CPA-07201A CPA assists a taxpayer in tax planning regarding a transaction that meets the definition of a tax shelter as defined in the Internal Revenue Code. Under the AICPA Statements on Standards for Tax Services, the CPA should inform the taxpayer of the penalty risks unless the transaction, at the minimum, meets which of the following standards for being sustained if challenged?
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1 .CPA-01960The self-employment tax is:
A Fully deductible as an itemized deduction. B Not deductible. C Fully deductible in determining net income from self-employment. D One-half deductible from gross income in arriving at adjusted gross income.
2 .CPA-06897According to the AICPA Statements on Standards for Tax Services, which of the following factors should a CPA consider in choosing whether to provide oral or written advice to a client?
A Whether the client will seek a second opinion. B The tax sophistication of the client. C The client's business acumen. D The likelihood that current tax litigation will impact the advice.
3 .CPA-01525Starr, CPA, prepared and signed Cox's Year 1 federal income tax return. Cox informed Starr that Cox had paid doctors' bills of USD 20,000 although Cox actually had paid only USD 7,000 in doctors' bills during Year 1. Based on Cox's representations, Starr computed the medical expense deduction that resulted in an understatement of tax liability. Starr had no reason to doubt the accuracy of Cox's figures and Starr did not ask Cox to submit documentation of the expenses claimed. Cox orally assured Starr that sufficient evidence of the expenses existed. In connection with the preparation of Cox's Year 1 return, Starr is:
A Not liable to the IRS for any penalty, but is liable to the IRS for interest on the underpayment of tax. B Not liable to the IRS for any penalty or interest. C Liable to the IRS for negligently preparing the return. D Liable to Cox for interest on the underpayment of tax.
4 .CPA-06646Which of the following statements is correct with respect to the AICPA's Statements on Standards for Tax Services (SSTS)?
A SSTS apply only to federal income tax returns and not to state and local tax returns. B In general, a preparer should recommend a tax return position only if the preparer has a good faith belief that the position has a realistic possibility of being sustained on its merits. C SSTS apply only to ta...
5 .CPA-08201A CPA prepares income tax returns for a client. After the client signs and mails the returns, the CPA discovers an error. According to Treasury Circular 230, the CPA must:
A Prepare an amended return within 30 days of the discovery of the error. B Promptly advise the client of the error. C Promptly resign from the engagement and cooperate with the successor accountant. D Document the error in the workpapers.
7 .CPA-06522Lawson, a CPA, discovers material noncompliance with a specific Internal Revenue Code (IRC) requirement in the prior-year return of a new client. Which of the following actions should Lawson take?
A Contact the IRS and discuss courses of action. B Wait for the statute of limitations to expire. C Contact the prior CPA and discuss the client's exposure. D Discuss the requirements of the IRC with the client and recommend that client amend the return.
8 .CPA-06528A tax preparer has advised a company to take a position on its tax return. The tax preparer believes that there is a 75% possibility that the position will be sustained if audited by the IRS. If the position is not sustained, an accuracy-related penalty and a late-payment penalty would apply. What is the tax preparer's responsibility regarding disclosure of the penalty to the company?
A The tax preparer has no responsibility for disclosing any potential penalties to the company, because the position will probably be sustained on audit. B The tax preparer is responsible for disclosing both penalties to the company. C The tax preparer is responsible for disclosing only the late-pay...
9 .CPA-04764A member would be in violation of the Standards for Tax Services if the member recommends a return position under which of the following circumstances?
A It does not meet the realistic possibility standard but the member feels the return has a minimal likelihood for examination by the IRS. B It meets the realistic possibility standard based on the well-reasoned opinion of the taxpayer's attorney. C It does not meet the realistic possibility standar...
10 .CPA-01991Jackson, a single individual, inherited Bean Corp. common stock from Jackson’s parents. Bean is a qualified small business corporation under Code Section 1244. The stock cost Jackson’s parents USD 20,000 and had a fair market value of USD 25,000 at the parents’ date of death. During the year, Bean declared bankruptcy and Jackson was informed that the stock was worthless. What amount may Jackson deduct as an ordinary loss in the current year?
A USD 20,000 B USD 25,000 C USD 0 D USD 3,000
