CTEC Ethics Q&A Bank 2026 | Exam Success Guide | Graded A+
1. Arnie is a Certified Public Accountant who prepares income tax returns for his
clients. One of his clients submitted a list of expenses to be claimed on
Schedule C of the tax return. Arnie qualifies as a return preparer and, as such,
is required to comply with which one of the following conditions?
Arnie is required to independently verify the client's information.
Arnie can ignore implications of information known by him.
Appropriate inquiries are required to determine whether the client
has substantiation for travel and entertainment expenses.
Inquiry is not required if the information appears to be incorrect or
incomplete.
2. According to Circular 230, in general, a practitioner must apply due diligence
when performing the following duties
In preparing of assisting the preparation, approving, and filing of tax
returns, documents, affidavits and other papers relating to IRS matters
In determining the correctness of oral or written representations
made by the tax practitioner to the Department of the Treasury
In determining the correctness of oral or written representations
made by the practitioner to clients with reference to any matter
administered by the IRS
All the above
3. If a tax preparer in California fails to complete the required continuing
education, what consequence might they face?
They will be fined but can maintain their registration.
, They will receive a warning but can continue working.
They may lose their registration to practice as a tax preparer.
They will be required to take a competency exam again.
4. Describe how refund theft occurs in the context of tax preparation and
identity theft.
Refund theft happens when a tax preparer misappropriates client
funds.
Refund theft is when a taxpayer fails to report all their income to
reduce their tax liability.
Refund theft occurs when someone uses another person's
information to file a tax return and claim a refund.
Refund theft is the act of not filing taxes to avoid payment.
5. What is the primary restriction on tax preparers regarding notarizing
documents related to IRS matters?
Tax preparers can notarize any document for their clients.
Tax preparers can only notarize documents for financial institutions.
Tax preparers can notarize documents if they have a specific license.
Tax preparers are not allowed to notarize documents related to IRS
matters.
6. Mark Bates is a tax preparer. He applied for a job at a private tax preparation
office in his hometown and after his interview was promised an associate
position. What are the due diligence requirements that he must fulfill before
taking this position?
He must ascertain the percentage of returns prepared by this firm that
were audited.
, He must ascertain whether any of the principals of the firm are
presently under disbarment or suspension from practice before the
IRS.
He must ascertain the percentage of e-filed returns prepared by this
firm that were rejected.
He must ascertain whether any of the firm's EITC clients were barred
from receiving the EITC.
7. Describe the concept of due diligence as it pertains to tax preparation under
Circular 230.
Due diligence is only necessary for complex tax situations.
Due diligence means preparing tax returns quickly to meet deadlines.
Due diligence involves verifying the accuracy of client information
and staying informed about tax law changes.
Due diligence requires tax preparers to avoid all client interactions.
8. What is the primary role of the "Enrolled Agent" designation in relation to
Circular 230?
Enrolled Agents are responsible for reviewing tax legislation and
proposing amendments.
Enrolled Agents are exempt from Circular 230 requirements due to
their specialized training.
Enrolled Agents are authorized to represent taxpayers before the
IRS and must adhere to Circular 230's ethical standards.
Enrolled Agents are granted the authority to enforce Circular 230 on
other tax practitioners.
1. Arnie is a Certified Public Accountant who prepares income tax returns for his
clients. One of his clients submitted a list of expenses to be claimed on
Schedule C of the tax return. Arnie qualifies as a return preparer and, as such,
is required to comply with which one of the following conditions?
Arnie is required to independently verify the client's information.
Arnie can ignore implications of information known by him.
Appropriate inquiries are required to determine whether the client
has substantiation for travel and entertainment expenses.
Inquiry is not required if the information appears to be incorrect or
incomplete.
2. According to Circular 230, in general, a practitioner must apply due diligence
when performing the following duties
In preparing of assisting the preparation, approving, and filing of tax
returns, documents, affidavits and other papers relating to IRS matters
In determining the correctness of oral or written representations
made by the tax practitioner to the Department of the Treasury
In determining the correctness of oral or written representations
made by the practitioner to clients with reference to any matter
administered by the IRS
All the above
3. If a tax preparer in California fails to complete the required continuing
education, what consequence might they face?
They will be fined but can maintain their registration.
, They will receive a warning but can continue working.
They may lose their registration to practice as a tax preparer.
They will be required to take a competency exam again.
4. Describe how refund theft occurs in the context of tax preparation and
identity theft.
Refund theft happens when a tax preparer misappropriates client
funds.
Refund theft is when a taxpayer fails to report all their income to
reduce their tax liability.
Refund theft occurs when someone uses another person's
information to file a tax return and claim a refund.
Refund theft is the act of not filing taxes to avoid payment.
5. What is the primary restriction on tax preparers regarding notarizing
documents related to IRS matters?
Tax preparers can notarize any document for their clients.
Tax preparers can only notarize documents for financial institutions.
Tax preparers can notarize documents if they have a specific license.
Tax preparers are not allowed to notarize documents related to IRS
matters.
6. Mark Bates is a tax preparer. He applied for a job at a private tax preparation
office in his hometown and after his interview was promised an associate
position. What are the due diligence requirements that he must fulfill before
taking this position?
He must ascertain the percentage of returns prepared by this firm that
were audited.
, He must ascertain whether any of the principals of the firm are
presently under disbarment or suspension from practice before the
IRS.
He must ascertain the percentage of e-filed returns prepared by this
firm that were rejected.
He must ascertain whether any of the firm's EITC clients were barred
from receiving the EITC.
7. Describe the concept of due diligence as it pertains to tax preparation under
Circular 230.
Due diligence is only necessary for complex tax situations.
Due diligence means preparing tax returns quickly to meet deadlines.
Due diligence involves verifying the accuracy of client information
and staying informed about tax law changes.
Due diligence requires tax preparers to avoid all client interactions.
8. What is the primary role of the "Enrolled Agent" designation in relation to
Circular 230?
Enrolled Agents are responsible for reviewing tax legislation and
proposing amendments.
Enrolled Agents are exempt from Circular 230 requirements due to
their specialized training.
Enrolled Agents are authorized to represent taxpayers before the
IRS and must adhere to Circular 230's ethical standards.
Enrolled Agents are granted the authority to enforce Circular 230 on
other tax practitioners.
