REG - Ethics and Responsibilities in Tax Practice

Question 1

Circular 230

Answer 1

Circular 230 contains the IRS’s rules of practice governing CPAs and those who practice before the agency

Practicing entails primarily preparing and filing documents, and communicating/meeting w/IRS representatives on behalf of taxpayers

Question 2

Who may practice before the IRS?

Answer 2

• Attorneys
• CPAs
• Enrolled agents
• Enrolled actuaries -> their practice is generally limited to issues related to qualified retirement plans
• Enrolled retirement plan agents -> their practice is limited to issues related to employee plans and to IRS forms

*None of these individuals must be under suspension or disbarment

Question 3

Furnishing information

Answer 3

A practitioner must promptly submit to the IRS any records or information that its agents/officers properly and lawfully

Exception: the practitioner doesn’t have to do the above if he/she believes in good faith and on reasonable grounds that the records or info are privileged

Question 4

Client’s omission

Answer 4

If your client has not complied w/the laws made or made an error/omission on tax form -> you must promptly notify the client of the error and consequences. However, you do not need to notify the IRS and to do so, you would need client’s permission

Question 5

a CPA who prepares a federal income tax return for a fee must…

Answer 5

keep a completed copy of the return for a minimum of 3 years

Question 6

A practitioner may not retain a client’s record for a nonpayment of fees

Question 7

IRS imposes penalty upon income tax return preparers (TRPs) for…

Answer 7

• failing, w/out reasonable cause, to provide the client w/a copy of an income tax return
• failing, w/out reasonable cause, to sign a client’s tax return as a preparer
• Negotiating a client’s tax refund check when the CPA prepared the tax return

Note, understating a client’s liability due to an error in calculation will not result in a CPA incurring an IRS penalty

Question 8

in preparing a tax return a CPA may in good faith…

Answer 8

rely upon information furnished by the client or third parties without further verification

Question 9

Elements of a Breach of Contract Lawsuit

Answer 9

1. Existence of an enforceable contract;
2. Plaintiff client complied w/contractual obligations
3. Defendant accountant breached the contract; and
4. Damages were caused by the breach

Question 10

Examples of breach:

Answer 10

• Accountant failed to complete the tax return as promised
• Accountant filed the tax return late
• Accountant filed the tax return filled w/errors
• Accountant gave faulty tax planning advice to client

Question 11

preponderance of evidence

Answer 11

plaintiff need only establish that the alleged facts are more likely true (>50%) than not true

Question 12

To win a negligence case, a plaintiff must prove the following 4 elements by a preponderance of the evidence

Answer 12

1. Defendant accountant owed a duty of care to the client plaintiff
2. Defendant breached the standard of care
3. The breach proximately causes an injury -> proximate cause has 2 parts
   
   1. “but for” causation -> courts can say that “but for” the accountant’s breach of the duty of due care, the loss wouldn’t have occurred
   2. legal “proximate” causation -> the injury was a reasonably foreseeable result of the breach
4. Plaintiff client suffers damages

Question 13

scienter

Answer 13

legal term for intent or knowledge of wrongdoing

Question 14

the AICPA can’t revoke the right to prepare a tax return