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1. Tax compliance is the process of:
a. filing necessary tax returns
b. gathering the financial information necessary to report taxable income
c. representing a taxpayer at an IRS audit
d. all of the above
2. Tax evasion is:
a. a fraudulent act involving illegal nonpayment of taxes
b. one of the objectives of tax planning
c. an act of deferring tax payments to future periods
d. the same as tax avoidance as both of them result in nonpayment of taxes
3. Tax litigation is a process of:
a. participating in an administrative audit
b. settling tax-related disputes in a court of law
c. filing amended tax returns as prescribed by tax laws
d. arranging a taxpayer’s affairs to minimize tax liabilities
4. Regarding open transactions, which of the following statements is INCORRECT?
a. the transaction is not yet completed
b. the practitioner can suggest changes to achieve a better tax result
c. a tax practitioner has some degree of control over the client’s tax liability
d. the practitioner can fix the problem by amending the client’s tax return
5. Which of the following statements best describes Circular 230?
a. Circular 230 has been adopted by the AICPA as its set of rules of practice for CPAs.
b. Circular 230 is a set of Treasury Department ethical and legal standards for those engaging in practice before
the IRS.
c. Circular 230 is a set of internal rules at the IRS designed to protect tax practitioners from unfair discipline by
the IRS.
d. Circular 230 is a set of ethical rules for taxpayers.
6. Who can represent a taxpayer before the IRS Appeals Office under Circular 230?
a. A CPA
b. An officer of a corporation may represent the corporation
c. An attorney
d. All of the above
e. Only a and c
7. In a closed transaction, the scope of tax planning is:
a. more limited as compared to an open transaction
b. limited by the IRS rules of practice
c. limited to presenting the taxpayer’s facts to the government in the most favorable, legal manner
d. Only a and c
8. Circular 230 includes rules on all of the following topics EXCEPT:
a. who is authorized to practice before the IRS
b. standards for “covered opinions”
c. compliance with state ethical requirements
d. a set of best practices to guide practitioners
9. Standards for Tax Services (SSTS) contain advisory guidelines for:
a. CPAs
b. enrolled agents
c. attorneys
d. IRS authorities
e. All of the above
10. An EA must renew his or her enrollment card on a:
a. 5-year cycle
b. 3-year cycle
c. 2-year cycle
d. Renewal is not required once an EA gets a card
11. An unenrolled tax return preparer can make an appearance as the taxpayer’s representative only before the:
a. Examination Division of the IRS
b. Appeals and Collection Division of the IRS
c. SB/SE Division of the IRS
d. Criminal Investigation Division of the IRS
12. Due diligence, in essence, means a tax practitioner:
a. must be efficient in performing his duties
b. must give due respect to IRS officials
c. should use reasonable effort to comply with the tax laws
d. should charge reasonable fees for work performed for a client
13. A contingent fee is:
a. always allowed by Circular 230
b. a fee that is out of line with the value of the service provided
c. a fee based on a percentage of a taxpayer’s refund on a tax return
d. all of the above
14. According to Circular 230, the “best practices” rules are:
a. mandatory for all tax practitioners
b. restricted only to attorneys and CPAs
c. aspirational, to act as goals for tax practitioners
d. enforced by disbarment from practice before the IRS
15. According to Rule 101 of the AICPA Rules of Professional Conduct, a CPA in public practice must:
a. comply with Circular 230
b. disclose any conflict of interest with another client
c. keep client information confidential
d. be independent of his or her clients
16. Under AICPA Rule 502, which of the following actions would constitute deceptive advertising?
a. advertising too frequently
b. implying that the CPA had the ability to influence an IRS official
c. promising a favorable result without justification
d. Only b and c
17. Under Statements on Standards for Tax Services No. 3, (SSTS No. 3) a CPA preparing a tax return should perform
all of the actions EXCEPT:
a. independently confirm the accuracy of the taxpayer’s information
b. obtain additional information if the taxpayer’s information appears to be incorrect or incomplete
c. review the prior year’s return when feasible
d. determine when conditions for a deduction have been met
18. Which of the following is CORRECT about a CPA’s responsibility with regard to tax return positions under
Statements on Standards for Tax Services No. 1 (SSTS No. 1):
a. A CPA may not base his or her position on authority that is not approved by the IRS under Section 6662
(accuracy-related penalty).
b. A CPA may sign a return which has a tax position that has a realistic possibility of being sustained on the
merits.
c. A CPA may not sign a return which has any tax position that is not fully disclosed.
d. All of the above statements are correct.
19. The Statements on Standards for Tax Services (SSTS) are issued by:
a. the Internal Revenue Service
b. the FASB
c. the AICPA
d. the American Bar Association
e. the AICPA and the American Bar Association jointly
20. The Statements on Standards for Tax Services are:
a. part of the ABA Code of Professional Responsibility
b. intended to replace Circular 230
c. intended to supplement the AICPA Code of Professional Conduct and Circular 230
d. none of the above
21. Which of the following statements best explains the need for tax practitioners to understand nonregulatory ethical
models of behavior?
a. Competing ethical solutions must be resolved by the courts.
b. There is more to ethical behavior than just following the rules of professional organizations.
c. Practitioners must always choose the action with the greatest benefit for their client.
d. Ethical choices are clearly spelled out by IRS regulations.
22. The primary change made by the Sarbanes-Oxley Act which affects the practice of public accounting is:
a. Public accounting firms may no longer provide any actuarial services.
b. Accounting firms may no longer offer tax shelters.
c. Auditors may never do tax compliance work for their clients.
d. Public accounting firms may provide some nonaudit services to their audit clients if the services are approved
in advance by an audit committee.
23. The Lowell Bar Association v. Loeb case addressed the issue of:
a. unauthorized practice of law by nonattorneys engaged in tax practice
b. legal research by taxpayers
c. attorneys and CPAs working together in a practice
d. all of the above
24. In which of the following situations would a CPA be engaged in the unauthorized practice of law?
a. The CPA drafts a contract for his small business client.
b. The CPA files a client’s state tax return.
c. The CPA answers estate tax questions for his client.
d. The CPA represents his client before the IRS.
25. Which of the following statements is CORRECT regarding unauthorized practice of law?
a. Taxpayers may draft not their own contracts.
b. Taxpayers may not represent themselves in Tax Court.
c. A CPA cannot express a legal opinion on a non-tax matter.
d. A CPA cannot express a legal opinion on a tax matter.
26. Tax avoidance and tax evasion are both illegal.
a. True
b. False
27. Tax research is only required for tax planning, not preparing returns.
a. True
b. False
28. Tax planning has a more likelihood of success when a tax practitioner is dealing with an open transaction instead of a
closed transaction.
a. True
b. False
29. Paid tax return preparers must register with the IRS and obtain a PTIN.
a. True
b. False
30. Enrolled actuaries are allowed to practice before the IRS.
a. True
b. False
31. Under Circular 230, “covered opinions” include oral advice on tax avoidance transactions.
a. True
b. False
32. Circular 230 bans tax practitioners from giving written advice on a Federal tax issue based on the likelihood of an
audit.
a. True
b. False
33. CPAs may never disclose confidential taxpayer information under the AICPA rules.
a. True
b. False
34. A member of the AICPA is not allowed to prepare tax returns that involve the use of the taxpayer’s estimates.
a. True
b. False
35. State Boards of Accountancy are the organizations with responsibility to license public accountants in each state.
a. True
b. False
36. The Sarbanes-Oxley Act addresses issues of corporate governance as well as the independence of auditors.
a. True
b. False
37. The ABA Model Code of Professional Responsibility has the force of law and covers all attorneys practicing in the
United States.
a. True
b. False
38. An attorney, CPA, or enrolled agent may use advertising to obtain clients under Circular 230.
a. True
b. False
39. If a CPA becomes aware of an error in a tax return, he or she must immediately notify the IRS.
a. True
b. False
40. A CPA can rely without verification on information given to the CPA by a taxpayer unless the information appears
to be incorrect.
a. True
b. False
41. An ethical dilemma occurs when someone is faced with a situation for which there are no clearly defined answers.
a. True
b. False
42. The three categories of modern tax practice include tax planning, tax compliance, and tax research.
a. True
b. False
43. To become an enrolled agent, a person must either pass a special IRS examination or must work for the IRS for at
least five years.
a. True
b. False
44. Drafting wills is a part of a CPA’s professional duties.
a. True
b. False
45. Tax practice can be defined as the application of the tax laws to specific accounting situations.
a. True
b. False
46. Who may represent a taxpayer before the IRS in cases which go beyond the examination of the return?
47. Taxation and tax practice are comprised of the interaction of several disciplines. What are those disciplines? Briefly
discuss their impact on the tax system.
48. What standard must tax practitioners meet under Section 6694 (preparer penalties) of the Internal Revenue Code
with respect to undisclosed positions taken on tax returns?
49. Does the IRS regulate unenrolled tax preparers? Explain your answer.
50. Explain the AICPA guidelines under SSTS No. 3 for relying without verification on taxpayer or third party
information when preparing a tax return.
51. What should an AICPA member do upon learning about an error in a prior year’s tax return?
52. Explain which types of services a CPA can and cannot provide to avoid engaging in the unauthorized practice of
law.
53. Explain the concept of “limited practice without enrollment” under Circular 230 and list several of the special
situations in which the IRS allows this type of representation.
54. Explain the standards for professional services that involve tax return positions under SSTS No.1. What is the level
of authority for disclosed or undisclosed positions and what types of authority can be relied upon?
