Indicate the answer choice that best completes the statement or answers the question.

Name: Class: Date: Ch01 Poweredby Cognero Page 1 Indicate the answer choice that best completes the statement or answers the question.

1.Tax compliance is the process of:

• filing necessary tax returns
• gathering the financial information necessary to report taxable income
• representing a taxpayer at an IRS audit
• all of these are correct

2.Tax evasion is:

• a fraudulent act involving illegal nonpayment of taxes
• one of the objectives of tax planning
• an act of deferring tax payments to future periods
• the same as tax avoidance as both of them result in nonpayment of taxes

3.Tax litigation is a process of:

• participating in an administrative audit
• settling tax-related disputes in a court of law
• filing amended tax returns as prescribed by tax laws
• arranging a taxpayer’s affairs to minimize tax liabilities

4.Regarding open transactions, which of the following statements is INCORRECT?

• The transaction is not yet completed.
• The practitioner can suggest changes to achieve a better tax result.
• A tax practitioner has some degree of control over the client’s tax liability.
• The practitioner can fix the problem by amending the client’s tax return.

5.Which of the following statements best describes Circular 230?

• Circular 230 has been adopted by the AICPA as its set of rules of practice for CPAs.
• Circular 230 is a set of Treasury Department ethical and legal standards for those engaging in practice before

the IRS.

• Circular 230 is a set of internal rules at the IRS designed to protect tax practitioners from unfair discipline by

the IRS.

• Circular 230 is a set of ethical rules for taxpayers.

6.Who can represent a taxpayer before the IRS Appeals Office under Circular 230?

• a CPA
• an officer of a corporation may represent the corporation
• an attorney
• all of these are correct
• both a CPA and an attorney

7.In a closed transaction, the scope of tax planning is:

• more limited as compared to an open transaction
• limited by the IRS rules of practice
• limited to presenting the taxpayer’s facts to the government in the most favorable, legal manner

Federal Tax Research 12e Roby Sawyers, Steven Gill (Test Bank All Chapters, 100% Original Verified, A+ Grade) Answers At The End of Each Chapter 1 / 4

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• more limited as compared to an open transaction and limited to presenting the taxpayer’s facts to the

government in the most favorable, legal manner

8. Circular 230 includes rules on all of the following topics EXCEPT:

• who is authorized to practice before the IRS
• standards for “covered opinions”
• compliance with state ethical requirements
• a set of best practices to guide practitioners

• Statements on Standards for Tax Services (SSTS) contain advisory guidelines for:
• members of the AICPA
• enrolled agents
• attorneys
• IRS authorities
• all of these are correct

10. An EA must renew his or her enrollment card on a:

• 5-year cycle
• 3-year cycle
• 2-year cycle
• Renewal is not required once an EA gets a card

• Under Section 10.3, Subpart A, of Circular 230, the following individuals may practice before the IRS EXCEPT:
• unenrolled agents
• enrolled agents
• enrolled actuaries
• enrolled retirement plan agents

12. Due diligence, in essence, means a tax practitioner:

• must be efficient in performing his duties
• must give due respect to IRS officials
• should use reasonable effort to comply with the tax laws
• should charge reasonable fees for work performed for a client

13. A contingent fee is:

• always allowed by Circular 230
• a fee that is out of line with the value of the service provided
• a fee based on a percentage of a taxpayer’s refund on a tax return
• all of these are correct

14. According to Circular 230, the “best practices” rules are:

• mandatory for all tax practitioners
• restricted only to attorneys and CPAs
• aspirational, to act as goals for tax practitioners 2 / 4

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• enforced by disbarment from practice before the IRS

15. The six principles of professional conduct under the AICPA Code include:

• responsibilities
• public interest
• integrity
• All of these are correct

• Under the AICPA Code of Professional Conduct, which of the following actions would constitute deceptive

advertising?

• advertising too frequently
• implying that the CPA had the ability to influence an IRS official
• promising a favorable result without justification
• implying that the CPA had the ability to influence an IRS official and

promising a favorable result without justification

• 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:

• independently confirm the accuracy of the taxpayer’s information
• obtain additional information if the taxpayer’s information appears to be incorrect or incomplete
• review the prior year’s return when feasible
• determine when conditions for a deduction have been met

• 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 CPA may not base his or her position on authority that is not approved by the IRS under Section 6662

(accuracy-related penalty).

• A CPA may sign a return which has a tax position that has a realistic possibility of being sustained on the

merits.

• A CPA may not sign a return which has any tax position that is not fully disclosed.
• All of these are correct.

19. The Statements on Standards for Tax Services (SSTS) are issued by:

• the Internal Revenue Service
• the FASB
• the AICPA
• the American Bar Association
• the AICPA and the American Bar Association jointly

20. The Statements on Standards for Tax Services are:

• part of the ABA Code of Professional Responsibility
• intended to replace Circular 230
• intended to supplement the AICPA Code of Professional Conduct and Circular 230
• none of these are correct

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• Which of the following statements best explains the need for tax practitioners to understand nonregulatory ethical

models of behavior?

• Competing ethical solutions must be resolved by the courts.
• There is more to ethical behavior than just following the rules of professional organizations.
• Practitioners must always choose the action with the greatest benefit for their client.
• Ethical choices are clearly spelled out by IRS regulations.

• The primary change made by the Sarbanes-Oxley Act which affects the practice of public accounting is:
• Public accounting firms may no longer provide any actuarial services.
• Accounting firms may no longer offer tax shelters.
• Auditors may never do tax compliance work for their clients.
• Public accounting firms may provide some nonaudit services to their audit clients if the services are approved

in advance by an audit committee.

23. The Lowell Bar Association v. Loeb case addressed the issue of:

• unauthorized practice of law by nonattorneys engaged in tax practice
• legal research by taxpayers
• attorneys and CPAs working together in a practice
• all of these are correct

• In which of the following situations would a CPA be engaged in the unauthorized practice of law?
• The CPA drafts a contract for his small business client.
• The CPA files a client’s state tax return.
• The CPA answers estate tax questions for his client.
• The CPA represents his client before the IRS.

• Which of the following statements is CORRECT regarding the unauthorized practice of law?
• Taxpayers may not represent themselves in Tax Court.
• A CPA cannot express a legal opinion on a non-tax matter.
• A CPA cannot draft wills or trust instruments.
• Both b and c are correct.

Indicate whether the statement is true or false.

• Tax avoidance and tax evasion are both illegal.
• True
• False

• Tax research is required only for tax planning, not preparing returns.
• True
• False

• Tax planning has a higher likelihood of success when a tax practitioner is dealing with an open transaction instead of a

closed transaction.

• True
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