H&R BLOCK QUIZ CHAPTERS 1-5 2026/2027 | 100% Correct
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Chapter 1: Introduction to Tax Preparation & Ethics (Questions 1-15)
Q1: A tax preparer discovers that a client intentionally failed to report $15,000 in cash
income from a side business. The client refuses to amend the return. Under IRS Circular
230, what is the preparer's obligation?
A. Immediately report the client to the IRS Criminal Investigation Division
B. Continue preparing the return but document the unreported income in the
workpapers
C. Withdraw from the engagement if the client will not correct the material omission
[CORRECT]
D. Prepare the return as presented since the preparer has no duty to verify
client-provided information
Correct Answer: C
Rationale: Under IRS Circular 230 §10.21, a practitioner who knows a client has made
an error in or omission from any document submitted to the IRS must advise the client
of the error or omission. If the client does not correct the error, the practitioner must
consider whether to withdraw from the engagement. The preparer cannot knowingly
prepare a false return (Circular 230 §10.22). Distractor A is incorrect because there is
no mandatory reporting requirement to Criminal Investigation; the preparer's duty is to
the client first. Distractor B violates §10.22 which prohibits preparing returns with
,positions lacking a reasonable basis. Distractor D is incorrect because Circular 230
§10.22 requires due diligence in determining the correctness of representations made
to the IRS.
Q2: Which of the following constitutes a violation of IRS Circular 230 §10.30 regarding
fees?
A. Charging a fixed fee of $150 for Form 1040 preparation
B. Charging a percentage of the refund amount obtained for the client [CORRECT]
C. Charging an hourly rate of $125 for complex tax preparation
D. Charging a premium fee for expedited same-day service
Correct Answer: B
Rationale: Circular 230 §10.30(a) explicitly prohibits practitioners from charging a
contingent fee for preparing original tax returns. A contingent fee includes any fee
based on a percentage of the refund obtained. This prohibition prevents preparers from
having a financial incentive to inflate refund claims. Distractor A is permissible as fixed
fees are standard practice. Distractor C is acceptable as hourly billing is a legitimate fee
structure. Distractor D is permissible because premium pricing for expedited service is
not contingent on the refund amount.
Q3: Under the due diligence requirements of IRC §6695(g), which tax benefit specifically
requires Form 8867 (Paid Preparer's Due Diligence Checklist)?
A. Foreign Tax Credit
B. Child Tax Credit and Earned Income Tax Credit [CORRECT]
,C. Mortgage Interest Deduction
D. Charitable Contribution Deduction
Correct Answer: B
Rationale: IRC §6695(g) mandates that paid tax return preparers complete Form 8867
(Paid Preparer's Earned Income Credit Checklist) when claiming the Earned Income Tax
Credit (EITC), Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), or American
Opportunity Tax Credit (AOTC). The form documents that the preparer conducted due
diligence to determine eligibility. Distractors A, C, and D are incorrect because these
deductions and credits do not trigger the specific §6695(g) due diligence
documentation requirement, though general due diligence standards still apply.
Q4: A taxpayer provides a receipt for a $500 charitable contribution to a local food bank,
but the receipt lacks the required acknowledgment elements. What is the preparer's
responsibility under IRS standards?
A. Accept the receipt as sufficient proof since the amount is under $250
B. Request a proper contemporaneous written acknowledgment from the charity
[CORRECT]
C. Claim the deduction based on the client's sworn affidavit
D. Reduce the deduction to $249 to avoid documentation requirements
Correct Answer: B
Rationale: Under IRC §170(f)(8), charitable contributions of $250 or more require a
contemporaneous written acknowledgment from the charity containing specific
elements: the amount of cash contributed, description of non-cash property, whether
, goods/services were provided in exchange, and a good faith estimate of their value. The
preparer must ensure compliance with these substantiation requirements. Distractor A
is incorrect because the $250 threshold applies to each contribution, not cumulative
amounts. Distractor C violates the requirement for third-party documentation. Distractor
D constitutes tax fraud as it intentionally understates a legitimate deduction.
Q5: Which document must a tax preparer retain for three years under IRS Record
Retention Requirements for Paid Preparers?
A. Client's W-2 forms only
B. Copy of the completed tax return or a list of the return information [CORRECT]
C. Client's personal identification documents
D. Preparer's continuing education certificates
Correct Answer: B
Rationale: Under Treas. Reg. §1.6695-1(b), paid preparers must retain either a copy of
the return prepared or a list containing: the taxpayer's name, identification number,
taxable year, type of return, and the preparer's name, PTIN, signature, and date. This
retention requirement lasts for three years after the return due date (including
extensions). Distractor A is insufficient because W-2s alone do not constitute the
required record. Distractor C has no specific retention requirement in preparer
regulations. Distractor D relates to professional standards but not IRS record retention
rules.
Q6: Under the EITC due diligence requirements, a preparer must complete which of the
following actions?
Answers with Complete Solutions | IRS Tax Code Aligned |
Comprehensive Review | Pass Guaranteed - A+ Graded
Chapter 1: Introduction to Tax Preparation & Ethics (Questions 1-15)
Q1: A tax preparer discovers that a client intentionally failed to report $15,000 in cash
income from a side business. The client refuses to amend the return. Under IRS Circular
230, what is the preparer's obligation?
A. Immediately report the client to the IRS Criminal Investigation Division
B. Continue preparing the return but document the unreported income in the
workpapers
C. Withdraw from the engagement if the client will not correct the material omission
[CORRECT]
D. Prepare the return as presented since the preparer has no duty to verify
client-provided information
Correct Answer: C
Rationale: Under IRS Circular 230 §10.21, a practitioner who knows a client has made
an error in or omission from any document submitted to the IRS must advise the client
of the error or omission. If the client does not correct the error, the practitioner must
consider whether to withdraw from the engagement. The preparer cannot knowingly
prepare a false return (Circular 230 §10.22). Distractor A is incorrect because there is
no mandatory reporting requirement to Criminal Investigation; the preparer's duty is to
the client first. Distractor B violates §10.22 which prohibits preparing returns with
,positions lacking a reasonable basis. Distractor D is incorrect because Circular 230
§10.22 requires due diligence in determining the correctness of representations made
to the IRS.
Q2: Which of the following constitutes a violation of IRS Circular 230 §10.30 regarding
fees?
A. Charging a fixed fee of $150 for Form 1040 preparation
B. Charging a percentage of the refund amount obtained for the client [CORRECT]
C. Charging an hourly rate of $125 for complex tax preparation
D. Charging a premium fee for expedited same-day service
Correct Answer: B
Rationale: Circular 230 §10.30(a) explicitly prohibits practitioners from charging a
contingent fee for preparing original tax returns. A contingent fee includes any fee
based on a percentage of the refund obtained. This prohibition prevents preparers from
having a financial incentive to inflate refund claims. Distractor A is permissible as fixed
fees are standard practice. Distractor C is acceptable as hourly billing is a legitimate fee
structure. Distractor D is permissible because premium pricing for expedited service is
not contingent on the refund amount.
Q3: Under the due diligence requirements of IRC §6695(g), which tax benefit specifically
requires Form 8867 (Paid Preparer's Due Diligence Checklist)?
A. Foreign Tax Credit
B. Child Tax Credit and Earned Income Tax Credit [CORRECT]
,C. Mortgage Interest Deduction
D. Charitable Contribution Deduction
Correct Answer: B
Rationale: IRC §6695(g) mandates that paid tax return preparers complete Form 8867
(Paid Preparer's Earned Income Credit Checklist) when claiming the Earned Income Tax
Credit (EITC), Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), or American
Opportunity Tax Credit (AOTC). The form documents that the preparer conducted due
diligence to determine eligibility. Distractors A, C, and D are incorrect because these
deductions and credits do not trigger the specific §6695(g) due diligence
documentation requirement, though general due diligence standards still apply.
Q4: A taxpayer provides a receipt for a $500 charitable contribution to a local food bank,
but the receipt lacks the required acknowledgment elements. What is the preparer's
responsibility under IRS standards?
A. Accept the receipt as sufficient proof since the amount is under $250
B. Request a proper contemporaneous written acknowledgment from the charity
[CORRECT]
C. Claim the deduction based on the client's sworn affidavit
D. Reduce the deduction to $249 to avoid documentation requirements
Correct Answer: B
Rationale: Under IRC §170(f)(8), charitable contributions of $250 or more require a
contemporaneous written acknowledgment from the charity containing specific
elements: the amount of cash contributed, description of non-cash property, whether
, goods/services were provided in exchange, and a good faith estimate of their value. The
preparer must ensure compliance with these substantiation requirements. Distractor A
is incorrect because the $250 threshold applies to each contribution, not cumulative
amounts. Distractor C violates the requirement for third-party documentation. Distractor
D constitutes tax fraud as it intentionally understates a legitimate deduction.
Q5: Which document must a tax preparer retain for three years under IRS Record
Retention Requirements for Paid Preparers?
A. Client's W-2 forms only
B. Copy of the completed tax return or a list of the return information [CORRECT]
C. Client's personal identification documents
D. Preparer's continuing education certificates
Correct Answer: B
Rationale: Under Treas. Reg. §1.6695-1(b), paid preparers must retain either a copy of
the return prepared or a list containing: the taxpayer's name, identification number,
taxable year, type of return, and the preparer's name, PTIN, signature, and date. This
retention requirement lasts for three years after the return due date (including
extensions). Distractor A is insufficient because W-2s alone do not constitute the
required record. Distractor C has no specific retention requirement in preparer
regulations. Distractor D relates to professional standards but not IRS record retention
rules.
Q6: Under the EITC due diligence requirements, a preparer must complete which of the
following actions?
