.
TEST
8. A practitioner’s per hour fee for an initial consultation
(Search Chapter 6)
- a. should always be set lower than fees for professional services so the client will believe the practitioner’s fees are reasonable.
- b. should be deducted from any professional service fees the client may incur as a result of engaging the practitioner.
- c. may be provided to potential clients in any written schedule of fees provided by the practitioner.
- d. should only be collected if the client does not engage the practitioner to perform professional tax services.
My answer:
c. may be provided to potential clients in any written schedule of fees provided by the practitioner.
TEST
9. Which of the following line items on a tax practitioner’s published fee schedule is not acceptable according to Circular 230?
(Search Chapter 6)
- a. Form 1040-EZ: $59
- b. Form 1040: Starting at $89
- c. initial consultation: first 30 minutes free, then $60 per hour
- d. none of the above
My answer: WRONG
b. a. Form 1040-EZ: $59
TEST
10. Which of the following is not considered a client record?
(Search Chapter 6)
- a. a schedule prepared by the practitioner that analyzes the client’s reportable income for the past two years
- b. a document provided to the practitioner by the client that serves as the basis for a significant position taken by the client in the current tax return
- c. a schedule of the client’s expenses incurred during the current tax year prepared by a consulting firm hired by the client
- d. the previous year’s tax return prepared by another practitioner
My answer:
a. a schedule prepared by the practitioner that analyzes the client’s reportable income for the past two years
