Test Bank Combined-Tenth Edition
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
ANSWER: d
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
ANSWER: a
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
ANSWER: b
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
ANSWER: d
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.
ANSWER: b
,Test Bank Combined-Tenth Edition
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
ANSWER: d
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
ANSWER: d
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
ANSWER: c
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
ANSWER: a
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
ANSWER: b
,Test Bank Combined-Tenth Edition
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
ANSWER: a
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
ANSWER: c
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
ANSWER: c
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
ANSWER: c
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
ANSWER: d
, Test Bank Combined-Tenth Edition
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
ANSWER: d
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
ANSWER: a
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.
ANSWER: b
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
ANSWER: c
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
ANSWER: c
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
ANSWER: d
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
ANSWER: a
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
ANSWER: b
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
ANSWER: d
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.
ANSWER: b
,Test Bank Combined-Tenth Edition
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
ANSWER: d
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
ANSWER: d
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
ANSWER: c
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
ANSWER: a
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
ANSWER: b
,Test Bank Combined-Tenth Edition
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
ANSWER: a
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
ANSWER: c
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
ANSWER: c
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
ANSWER: c
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
ANSWER: d
, Test Bank Combined-Tenth Edition
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
ANSWER: d
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
ANSWER: a
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.
ANSWER: b
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
ANSWER: c
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
ANSWER: c
