HRB-27 Final Exam Review

What is the purpose of self-employment tax? To pay social security and medicare taxes. (15.14) What amounts does a proprietor have "at risk"? Amounts invested in the business plus any business debts for which the proprietor is personally liable. (15.16) What difference does it make if the proprietor is "at risk" or not? Only amounts at risk may be used to determine the actual loss on Schedule C. (15.16) How does a Tax Professional meet due diligence requirements? • Tax Professionals fulfill due diligence requirements by making every effort to prepare accurate and complete returns. • Tax Professionals must have knowledge of tax law, and apply a reasonability check to the information provided by their clients. (26.1) What is a thorough interview? A thorough interview consists of asking general information questions, then asking additional questions whenever information is incomplete or seems inaccurate or inconsistent. (26.2) What is a conflict of interest? A conflict of interest is when one's situation might benefit at the expense of another's situation. (26.3) What actions can resolve a conflict of interest? A conflict of interest is resolved when it is acknowledged, disclosed to all parties, and the parties have consented to waiving the conflict. (26.3) What client information is confidential? Any information that could potentially identify the client is confidential. Information includes (but is not limited to): • Name • Address and phone number • Social security numbers • Place of employment • Any information from a tax return (26.4) Is it acceptable for a Tax Professional to leave a detailed phone message for a client, letting them know their tax return is complete? • Tax Professionals must have prior consent from the client to leave phone messages related to their tax return. • The fact that a taxpayer is the client of a Tax Professional or tax preparation business is confidential information that must not be disclosed. (26.5) What is a Tax Professional's responsibility upon finding out that a client has not complied with any tax law? A Tax Professional must advise the client of the noncompliance and the consequences for not correcting the situation. (26.7) What action should a Tax Professional take if a client insists on reporting information that is inaccurate