MODULE 37 TAXES: GIFT AND ESTATE
a court, Additionally, a return preparer wiU be subject to
penalty if any part of an understatement of liability with
respect to a return or refund claim is due to the preparer's
willful attempt to understate tax liability, or to any reckless
or intentional disregard of rules and regulations,
43. (d) The requirement is to determine Water's re-
sponsibility regarding Vee' s unfiled 2003 income tax return,
A CP A should promptly inform the client upon becoming
aware of the client's failure to file a required return for a
prior year, However, the CPA is not obligated to inform the
IRS and the CPA may not do so without the client's permis-
sion, except where required by law, If the CP A is requested
to prepare the current year's return (2008) and the client has
nol t. "CD tion to file tJie Rt:t'mz7! Eorr dAc C3Tficr year (2()()3),
the CPA should consider whether to withdraw from prepar-
ing the current year's return and whether to continue a pro-
fessional relationship with the client. Also, note that the
normal statue of limitations for the assessment of a tax defi-
ciency is three years after the due date of the return or three
years after the return is filed, whichever is later. Thus, the
statute of limitations is still open with regard to 2003 since
there is no time limit for the assessment of tax if no tax re-
turn was filed,
44. (c) The requirement is to determine which action a
tax return preparer must take to avoid tax preparer penalties
for a return's understated tax liability due to a taxpayer's
intentional disregard of regulations, A return preparer may,
in good faith, rely without verification upon information
furnished by the client or by third parties, and is not required
to audit, examine, or review books, records, or documents in
order to independently verify the taxpayer's information,
However, the preparer should not ignore the implications of
information furnished and should make reasonable inquiries
if the furnished information appears incorrect, incomplete,
or inconsistent.
45. (d) According to the Statements on Standards for
Tax Services, in preparing a tax return a CP A may in good
faith rely upon information furnished by the client or third
parties without further verification. . swer (c) is incorrect because CPAs are not required to dis-
46. (d) The requirement is to determine the correct
statement regarding the imposition of a preparer penalty for
understated corporate tax liability. A return preparer may in
good faith rely without verification upon information fur-
nished, and is not required to audit, examine, or review
books, records, or documents in order to independently ver-
ify a taxpayer's information. However, the preparer should
not ignore the implications of information furnished and
should make reasonable inquiries if information appears
incorrect, incomplete, or inconsistent.
47. (a) A tax return preparer is subject to a penalty for
knowingly or recklessly disclosing corporate tax return in-
formation, if the disclosure is made to enable a third party to
solicit business from the taxpayer. Taxpayer return infor-
mation can be disclosed by the preparer without penalty if
the disclosure is made to enable the tax processor to elec-
tronically compute the taxpayer's liability, for purposes of
the tax return preparer's peer review, or if the disclosure is
made under an administrative order by a state agency that
registers tax return preparers.
48. Cc) The requirement is to determine the correct
statement regarding a tax return preparer's disclosure or use
, 671
of tax return information without the taxpayer's consent.
Generally, a tax return preparer who knowingly or recklessly
discloses any information furnished to him in connection
with the preparation of a return, or uses any such informa-
tion other than to prepare, or to assist in preparing a return,
is guilty of a misdemeanor, and upon conviction may be
subject to fine and/or imprisonment. A limited exception
permits the disclosure or use of tax return information for
purposes of being evaluated by quality or peer reviews.
49. (d) A penalty of up to $1,000 may be assessed
against a tax return preparer who knowingly or recklessly
discloses or uses any tax return information other than to
prepare, or assist in preparing a return. Additionally, a pen-
alty equal to the greater of $5,000, or 50% of the income to
be derived by the return preparer from the return or refund
claim will be assessed against a return preparer who
willfully attempts to understate any client's tax liability on a
return or claim for refund,
50. (a) Under Internal Revenue Code Section 6695(f)
any person who is an income tax return preparer who en-
dorses or otherwise negotiates any check which is issued to a
taxpayer shall pay a penalty of $500.
51. (b) A CP A who prepares a federal income tax return
for a fee must keep a completed copy of the return for a
minimum of three years. Answer (a) is incorrect because
prior to preparing a tax return the CP A would not be re-
quired to file certain notices and powers of attorney with the
IRS. Answer (c) is incorrect because a CPA' would only be
required to ask the client if documentation of these expenses
exists. The CPA would not have to actually receive and
examine this documentation. Answer (d) is incorrect be-
cause the CPA's federal identification number would be
required on any federal income tax return prepared for a fee.
52. (b) A CPA.generally does owe a duty to inform a
client that there are errors in a previously filed tax return so
that the client may file an amended tax return. Answer (a) is
incorrect because the client chooses hislher own CP A. An-
close fraud by the client but are usually engaged to give an
opinion on the fairness of the financial statements.' An-
swer (d) is incorrect because although the CPA has a duty to
perform an audit in accordance with GAAS and consistent
with GAAP, the CPA is not under a duty to discover fraud
in the audit unless the fraud would have been uncovered in
the process of an ordinary audit or unless the CP A agreed to
greater responsibility to uncover fraud.
53. (b) If the IRS issues a thirty-day letter to an individ-
ual taxpayer who wishes to dispute the assessment, the tax-
payer may ignore the thirty-day letter and wait to receive a
ninety-day letter. Answer (a) is incorrect because a taxpayer
must receive a ninety-day letter before a petition can be filed
in Tax Court. Answer (c) is incorrect because a taxpayer has
a thirty-day period during which to file a written protest.
Answer (d) is incorrect because a taxpayer is not required to
pay the taxes and commence an action in federal district
court.
Generally, upon the receipt of a thirty-day letter, a tax-
payer who wishes to dispute the fin'dings has thirty days to
(1) request a conference with an appeals officer or file a
written protest letter, or (2) may elect to do nothing during
the thirty-day period and await a ninety-day letter. The tax-