(Test Bank) Federal Tax Research

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Federal Tax Research (12th Edition ) Roby Sawyers, Steven Gill Study Guide 2021 Federal Tax Research, 11th Edition Page 1-1 CHAPTER 1 AN INTRODUCTION TO TAX PRACTICE AND ETHICS DISCUSSION QUESTIONS 1-1. In the United States, the tax system is an outgrowth of the following five disciplines: law, accounting, economics, politic al science, and sociology. The environment for th e tax system is provided by the principles of economics, sociology, and political science, while the legal and accounting fields are responsible for the system's interpretation and applicati on. Each of these disciplines affects this country's tax system in a unique way. Economists address such issues as how proposed tax legislation will affect the rate of inflation or economic growth. Measurement of the social equity of a tax, and determin ing whether a tax system discriminates against certain taxpay ers, are issues that are examined by sociologists and political scien tists. Finally, attorneys are responsible for the inter pretation of the taxation statutes, and accountants ensure that these same statutes are applied consistently. Page 4 1-2. The oth er major categories of tax practice in addition to tax research are:  tax compliance  tax planning  tax litigation Page 5 1-3. Tax compliance consists of gathering pertinent informa tion, evaluating and classifying that information, and filing any necess ary tax returns. Compliance also includes other functions necessary to satisfy governme ntal require ments, such as representing a client during an IRS audit. Page 5 1-4. Most of the tax compliance work is performed by commercial tax preparers, enrolle d agents, attorneys, and CPAs. Noncomplex individual, partnership, and corporate tax returns often are completed by commercial tax preparers. The preparation of more complex returns usually is performed by enrolled agents, attorneys, and CPAs. The latter g roups also provide tax planning services and represent their clients before the IRS. An enrolled agent is one who is admitted to practice before the IRS by passing a special IRS - administered examination, or who has worked for the IRS for five years, and i s issued a permit to represent clients before the IRS. CPAs and attorneys are not required to take this examination and are automatically admitted to practice before the IRS if they are in good standing with the appropriate professional licensing board. Page 5 and Circular 230 Page 1 -2 SOLUTIONS MANUAL 1-5. Tax planning is the process of arranging one's finan cial affairs to minimize any tax liability. Much of modern tax practice centers around this process, and the resulting outcome is tax avoidance. There is nothing illega l or immoral in the avoidance of taxa tion, as long as the taxpayer remains within legal bounds. In contrast, tax evasion constitu tes the illegal nonpayment of a tax and cannot be condoned . Activities of this sort clearly violate existing legal constraint s and fall outside of the domain of the professional tax practi tioner. Page 6 1-6. In an open tax planning situation, the transaction is not yet complete , therefore, the tax practitioner maintains some degree of control over the potential tax liability , and the transaction may be modi - fied to achieve a more favorable tax treatment. In a closed transaction however, all of the pertinent actions have been completed, and tax planning activities may be limited to the presentation of the situation to the gove rnment in the most legally advantageous manner possible. Page 6 1-7. Tax litigation is the process of settling a dispute with the IRS in a court of law. Typically, a tax attorney handles tax litigation that progresses beyond the final IRS appeal. Page 6 1-8. CPAs serve is a support capacity in tax litigation. Page 6 1-9. Tax research consists of the resolution of unanswered taxation questions. The tax research process includes the following: 1. Identification of pertinent issues; 2. Specification of pr oper authorities; 3. Evaluation of the propriety of authorities; and, 4. Application of authorities to a specific situation. Page 6 1-10. Circular 230 is issued by the Treasury Department and applies to all who practice before the IRS. Page 7 1-11. In additi on to Circular 230, CPAs must follow the AICPA's Code of Professional Conduct and Statements on Standards for Tax Services. CPAs must also abide by the rules of the appropriate state board(s) of accountancy. Page 7 1-12. A return preparer must obtain 18 hours of continuing education from an IRS -approved CE Provider. The hours must include a 6 credit hour Annual Federal Tax Refresher course (AFTR) that covers filing season issues and tax law updates. The AFTR course must include a knowledge - based compre hension test administered at the conclusion of the course by the CE Provider. Limited practice rights allow individuals to represent clients whose returns they prepared and signed, but only before revenue agents, customer service representatives, and si milar IRS employees. Federal Tax Research, 11th Edition Page 1-3 Page 10 and IRS.gov 1-13. False. Only communication with the IRS concerning a taxpayer 's rights, privileges, or liability is included. Practice before the IRS does not include representation before the Tax Court. Page 7 1-14. Section 10.2 of Subpart A of Circular 230 defines practice before the IRS as including : matters connected with presentation to the Internal Revenue Service or any of its officers or employees relating to a client's rights, privileges, or liabilities under la ws or regulations administered by the Internal Revenue Service. Such presentations include the preparation and filing of necessary documents, correspond ence with, and communications to the Internal Revenue Service, and the representation of a client at conference s, hearings, and meetings. Page 7 1-15. To become an Enrolled Agent an individual can (1) pass a test given by the IRS or (2) work for the IRS for five years. Circular 230 , Subpart A, Secs. 10.4 to 10.6 . Page 9 1-16. Enrolled Agents must co mplete 72 hours of Continuing Education every three years (an average of 24 per year , with a minimum of 16 hours during any year. ). Circular 230, Subpart A. §10.6. Page 9 1-17. True. As a general rule, an individual must be an enrolled agent, attorney, or CPA to represent a client before the IRS. There are limited situations where others may represent a taxpayer; however, this fact pattern is not one of them. Since Leigh did not sign the return, she cannot represent the taxpayer, only Rose can. Page s 10-11 1-18. The names of organizations that can be represented by regular full -time employees are found in Circular 230, §10.7(c). A regular full -time employee can represent the employer (individual employer). A regular full -time employee of a partnership may represent the partnership. Also, a regular full -time employee of a trust, receivership, guardianship, or estate may represent the trust, receivership, guardianship, or estate. Furthermore, a regular full -time employee of a governmental unit, agency, or authority may represent the governmental unit, agency, or authority in the course of his or her official duties. Page 10 1-19. Yes. Circular 230, Subpart A, Sec. 10.7. Page 10 1-20. True. A practitioner may be suspended or disbarred from practice b efore the IRS if he or she knowingly helps a suspended or disbarred person practice indirectly before the IRS. Page 12 Page 1 -4 SOLUTIONS MANUAL 1-21. A practitioner may not advise a client to take a position on a document, affidavit, or other paper submitted to the Internal Rev enue Service unless the position is not frivo lous. Circular 230 §10.34(b) Page 1 4 1-22. Under Circular 230, an attorney, certified public accountant (CPA), or enrolled agent may use mass media (e.g., T.V. and the Internet) for advertising purposes. Su ch media may not contain false, fraudulent, unduly influencing, coercive, or unfair statements or claims. Attorneys, CPAs, and enrolled agents must also observe any applicable standards of ethical conduct adopted by the American Bar Association (ABA), the American Institute of Certified Public Accountants (AICPA), and the National Association of Enrolled Agents (NAEA). Additional standards and listing of items that may be included in mass media advertising are defined under Section 10.30 of Subpart B in Cir cular 230. Page 1 9 1-23. Under Section 10.25 of Circular 230, partners of government employees cannot represent anyone for which the government employee -partner has (or has had) official responsibility. For instance, a CPA firm with an IRS agent could n ot represent any taxpayer that is (or was in the past) assigned to the IRS agent -partner. Page 12 1-24. Under Section 10.21 of Circular 230, each attorney, CPA, enrolled agent, or enrolled actuary who knows that the client has not complied with the reven ue laws of the United States or has made an error in or omission from any return, document, affidavit, or other paper which the client is required by the revenue laws of the United States to execute, shall advise the client promptly of the fact of such non compliance, error, or omission. Page 11 1-25. According to Circular 230, the best practices rules are aspirational . Thus, a practitioner who fails to comply with best practices will not be subject to discipline by the IRS. Page 14 1-26. Best practi ces include: a. Communicating clearly with the client regarding the terms of the engagement. For example, the advisor should determine the client’s expected purpose for and use of the advice and should have a clear understanding with the client regarding the form and scope of the advice or assistance to be rendered. b. Establishing the facts, determining which facts are relevant, evaluating the reasonableness of any assumptions or representations, relating the applicable law (including potentially applicable judi cial doctrines) to the relevant facts, and arriving at a conclusion supported by the law and the facts. c. Advising the client regarding the importance of the conclusions reached, including, for example, whether a taxpayer may avoid accuracy -related penalties under the Internal Revenue Code if a taxpayer acts in reliance on the advice. d. Acting fairly and with integrity in practice before the IRS. Page s 13-14 Federal Tax Research, 11th Edition Page 1-5 1-27. A practitioner must not give written advice if the practitioner: 1. bases the written advice o n unreasonable factual or legal assumptions (including assumptions as to future events), 2. unreasonably relies upon representations, statements, findings, or agreements of the taxpayer or any other person, 3. does not consider all relevant facts that the practi tioner knows or should know, or 4. in evaluating a Federal tax issue, takes into account the possibility that a tax return will not be audited, that an issue will not be raised on audit, or that an issue will be resolved through settlement if raised. Page 15 1-28 A preparer tax identification number (PTIN) is required of a compensated individual who prepares or assists with the preparation of all or substantially all of a tax return or claim for refund must have a preparer tax identification number (PTIN) . Normally , the individual must be an attorney, CPA, EA, or tax return preparer must obtain a PTIN in order to file tax returns for clients Page 11 1-29. Individuals who prepared tax returns for compensation must follow the rules under Circular 230 Subp art B -- Duties and Restrictions Relating to Practice Before the Internal Revenue Service and Subpart C -- Sanctions for Violation of the Regulations . Thus , they are generally held to the same standards of practice as persons who are eligible to practice b efore the IRS (Attorneys, Certified Public Accountants (CPAs), and Enrolled Agents (EAs). Page 11 1-30. The AICPA's Code of Professional Conduct provides a philosophical foundation upon which the Rules of Conduct are based. The Principles of the Code of Professional Conduc t suggest that a CPA should strive for behavior that is above the minimal level of acceptable conduct set forth by the rules. The Code was designed to provide the following : 1. A comprehensive code of ethics and professional conduct; 2. A guide for practitioners in answering complex questions; and, 3. Assurance to the public concerning the obligations and responsibil ities of the accounting profession. Page s 16-17 1-31. Threats to complying with the Independence Rule include:  Members not acting with objectivity due to an adverse interest  Advocacy threats  Familiarity threats due to a long or close relationship with a client  Management participation threats  Self-interest threats  Self-review threats  Undue influence threats Page 18 Page 1 -6 SOLUTIONS MANUAL 1-32. In a tax practice the CPA may be requested to blindly follow the guidelines of a government agency or the demands of an audit client. This rule prohibits such blind obedience. The code specifically recognizes that conflicts of interest may arise in tax conte xts including providing tax or personal financial planning services for several members of a family whom the member knows to have opposing interests or when referring a personal financial planning or tax client to an insurance broker or other service provi der which refers clients to the member under an exclusive arrangement. Page 20 1-33. The General Standards Include: 1. The CPA must be able to complete all professional services with professional competence. 2. The CPA must exercise due professional care in the performance of all professional services. 3. The CPA shall adequately plan and supervise the performance of all professional services. 4. The CPA must obtain sufficient relevant data to afford a reasonable basis for any conclusion or recommenda tion in connection with the performance of any professional services. Competence encompasses not only technical subject matter but also knowledge of the profession’s standards and the ability to exercise sound judgment in applying the technical knowledg e. At the same time, the code is clear that the member does not assume a responsibility for infallibility of knowledge or judgment Page 21 1-34. a. No violation b. 1.520.001 - Commissions and Referral Fees c. No violation d. 1.600.001 - Advertising and Other Forms of Solicitation e. 1.800.001 - Form of Organization and Name Rule f. 2.400.090 or 3.400.090 - Acts Discreditable Rule Pages 19-21 1-35. 1.700.001 (Confidential Client Information Rule) does not apply in the following situations : 1. There is a conflict with the Compliance with Standards Rule [1.310.001] or the Accounting Principles Rule [1.320.001] 2. The CPA is served with an enforceable subpoena or summons or must comply with applicable laws and government regulations 3. There is a review of a CPA’s practice un der AICPA or state society authorization 4. The CPA is responding to an inquiry of an investigative or disciplinary body of a recognized society, or the CPA is initiating a complaint with a disciplinary body Page s 19-20 1-36. The Statements on Standards for Tax Service s, or SSTS, are a series of statements , issued by the AICPA, as to what constitu tes appropriate standards for tax practice. The State ments also delineate a member's responsibility to clients, the public, and the profession. The stated ob jectives of the Statements are as follows : Federal Tax Research, 11th Edition Page 1-7 SSTS No. 1: Tax Return Positions. This statement sets forth the applicable standards for members when recommending tax return positions, or preparing or signing tax returns. This statement also addresses a member ’s obligation to advise a taxpayer of relevant tax return disclosure responsibilities and potential penalties. SSTS No. 2: Answers to Questions on Returns. This statement sets forth the applicable standards for members when signing the preparer’s declarat ion on a tax return if one or more questions on the return have not been answered. SSTS No. 3: Certain Procedural Aspects of Preparing Returns. This statement sets forth the applicable standards for members concerning the obligation to examine or verify c ertain supporting data or to consider information related to another taxpayer when preparing a taxpayer’s tax return. SSTS No. 4: Use of Estimates. This statement sets forth the applicable standards for members when using the taxpayer’s estimates in the p reparation of a tax return. A member may advise on estimates used in the preparation of a tax return, but the taxpayer has the responsibility to provide the estimated data. Appraisals or valuations are not considered estimates for purposes of this statemen t. SSTS No. 5: Departure from a Position Previously Concluded in an Administrative Proceeding or Court Decision. This statement sets forth the applicable standards for members in recommending a tax return position that departs from the position determined in an administrative proceeding or in a court decision with respect to the taxpayer’s prior return. SSTS No. 6: Knowledge of Error: Return Preparation and Administrative Proceedings. This statement sets forth the applicable standards for a member who bec omes aware of ( a) an error in a taxpayer’s previously filed tax return; ( b) an error in a return that is the subject of an administrative proceeding, such as an examination by a taxing authority or an appeals conference; or (c) a taxpayer’s failure to file a required tax return. SSTS No. 7: Form and Content of Advice to Taxpayers. This statement sets forth the applicable standards for members concerning certain aspects of providing advice to a taxpayer and considers the circumstances in which a member has a responsibility to communicate with a taxpayer when subsequent developments affect advice previously provided. Pages 22 - 26 1-37. Under SSTS No. 1, a member should determine and comply with the standards, if any, which are imposed by the applicable tax ing authority with respect to recommending a tax return position, or preparing or signing a tax return. If the applicable taxing authority has no written standards with respect to recommending a tax return position or preparing or signing a tax return, or if its standards are lower than the standards set forth in SSTS No. 1, then SSTS No. 1 must be followed. Page 2 2 1-38. SSTS No.1 provides that a member should have a good faith belief that a recommended position has a realistic possibility of being susta ined if challenged. In addition, a member may recommend a tax return position if the member concludes that there is a reasonable basis for the position and advises the taxpayer to appropriately disclose that position. Thus, a member may prepare or sign a tax return that reflects a position if a member has a reasonable basis for the position and that position is appropriately disclosed . Page 2 2 Page 1 -8 SOLUTIONS MANUAL 1-39. Reasonable grounds for omitting an answer on a return include cases in which : 1. The pertinent data are no t readily available and are not significant to the determination of taxable income or loss or the resulting tax liability . 2. The taxpayer and the member are genuinely uncertain as to the meaning of the question on the return . 3. An answer is voluminous; howeve r, assurance should be given on the return that the data can be supplied upon request. Page 2 3 1-40. In preparing a return, the member may ordinarily rely upon information t hat the taxpayer has provided. Although an examination of supporting documents is not required, the member should encourage the taxpayer to provide supporting documents, whenever appropriate. Page 23 1-41. A member may prepare tax returns that involve the use of the taxpayer's estimates, if, under the circumstances, it is impractical to obtain exact data and the estimated amounts appear reasonable to the member. Estimates may be appropriate where the keeping of precise records with respect to numerous items of small amounts is difficult to achieve, where data is not available as of th e time for filing the return, or certain records are missing. Page s 23-24 1-42. The selection of the treatment of an item on a tax return should be based upon the facts and the law that is applicable at the time a return is prepared. Unless the taxpayer is bound by the IRS to the treatment of an item in later years, such as by a closing agreement, the disposition of an item in a prior year's audit does not govern the treatment of a similar item in a later year's return. Therefore, a member may sign a retu rn that contains a departure from a treatment that was required by the IRS in a prior year return, provided the standards under SSTS No. 1 are adhered to. Page s 24 - 25 1-43. When a member learns of an error in a previously filed tax return, or member b ecomes aware of an error during an administrative proceeding , he or she must advise the taxpayer promptly. This advice should include a recommendation of the appropri ate measures that the taxpayer should take. The member is not obligated to inform the IRS of the error and may not do so without the taxpayer's permission, except as required by law. Page 2 5 1-44. SSTS No. 7 . It states that the member must use judgment that reflects professional competence and serves the taxpayer's needs. Page 2 5 1-45. No, tax compliance work for an audit client is allowed. It must be approved by the audit committee of the issuer. Page 27 Federal Tax Research, 11th Edition Page 1-9 1-46. Neither the ABA Code nor the Mode l Rules have the force of law. Each was designed to be adopted by the appropria te agencies tha t govern the practice of law in the various states. In many jurisdictions, the state Supreme Court is charged with policing the practice of law. In other states, the legislature assumes this responsibility. Page s 27-28 1-47. An ethical dilemma occurs when someone is faced with a situation in which there are no clearly defined answers such as by regulation or law . Page 2 8 1-48. The major types of ethical reasoning are: 1. End-based Ethical Reasoning is where the ethical decision is the one that produced t he most good for the largest number of people. 2. Rule-based Ethical Reasoning was based on German philosopher Immanuel Kant’s idea that individual actions should be such that we would accept similar behavior from everyone else. 3. Care -based Ethical Reasoning advises one to make decisions that would result in the treatment you yourself would like to receive. Page 29 1-49. Professional ethical behavior is the result of the interaction of personal morality, social responsibility, business ethics, and other gen eral ethical standards. When something is judged to be morally right or wrong (or good or bad), the underlying standards on which such judgments are based are called moral standards. The tax practitioner must be aware of social responsibility in areas such as environmental protection, equal opportunity, and occupational safety. Business ethics examines the moral and ethical problems that arise in a business environment. There is disagreement about whether a company has ethical responsibilities. Other ethica l standards may include public policy, religious beliefs, and cultural values. Pages 29-31 1-50 Ethical issues involved in this case could include morality and business ethics. The moral issue involves the consideration of the “right thing to do” with re spect to the plane ticket. The business ethics issues involve maintaining the integrity of the firm. 1-51 Unless the firm clearly allows staff to take home supplies (which likely would result in additional income to the staff members), this is clearly not ethical behavior. If Donna does work at home and the firm has clear policies allowing supplies to be taken home and used for work purposes, the behavior would be reasonable. 1-52. CPAs are in little danger of entering into the unauthorized practice of la w as long as they avoid providing general legal services. The issue that arises is not whether CPAs are rendering legal services, but how much legal service is provided . Because of the lack of guidelines on this issue, the federal agencies seem to have tak en a lead in attempting to solve this problem. Page 3 3 Page 1 -10 SOLUTIONS MANUAL 1-53. To avoid being charged with the unauthorized practice of law, the following activities should be avoided.  Expressing a legal opinion on a nontax matter .  Drafting wills or trust instruments .  Drafting contracts .  Drafting incorporation papers .  Drafting partnership agreements . Page 35 EXERCISES 1-54. a. Subpart A, § 10.4(c) 8 Eligibility for enrollment as an enrolled agent or enrolled retirement plan agent. Discussion of the criteria for enrollmen t before the IRS b. Subpart B, § 10.21 Knowledge of client’s omission. . Each attorney, CPA, enrolled agent, or enrolled actuary who knows that the client has not complied with the revenue laws of the United States or has made an error in or omission from any return, document, affidavit, or other paper, shall advise the client promptly of the fact of such noncompliance, error, or omission. c. Subpart B, § 10.26 Notaries. . A practitioner may not perform any official act as a notary public with respect to any matter administered by the IRS for which employed as counsel, attorney, or agent . d. Subpart B, § 10.29 Conflicting interests. . No tax practitioner can represent conflicting interests before the IRS unless he or she has the express consent of the directly intereste d parties Circular 230 1-55. a. Subpart C, § 10.51(a)(12) Contemptuous conduct in connection with practice before the Internal Revenue Service, including the use of abusive language, making false accusations or statements, knowing them to be false, or circu lating or publishing malicious or libelous matter b. Subpart A, § 10.6(e) . Conditions for renewal. In order to qualify for renewal of enrollment, an individual, to practice before the IRS, must certify that he or she has satisfied the continuing profession al education requirements. c. Subpart A, § 10. 3(f) Registered tax return preparers d. Subpart B, § 10.27. Fees. . Discussion of provision that a practitioner may not charge an unconscionable fee for representing a client in a matter before the IRS. Also, a practitioner may not charge a contingent fee for preparing an original return. Circular 230 1-56. a. Subpart B , § 10.2 2(b) Reliance on others. Except as modified by §§10.34 and 10.37, a practitioner will be presumed to have exercised due diligence for purp oses of this section if the practitioner relies on the work product of another person and the practitioner used reasonable care in engaging, supervising, training, and evaluating the person, taking proper account of the nature of the relationship between t he practitioner and the person. b. Subpart A, § 10.7(c) (1)(vi) . An individual may represent any individual or entity, who is outside the United States, before personnel of the Internal Revenue Service when such representation takes place outside the United S tates. c. Subpart B, § 10.24 . Prohibits assistance from disbarred or suspended persons. d. Subpart B, § 10.34 . Defines standards for advising and signing returns. Circular 230 Federal Tax Research, 11th Edition Page 1-11 1-57. a. Subpart B, § 10.33 . Discussion of adhering to the best practices in provid ing advice. b. Subpart B, § 10.35 . Provides standards on “covered opinions.” c. Subpart B, § 10.36 . Requires that a firm take reasonable steps to adhere to the “covered opinions” section. d. Subpart B, § 10.37 . Describes situations in which a tax practitioner shou ld not give written advice. Circular 230 1-58. a. Solicitation is discussed in Subpart B, §10.30. b. Negotiation of a taxpayer's refund checks is discussed in Subpart B, § 10.31. c. Who may practice before the IRS? Subpart A §10.3 d. Authority to disbar or suspen d from practice before the Internal Revenue Service is discussed in Subpart C, §10.50. Circular 230 1-59. a. Conflicting interests are discussed in Subpart B, § 10.39 . b. Disreputable conduct is discussed in Subpart C, § 10.51 . c. Assistance from disbarred or suspended persons is discussed in Subpart B, § 10.24 . d. Representing oneself before the IRS is discussed in Subpart A, § 10.7 . Circular 230 1-60. a. Practice of law is in Subpart B, § 0.32. b. Information to be furnished is in Subpart B, § 10.20 . c. Fees are in Subpart B, § 10.27 . d. Responsi bility for correcting errors? Subpart, § 10.21 Circular 230 1-61. a. Best Practices are discussed in Subpart B, § 10.33 . b. The return of client’s records is discussed in Subpart B , § 10.28 . c. Tax Return Positions are discussed in Subpart B, § 10.34 . d. Due Diligence is discussed in Subpart B, § 10.22 . Circular 230 1-62. a. SSTS No. 1. In preparing a tax return, a member should have a good -faith belief that a recommended position has a realistic possibility of being sustained i f challenged; otherwise such a position should not be recommended by the member. b. SSTS No. 4. A member may prepare tax returns that involve the use of the taxpayer's estimates if it is impractical to obtain exact data and if the estimated amounts appear reasonable to the member. c. SSTS No. 6. The member must advise the taxpayer promptly, whether or not the member prepared or signed the return in question, when he or she learns of an error in a previously filed tax return, an error in a return that is the subject of an administrative proceeding, or a taxpayer’s failure to file a required return . However, the member is neither obligated to inform the IRS of the situation, nor may he or she do so without the taxpayer's permission, except as provided by law. Page 1 -12 SOLUTIONS MANUAL Pages 22-25 1-63. a. Lowell Bar Association v. Loeb . The preparation of "simple" tax returns did not constitute the unauthorized practice of Massachusetts law because tax return preparation could not be identified as strictly within the legal discipli ne. b. Bercu . The court held that Bercu could have provided tax advice if it had been incidental to the tax return work he regularly performed for his clients. c. Sperry v. Florida . The U.S. Supreme Court held that a Federal statute that admitted nonattor neys to practice before Federal agencies (in this case, the Patent Office) took precedence over state regulation, thus CPAs and Enrolled Agents were not engaged in the unauthorized practice of law when they were giving tax advice. Pages 33-34 1-64. False. See Circular 230, §10.29. 1-65. True. See Circular 230, §10.7. 1-66. These fees would all be contingent fees if the IRS challenges a tax position. Under Circular 230 § 10.27 A Contingent fee is any fee that is based, in whole or in part, on whet her or not a position taken on a tax return or other filing avoids challenge by the Internal Revenue Service or is sustained either by the Internal Revenue Service or in litigation. A contingent fee includes a fee that is based on a percentage of the refun d reported on a return, that is based on a percentage of the taxes saved, or that otherwise depends on the specific result attained. Circular 230 1-67. Circular 230, § 10.32 (Practice of law) states that, “Nothing in the regulations in this part may b e construed as authorizing persons not members of the bar to practice law.” Circular 230 1-68. d. Under Rule 1.100.001 of the AICPA Code of Conduct, CPAs cannot make self -laudatory statements not based on verifiable facts. Page 21 1-69. c. See Circ ular 230, §10.30 1-70. c. Under Rule 1.800.001 of the AICPA Code of Conduct , CPAs cannot practice public accounting under a firm name that is misleading. A sole practitioner is not a company. The only exception is when a sole practitioner survives the de ath or withdrawal of all other partners or shareholders, he or she can continue to practice under a firm name for up to two years after becoming a sole practitioner. Page 20 1-71. b. SSTS No. 4 allows a member to use reasonable estimates in the preparat ion of a tax return. Page s 23-24 1-72. d. Under Rule 1.510.001 of the AICPA Code of Conduct , CPAs are allowed to take contingent fees in tax matters if they are based on judicial proceedings or the findings of governmental agencies. Federal Tax Research, 11th Edition Page 1-13 Page 18 1-73. c. Under Rule 1.700.001 of the AICPA Code of Conduct, CPAs cannot reveal confidential client information without the consent of the client unless it is to an investigative body, trial board, quality review body, or court of law. Page s 19-20 1-74. a. SSTS No. 4 requires members to disclose to the IRS the use of estimates when fire or computer failure has destroyed the relevant records. Page s 23-24 1-75. d. Under Subpart A, §10.7(c)(2)(i) of Circular 230, persons who are disbarred or suspended are not all owed to practice before the IRS. Circular 230 1-76. b. Under Subpart B, §10.21 of Circular 230 , practitioners must notify clients of any noncompliance with the tax law. A similar rule is found in SSTS No. 6. Page 11 1-77. a. Circular 230, Subpart A, §10.7(a) states that a taxpayer can appear on their own behalf before the IRS. b. 1.520.001 Commissions and Referral Fees Rule c. SSTS No. 3 Certain Procedural Aspects of Preparing Returns d. Under Statement on Standards for Tax Service (SSTS) No. 1, a member must have a good -faith belief that a recommended position has a realistic possibility of being sustained if challenged. Circular 230, P ages 20, 22, 24 1-78. a. Circular 230, Subpart C, §10.51 states that a practitioner can be disbarred or suspen ded from practice before the IRS for disreputable conduct. b. The knowledge of client omissions rule is found in Circular 230, Subpart B, §10.21. c. 1.400.200 Records Requests . Members must comply with the rules and regulations of authoritative regulatory bodies, such as the member’s state board(s) of accountancy, when the member performs services for a client and is subject to the rules and regulations of such regulatory body. d. SSTS No. 5 Departure from a Position Previously Concluded in an Administrati ve Proceeding or Court Decision e. Under Statement on Standards for Tax Services (SSTS) No. 7, a member must use judgment that reflects professional competence and serves the taxpayer’s needs. Circular 230, P ages 22-26 1-79. The parts of the enrolled agent exam are: Part 1 - Individual Income Taxes Part 2 - Businesses Part 3 - Representation, Practices, Procedures See www.irs.gov for more information on the enrolled agent exam. Page 1 -14 SOLUTIONS MANUAL 1-80. The Application for Enrollment to Practice Before the IRS is Form 23. 1-81. a. California - Minimum 3 semester or 4 quarter units in accounting ethics or accountants’ professional responsibilities b. Texas - The board requires that 3 passing semester hours be earned as a result of taking a course in ethics. c. Nor th Carolina - The 150 semester hours required include a concentration in accounting, as defined by 21 NCAC 08A .0309, and 24 semester hours of coursework which include one (1) three (3) semester hour course from at least eight (8) of the following 10 fields of study: communications; computer technology; economics; ethics; finance; humanities/social science; international environment; law; management; or statistics