Review Questions and Final Exam Course name: Ethics for Enrolled Agents-2010 Course number: 9001.10 Number of questions: Prerequisite: Course level: Recommended CPE credit: Recommended study time: Review Final exam None Basic 4 CPE hours 4 CPE hours 20 20 Course format: Reference text: Interactive self study CPE credit calculated as 100% of total study time IRS Circular No. 230 (free download) http://www.irs.gov/pub/irs-pdf/pcir230.pdf 48 pages Subject classification: Ethics Course updated: January 8, 2010 Learning objective: Review ethical considerations, as well as rules and regulations that apply to practitioners enrolled to practice before the Internal Revenue Service. Instructions: This copy of the exam can be used to answer questions while offline. Please note that you will still need to enter your answers online by logging into the course system with your User ID and Password. Go to www.funcpe.com: top of page Login to Course System link www.funcpe.com Toll free: 877-738-6273 help@funcpe.com 38 Pleasant Bend Drive Spring, Texas 77382 Fax: 832-201-9921
Exam Name: Ethics for Enrolled Agents-2010 -Review Questions 1) Mary Kate receives notice of her EA license renewal, which is due by January 31, 2011. Mary Kate can complete CPE courses for this license renewal in January 2011. 2) Josephina found an interesting self study CPE course listed on FunCPE.com titled " Working With Difficult People." Since she practices before the Internal Revenue Service, she felt like this CPE course would be directly relevant to her tax work. This is an acceptable CPE course for an EA. 3) Jeremy works as a bookkeeper, and is not yet an EA. His mother asked him to represent her before the IRS, as she feels he know more than she does about taxes. Jeremy CAN represent his mother before the IRS. 4) The IRS requested some taxpayer records from Marty Moore, EA. Marty called his client to get the records, but his client claimed that his friend Lindsey Jones was storing the records for him at her house. Marty is obligated to call Lindsey to try to get the records. 5) Madison McKinley has a thriving tax preparation business and processes over 500 tax returns on a busy day. She faxes the client's handwritten paperwork to a contractor in New Zealand, who then prepares the tax return. Madison interview the contactor (by phone), and periodically evaluates her work. She also verifies that the contractor attends tax training update sessions periodically. Madison appears to meet the due diligence standards in Circular 230. 6) Mr. Jones, a practitioner, is under suspension from practice before the IRS. He wants to continue to help his clients, so he asks his fellow practitioner, Mr. Bains to sign the client returns he prepares. This arrangement is considered acceptable within the regulations governing the practice of Enrolled Agents. 7) A practitioner may perform any official act as a notary public in a matter administered by the IRS even if they are employed as counsel. Course 9001.10 www.funcpe.com Page 2 of 8
8) A contingent fee for representing a client in a matter before the IRS is any fee that is based on whether or not a position taken on a tax return or other filing avoids challenge by the IRS or is sustained either by the IRS or in litigation. 9) Miranda Mellow, EA offers all her customers a strong guarantee when she prepares their original return: if they owe more tax than shown on the return because the IRS audits the return and challenges an item, she will refund her entire tax preparation fee to them. Miranda's guarantee is an acceptable fee arrangement. 10) Ms. Thompson, EA has a client that refuses to pay the full amount of the agreed upon fee for completing their tax return. The client has requested that all her supporting tax information be returned to her promptly. Ms. Thompson has not filed the return and refuses to return phone calls from the client. The return is due in ten days. Ms. Thompson appears to be violating the provisions of the regulations governing the practice of EAs. 11) Ms. Thompson, EA knows that representing both Mr. X and Mr. Y involves a conflict of interest, but she believes that she will be able to provide competent and diligent representation to each client. She has discussed the conflict of interest with both parties in a conference call and they each agreed to continue to allow Ms. Thompson to continue to represent them. Ms. Thompson can feel confident that she has followed the proper procedure in resolving this matter and does not need to do anything further. 12) Ms. Jenson, EA is trying to expand her practice and prepared some flyers to mail out to members of her breakfast club. The flyers have the following information: To: Fellow Early Morning Breakfast Club members From: Catherine Jensen Representing Taxpayers for over 10 years Catherine Jenson, admitted to practice before the IRS Call 111-222-3333 to schedule a free consultation This flyer was sent to members of the Early Morning Breakfast Club as a solicitation for new clients. Assuming the information shown is factually true and that the solicitation does not violate Federal or State law or other applicable rules, this flyer most likely conforms to advertising and solicitation restrictions for EAs. Course 9001.10 www.funcpe.com Page 3 of 8
13) Mr. Patrick, EA list his tax preparation rates in an ad in the local paper on January 15th. On February 3rd, he realizes he is not getting enough business at those rates, so he lowers all his rates across the board. This fee decrease is allowable under the regulations. 14) Practitioner fee information may be communicated by email. 15) A practitioner advising a client to take a position on a tax return may generally rely in good faith without verification upon the information furnished by the client. 16) Ms. Lambert, EA sends a letter to her client concerning her client's wish to avoid tax by setting up and using an offshore deferred compensation arrangement. Ms. Lambert advises against this transaction and points out that the IRS considers this a listed transaction under their published guidance on tax avoidance transactions. Ms. Lambert's letter IS considered a covered opinion. 17) In the case of a marketed opinion, the opinion must provide the practitioner s conclusion that the taxpayer will prevail on the merits at a confidence level of at least more likely than not with respect to each significant Federal tax issue. 18) Ms. Anderson, EA was convicted of theft. Since the theft was unrelated to her job, she cannot be suspended from practice before the IRS. 19) If a practitioner is officially censured, he or she CAN continue to practice before the IRS. 20) Ms. Thompson, EA, is preparing a tax return for her client. Her client wants to deduct the cost of depreciating a car for businesses purposes, but Ms. Thompson knows the client doesn t own a car. Her client argues that most businesses have deductible auto expenses, and she doesn t want to miss out on a common deduction. If Ms. Thompson advises her client that this position will likely result in a penalty if the return is selected for audit, then she can still prepare and sign the return with the auto deduction. Course 9001.10 www.funcpe.com Page 4 of 8
Exam Name: Ethics for Enrolled Agents-2010 -Final Exam 1) Once an Enrolled Agent if past his Initial Enrollment Period, he is required to complete continuing professional education with a minimum of CPE hours each calendar year. a) 8 b) 16 c) 20 d) 24 2) Laura Later forgot to file her application for renewal of enrollment and was placed on a roster of inactive enrolled individuals. If Laura hands out her business card, which state "Laura Later, EA" while she is on inactive status, she is violating the regulations. 3) An authorized employee of the IRS requests records in a matter before the IRS. Mr. Williams is the practitioner representing the client. Mr. Williams does not have to provide the records or any information about the records location to the IRS if: a) He believes in good faith that the records requested are privileged information b) He does not have possession of the records, but he knows the attorney who does c) He knows that the records will hurt the case d) He left the records at the client's office so he is not "in possession of the records" 4) Mr. Milton, EA knew that his client did not report most of his tip income received as a valet parker. Mr. Milton informed his client of the consequences of this omission. Mr. Milton is in violation of the regulations if he signs the return as preparer, knowing the income was omitted. 5) Mr. Parnell, EA engaged four contractors in Singapore he found through Craigslist.com to prepare some of his tax returns for clients. Mr. Parnell uses reasonable care engaging, supervising, training and evaluating these contractors, although he never meets with them in person. Mr. Parnell is presumed to have exercised due diligence in regards to reliance on others. 6) According to 10.23 Prompt disposition of pending matters, a practitioner a) Has a minimum of 60 days from the date of notice to respond to any IRS notice b) May not unreasonably delay the prompt disposition of any matter before the IRS c) Must respond to any information request from the IRS within 5 days; such response can be a request for an extension of time to respond Course 9001.10 www.funcpe.com Page 5 of 8
d) Is under not obligation to respond promptly unless there is a specific deadline indicated in the correspondence 7) Ms. Pitts is a former IRS employee who had direct responsibility for the examination of Mr. Vincent s tax return, which was still in process when she left the IRS to join a small tax practice. Which of the following is true? a) Six months after leaving the IRS, Ms. Pitts can represent Mr. Vincent before the IRS b) Eighteen months after leaving the IRS, Ms. Pitts can represent Mr. Vincent before the IRS c) At any time after Ms. Pitts departure, another member of her tax firm may represent Mr. Vincent, if the firm isolates Ms. Pitts in such a way to ensure that she cannot assist in the representation d) Neither Ms. Pitts nor her firm can represent Mr. Vincent before the IRS 8) Mr. Nash is an Enrolled Agent who is also a notary public. He prepares tax returns for his clients. Which of the following is TRUE? a) Mr. Nash CANNOT notarize any papers related to any tax matter for any of his clients. b) Mr. Nash prepared his client's return. This client later hired an unrelated firm to represent him in a tax matter before the IRS. Mr. Nash CAN notarize papers related to tax matters for this client. c) Mr. Nash CAN notarize papers for his client, provided he only gave tax advice and did not sign a return for this client. d) Mr. Nash CAN notarize any documents he wants to, based on the Freedom of Information Act. 9) Jim Barnes, EA charges his bookkeeping clients a lower fee for tax preparation than he charges new walk in clients. Jim's fee arrangement is PROHIBITED because the lower fee is contingent on the being a bookkeeping client, thus it is a prohibited contingent fee. 10) A practitioner may be able to charge a contingent fee for an amended return in certain circumstances. 11) Ms. Patton, EA, researched complex tax issues and prepared a tax return for her client. Unfortunately, the client was not satisfied with the tax due calculated and refused to pay the full fee. Which of the following can Ms. Patton refuse to give the client? a) Her tax research summary and conclusion b) Records that must be attached to his tax return Course 9001.10 www.funcpe.com Page 6 of 8
c) An appraisal that Ms. Patton s staff prepared of an item donated to charity by the client d) Ms. Patton must provide all of the above to the client, despite the fee dispute e) Ms. Patton is not obligated to provide A and C to the client 12) Even if there is a conflict of interest, the practitioner may represent a client if certain conditions are met. These conditions include which of the following? a) Practitioner must disclose the conflict of interest to the IRS on Form 1529 b) Each affected client provides informed consent in writing c) The practitioner may not charge a contingent fee to the affected clients d) All of the above conditions must be met 13) Ms. Pitts is opening up a new tax office next to a Wal-Mart. She wants to entice new customers to stop by her new office. Which of the following would be acceptable to put on a sign outsider her office? a) Jennifer Pitts, Enrolled to represent taxpayers before the IRS b) Jennifer Pits, Certified Enrolled Agent c) Refunds2U We get the biggest refunds for taxpayers d) Tax Returns Use a professional preparer to avoid a tax audit 14) Ms. Pitts placed sign in her office window with her fee schedule. She decides to reduce her fees by 10%. She must wait 30 days from the day she takes her old sign down to start charging the lower fees. 15) Ms. Pitts collects business cards in a fishbowl in her front office for a weekly drawing for a free lunch. She calls everyone who drops a business card in, to solicit new business for her tax firm. One of these people, Ms. Matthews, asked her not to contact her anymore. According to the regulations, what should Ms. Pitts do? a) She should not contact Ms. Matthews b) She should have someone else in her office contact Ms. Matthews from this point forwards c) She can still call Ms. Matthews no more than once/month to see if her needs have changed d) She can continue to contact Ms. Matthews by mail, but not by phone 16) If a taxpayer has an unpaid balance due to the practitioner, it is acceptable for the practitioner to retain and endorse any tax refund checks received, provided they do not retain more than the unpaid balance. 17) Ms. Pitts is a creative tax preparer and recommended that her client deduct the cost of keeping a large boa constrictor in her office as a security cost for her client s Course 9001.10 www.funcpe.com Page 7 of 8
business. This recommendation most likely meets the standards for preparing a tax return. 18) Rob Morris, EA provides written advice to his employer, Bouncy Trampolines, Inc. concerning a tax liability related to old trampolines sold as scrap. This written advice IS considered a covered opinion. 19) Which of the following incidents could result in disbarring the practitioner from practice before the IRS: a) The practitioner goes to a bar every night after work and drinks heavily b) The practitioner solicits employment inappropriately as described in 10.30 c) The practitioner uses abusive language in dealings with IRS personnel d) Either B or C could result in disbarment 20) Mr. Williams is an attorney, a CPA and an enrolled agent. He is suspended from practice as an attorney in his home state of Colorado. This suspension cannot impact his practice as an enrolled agent, because licensing for attorneys is a separate matter. Course 9001.10 www.funcpe.com Page 8 of 8