EA Exam Lite
Part 3
Representation, Practice, and Procedures
Previous Exam Questions
1.
Identify the item below that is NOT considered practice before the IRS:
a.
b.
c.
d.
2.
All of the following types of individuals may practice before the IRS except:
a.
b.
c.
d.
3.
Corresponding with the Internal Revenue Service on behalf of a client.
Preparing a tax return for an individual.
Representing a client at an audit.
Calling the IRS to discuss a letter received by a client.
Certified Public Accountants.
Certified Financial Advisors.
Attorneys.
Enrolled Agents.
Which of the following statements is correct with respect to the limited practice of an unenrolled return
preparer:
a.
b.
c.
d.
An unenrolled return preparer is only permitted to represent the taxpayer for any year the taxpayer
provides authorization, whether or not the unenrolled preparer prepared a return in question.
An unenrolled return preparer is only permitted to represent taxpayers before the examination and
collection functions of the Internal Revenue Service.
If authorized by the taxpayer, an unenrolled return preparer can sign consents to extend the
statutory period for assessment or collection of tax.
An unenrolled preparer cannot receive refund checks.
4. The following persons are authorized to represent a taxpayer before the IRS:
a.
b.
c.
d.
5.
Identify the individual below who would NOT be eligible to practice before the IRS under the limited
practice rules.
a.
b.
c.
d.
6.
An individual representing a member of his/her immediate family.
A regular full-time employee of an individual employer representing the employer.
An officer or full-time employee of a corporation representing the corporation.
All of the above.
An unenrolled tax preparer who works for a firm. The taxpayer’s return was prepared by another
individual who also works for the firm.
An unenrolled tax preparer who prepared and signed the tax return that is currently undergoing an
audit.
An unenrolled preparer who appears as a witness for the taxpayer.
Both a and c
With regard to the categories of individuals who may practice before the Internal Revenue Service,
which of the following statements is CORRECT?
a.
b.
c.
Only enrolled agents, attorneys, or CPAs may represent trusts and estates before any officer or
employee of the IRS.
An individual who is NOT an enrolled agent, attorney, or CPA who signs a return as having
prepared it for the taxpayer may, with proper authorization from the taxpayer, appear as the
taxpayer’s representative, with or without the taxpayer, at an IRS Appeals Office conference with
respect to the tax liability of the taxpayer for the taxable year or period covered by that return.
Under the limited practice provisions in Treasury Department Circular No. 230, ONLY general
partners may represent a partnership.
d.
7.
Larry Smith passed all parts of the Special Enrollment Examination in October of 2007. Larry
submitted the required forms to become an Enrolled Agent. Larry failed the suitability test performed
by the Internal Revenue Service and the Office of Professional Responsibility informed Larry that he
was denied participation and provided him with the reasons for the denial. Larry received the notice on
January 20, 2008. What action should Larry take to appeal the denial received from the Office of
Professional Responsibility?
a.
b.
c.
d.
8.
Larry must file a written appeal no later than the 19 th of February with the Commissioner of
Internal Revenue Service or his delegate.
Larry must file a petition no later than the 30th of January with the District Court.
Larry must file a written appeal no later than the 30 th of January with the Secretary of the Treasury
or his delegate.
Larry must file a written appeal no later than the 19 th of February with the Secretary of the
Treasury or his delegate.
Identify the individual below from whom an enrolled agent, in practice before the Internal Revenue
Service, may knowingly accept assistance:
a.
b.
c.
d.
9.
Under the limited practice provision in Circular No. 230, an individual who is under suspension or
disbarment from practice before the IRS may NOT engage in limited practice before the IRS.
An individual who is under disbarment from practice before the Internal Revenue Service.
An individual who is under suspension from practice before the Internal Revenue Service.
An individual who has temporary recognition to practice before the IRS.
A former government employee where any Federal law would be violated.
The appropriate renewal period for an enrolled agent is determined by:
a.
b.
c.
d.
His or her last name
His or her last social security digit
His or her state of residence
None of the above
10. If an enrolled agent’s last day of practice under the current enrollment period is March 31, 2007, he or
she should renew the enrollment
a.
b.
c.
d.
Between November 1, 2006 and January 31, 2007
Between January 1, 2007 and January 31, 2007
Between November 1, 2006 and January 1, 2007
Between November 1, 2006 and March 31, 2007
11. Generally, each individual who applies for renewal to practice before the Internal Revenue Service
must retain the information required with regard to qualifying Continuing Professional Education
hours: How long must verification of CPE taken be retained?
a.
b.
c.
d.
For a period of one year following the date of renewal of enrollment.
For a period of three years following the date of renewal of enrollment.
For a period of five years if it is an initial enrollment.
The individual is not required to retain the information if the Continuing Professional Education
sponsor has agreed to retain it.
12. With regard to continuing professional education (CPE) for enrolled agents, all of the following
statements are correct except:
a.
b.
c.
d.
An enrolled agent may obtain CPE credits ONLY from an organization that has filed a sponsor
agreement with the Director of Practice to obtain approval of its program as a qualified CPE
program.
An enrolled agent must complete a minimum 72 hours of CPE credit if enrolled for an entire
enrollment cycle.
An individual who receives initial enrollment during an enrollment cycle must complete 2 hours
of CPE credit for each month enrolled during the cycle, beginning with the month the individual is
enrolled.
An enrolled agent must complete a minimum of 16 hours of CPE credit in each year of an
enrollment cycle if enrolled for the entire cycle.
13. All of the following statements concerning continuing professional education (CPE) requirements for
enrolled agents are TRUE except:
a.
b.
c.
d.
The enrolled agent must complete a minimum of 72 hours of CPE credit if enrolled for the entire
enrollment cycle.
The enrolled agent must complete a minimum of 24 hours of CPE credit in each year of an
enrollment cycle if enrolled for the entire cycle.
An individual who receives initial enrollment during an enrollment cycle must complete 2 hours
of CPE credit for each month enrolled.
The Director of Practice may grant a waiver from the CPE requirements for a given period if there
is a compelling reason and the request for waiver is approximately documented.
14. A power of attorney is required in all of the following circumstances except:
a.
b.
c.
d.
To furnish information at the request of the IRS.
Authorize the extension of the statute of limitations.
Execute a closing agreement under Sec. 7121.
Receive a refund check.
15. With regard to powers of attorney, all of the following statements are correct except:
a.
b.
c.
d.
Form 2848, Power of Attorney, and Declaration of Representative, can be used to appoint an
unenrolled return preparer as a taxpayer’s representative before revenue agents and examining
officers of the examination division of the IRS.
A taxpayer’s representative can receive and endorse the taxpayer’s check related to income tax
from the U.S. Treasury if so authorized on the taxpayer’s power of attorney, Form 2848.
A document other than Form 2848 can be used to appoint a power of attorney if it contains the
information required by the IRS.
A taxpayer can execute a durable power of attorney which specifies that the appointment of the
attorney-in-fact will NOT end due to the incapacity or incompetency of the taxpayer.
16. The filing of a power of attorney does not authorize the recognized representative to sign a tax return
on behalf of the taxpayer unless such an act is:
a.
b.
c.
d.
Permitted under the Internal Revenue Code and the regulations thereunder.
Specifically authorized in the power of attorney.
Neither “A” nor “B”.
Both “A” and “B”.
17. A declaration of representative which accompanies a power of attorney includes the following
statements, except:
a.
b.
I am authorized to represent the taxpayer(s) identified in the power of attorney.
I am aware of the regulations in Circular 230.
c.
d.
I am an individual described in 26 CFR 601.502(a) (such as an attorney, CPA, enrolled agent, etc.)
I have never been sanctioned (e.g. reprimand, suspension or disbarment) by the Director of
Practice.
18. A properly executed power of attorney must contain all of the following except:
a.
b.
c.
d.
Identification number of the taxpayer (i.e. social security number of employer identification
number).
The specific year(s) and period(s) involved.
Name of the preparer of the return for the year(s) and period(s) involved.
Signature of the appointed representative.
19. All of the following statements regarding changes to power of attorney are true except:
a.
b.
c.
d.
A recognized representative may withdraw from representation in a matter in which a power of
attorney has been filed.
A taxpayer may revoke a power of attorney without authorizing a new representative.
If specifically authorized on the power of attorney, a recognized representative may delegate
authority to another recognized representative.
After a substitution of a representative is made, both the old and newly recognized representatives
will be considered the taxpayer’s representative.
20. Judith wants to revoke a power of attorney that she previously executed and does not want to name a
new representative. In order to do this, what is Judith’s most appropriate action?
a.
b.
c.
d.
Judith must call the Internal Revenue Service toll free number, verify that she is Judith and inform
them she wants to revoke the current power of attorney that is one file.
Judith must send a letter to her nearest Internal Revenue Service Center informing them that she
wants to revoke the current power of attorney that is on file.
Judith must send a copy of the previously executed power of attorney to the Internal Revenue
Service (with an original signature) and write “REVOKE” across the top of the power of attorney.
Judith must send a new power of attorney to the Internal Revenue Service office(s) where the prior
power was originally filed and name herself as the representative.
21. Which of the following is not true concerning a Tax Information Authorization, Form 8821?
a.
b.
c.
d.
The form may not be used to name a representative for the taxpayer before the IRS
The Form 8821 information is also entered in the Centralized Authorization File (CAF) when filed
A power of attorney is required simultaneously with the filing of Form 8821 requesting the release
of taxpayer information
The information disclosed with a Form 8821 is not limited to someone who is authorized to
practice before the IRS.
22. Regarding a Tax Information Authorization, Form 8821, which of the following is correct?
a.
b.
c.
d.
The appointee can advocate the taxpayer’s position.
The appointee can execute waivers.
The appointee can represent the taxpayer by correspondence.
None of the above.
23. With regard to the Centralized Authorization File (CAF) number on powers of attorney, which of the
following is true?
a.
Powers of attorney that relate to specific tax periods, or to any other Federal tax matter such as
application for an employee identification number, will be entered onto the CAF system.
b.
c.
d.
A CAF number is an indication of authority to practice before the Internal Revenue Service.
The fact that a power of attorney cannot be entered onto the CAF system affects its validity.
A power of attorney that does not include a CAF number will not be rejected.
24. A Centralized Authorization File (CAF) number may be issued to which of the following?
a.
b.
c.
d.
An attorney licensed by the State of Texas who represents taxpayers before the IRS solely at IRS
offices in Texas.
An attorney licensed by the State of Texas who files powers of attorney at the Austin Service
Center.
A financial advisor named as a designee in a tax information authorization.
All of the above.
25. Sam is an enrolled agent and a partner in the firm of Taxes-R-Us, LLP. One of Sam’s former partners
is under investigation by the Office of Professional Responsibility for disreputable conduct. Sam has
been asked by the Office of Professional Responsibility to provide information regarding his former
partner. Sam must provide all the information requested unless:
a.
b.
c.
d.
He has credible evidence that Sam is not guilty of the disreputable conduct.
He believes in good faith and on reasonable grounds that the information requested is privileged or
that the request is of doubtful legality.
The partnership agreement prohibits him from providing the information. The conduct in question
relates to one of Sam’s clients.
The conduct in question relates to one of Sam’s clients.
26. An enrolled agent may be disbarred or suspended from IRS practice for which of the following
conduct:
a.
b.
c.
d.
Criminal conviction of an offense under the Internal Revenue Code.
Misappropriation of funds received from a client for the purpose of tax payments.
Disbarment or suspension from the practice as an attorney, CPA, accountant, or actuary.
All of the above.
27. How is a proceeding for violation of the regulations in Circular 230 instituted against an attorney,
certified public accountant, enrolled agent, or enrolled actuary?
a.
b.
c.
d.
An aggrieved taxpayer files a petition with the United States Tax Court stating a claim against the
attorney, certified public accountant, enrolled agent, or enrolled actuary.
The Commissioner of the IRS files a complaint against the attorney, certified public accountant,
enrolled agent, or enrolled actuary with the United States Tax Court.
The Director of OPR signs a complaint naming the attorney, certified public accountant, enrolled
agent, or enrolled actuary and files the complaint in the Director’s office.
The Secretary of the Treasury files a complaint against the attorney, certified public accountant,
enrolled agent, or enrolled actuary in the United States District Court for the District of Columbia.
28. Josephine Jones, an Enrolled Agent, received a compliant from the Office of Professional
Responsibility. Select the statement below that is correct with respect to the contents of the answer
that Josephine will file in rebuttal to the complaint.
a.
b.
c.
d.
Josephine may only state a general denial of the allegations.
Josephine must specifically admit or deny each allegation set forth in the complaint, and may not
state that she is without sufficient information to admit or deny a specific allegation.
Josephine may deny a material allegation in the complaint even though she knows it to be true.
Josephine must specifically admit or deny each allegation set forth in the complaint, except that
she may state that she is without sufficient information to admit or deny a specific allegation.
29. John Jones prepared a return for a client that contained a frivolous position that could not be defended
under any circumstances. The examiner who conducted the examination referred Mr. Jones to the
Office of Professional Responsibility. After all procedural requirements had been met, the Office of
Professional Responsibility filed a complaint against John Jones. Which statement below is correct
with respect to the hearing that will take place for the complaint filed against Mr. Jones?
a.
b.
c.
d.
An Administrative Law Judge will preside at the hearing on a complaint filed for the censure,
suspension, or disbarment of a practitioner or disqualification of an appraiser.
A request by a practitioner or appraiser that a hearing in a disciplinary proceeding concerning him
or her be public, and that the record of such disciplinary proceeding be made available for
inspection by interested persons may be granted by a United States District Court judge.
The United States District Court judge assigned to the case will determine the location of the
hearing.
If either party to the proceeding fails to appear at the hearing, after notice of the proceeding has
been sent to him or her, the party will be deemed to have waived the right to a hearing and the
United States District Court judge may make his or her decision against the absent party by
default.
30. After a decision has been made on a complaint filed by the Office of Professional Responsibility, the
practitioner or Office of Professional Responsibility may appeal the decision. Which statement is
correct with respect to filing an appeal of the decision?
a.
b.
c.
d.
Within 30 days from the date of the District Court Judge’s decision, either party may appeal to the
Secretary of the Treasury, or his or her delegate.
Within 45 days from the date of the District Court Judge’s decision, either party may appeal to the
Secretary of the Treasury, or his or her delegate.
Within 30 days from the date of the Administrative Law Judge’s decision, either party may appeal
to the Secretary of the Treasury, or his or her delegate.
Within 45 days from the date of the Administrative Law Judge’s decision, either party may appeal
to the Secretary of the Treasury, or his or her delegate.
31. A practitioner who is disbarred by the Office of Professional Responsibility may seek reinstatement
after:
a.
b.
c.
d.
1 year.
2 years.
4 years.
5 years.
32. The Director of the Office of Professional Responsibility has documentation that an enrolled agent has
violated the law or regulations governing practice before the IRS. He or she may:
a.
b.
c.
d.
Reprimand such person.
Institute proceedings for disbarment.
Institute proceedings for suspension.
All of the above.
33. Which of the following acts performed by an attorney, CPA or enrolled agent is not prohibited by
section 10.24 (Assistance from disbarred or suspended persons and former IRS employees) of Circular
230?
a.
b.
Accepting employment as an associate of a person disbarred from practice before the IRS.
Preparing the tax return of an individual suspended or disbarred from practice before the IRS.
c.
d.
Accepting assistance from a former government employee where the provisions of section 10.26
(Practice by former Government employees, their partners and their associates) of Circular 230
would be violated.
Employing a person disbarred from practice before the IRS.
34. A Form 1065 U.S. Partnership Return must be filed electronically or on magnetic media if the number
of partners exceeds:
a.
b.
c.
d.
50
75
100
250
35. Samantha Sharp, an Enrolled Agent, prepares and electronically files Form 1040 tax returns.
Samantha prepared the 2007 tax return for Tom, her client. Samantha signs the return electronically,
and also prepares a Form 8453 for required attachments.. On March 1st Samantha electronically filed
Toms’ tax return, which was a refund return. On March 3 rd, Samantha received acknowledgement
from the Internal Revenue Service that Toms’ return had been accepted. By what date must Samantha
mail the executed Form 8453 and related attachments to the IRS?
a.
b.
c.
d.
By March 13th, (within three (3) business days after Tom receives his refund).
By March 5th, (within five (5) business days after the return was electronically filed.
By March 6th, (within three (3) business days after the return is acknowledged as accepted by the
IRS).
By March 31st (All Forms 8453 signed during the month must be sent to the IRS by the last day of
the month).
36. Some returns are not eligible for the Internal Revenue Service electronic filing program. Which item
listed below is generally eligible to be filed through the Internal Revenue Service electronic filing
program?
a.
b.
c.
d.
Form 1040 returns.
Tax returns for prior years.
Fiscal year tax periods.
Amended tax returns.
37. If a taxpayer’s return is rejected by the IRS and the ERO cannot fix the problem and re-transmit the
return in the time prescribed, the EOR must make reasonable attempts to notify the taxpayer of the
reject. How long from the time the return is rejected does the EOR have to try to contact the taxpayer?
a.
b.
c.
d.
12 hours
24 hours
48 hours
One week
38. Which of the following applies to radio or television broadcasting regarding advertisement of
electronic filing?
a.
b.
c.
d.
The broadcast must be preapproved by the IRS.
The broadcast must be prerecorded.
The prerecorded broadcast advertisement must be kept until the end of the calendar year following
the last broadcast.
B & C.
39. Which of the following statements applies to Refund Application Loans?
a.
b.
c.
d.
A Refund Application Loan is money borrowed by the taxpayer from the U.S. Government.
A Refund Application Loan indicator must be included in the electronic return data that is
transmitted to the IRS.
If the anticipated tax refund is not received after a Refund Application Loan is made, the loan is
automatically subtracted from the subsequent years’ refunds until paid.
The Treasury Department is liable for any loss suffered by taxpayers, electronic return originators
and financial institutions resulting from reduced refunds or Direct Deposits not being honored if
documentation is provided that correct procedures were followed.
40. George knew that he had a substantial refund for tax year because he had worked at a high salary early
in the year with extra withholding. He was unemployed the rest of the year. He wanted to
electronically file the return with direct deposit to expedite the refund. The Fix Tax Co. stated that its
fee would be 10% of the refund for preparation and filing, with no additional charge for direct deposit.
The No Tax Co. stated that its fee would be $35 regardless of the refund amount, but that it charged a
$10 fee for direct deposit request. Which of the following is correct?
a.
b.
c.
d.
George cannot electronically file because he is not employed at the end of the year.
The Fix Tax Co. may charge a percentage of the refund because it does not charge for direct
deposit.
The No Tax Co. may charge the $10 direct deposit fee because its $35 filing and preparation fee is
a flat fee.
Neither the Fix Tax Co. nor the No Tax Co. is in compliance with electronic filing fee restrictions.
41. Under which of the following conditions can an examination of an income tax return be transferred to
another IRS district?
a.
b.
c.
d.
James lives in Maryland and his accountant is located in New York. His records are in Maryland
where he works. James wishes a transfer of his case from Maryland to New York for the
convenience of his accountant.
Donna lives in Kentucky. Her books and records are in Kentucky where her business is located.
On occasion she works in Ohio. She wants a transfer of her case to Ohio for her convenience.
Herb lives in Washington and travels to California on business 2 months at a time. His records are
in New York where his business is located. Herb wants his case transferred to California to
coincide with a business trip there.
Tom lives in New Jersey. His books and records are in Delaware where his business is located
and where he works. Tom wishes a transfer of the examination of his return to Delaware.
42. If your tax return was examined for the same items in either of the 2 previous years and no change was
proposed to your tax liability:
a.
b.
c.
d.
You may ignore the examination notice.
You should call the Taxpayer Advocate Office and file a complaint.
You should call the IRS as soon as possible to see if the examination should be discontinued.
You should write a letter to the Service Center and complain that the Revenue Agents are
harassing you.
43. The IRS has begun an examination of Mark’s 2004 income tax return. The IRS would like to ask
Mark’s neighbors questions with respect to that examination. There is no pending criminal
investigation into the matter and there is no evidence that such contact will result in reprisals against
the neighbors or jeopardize collection of the tax liability. Before the IRS contacts the neighbors, the
IRS must:
a.
Provide Mark with reasonable notice of the contact.
b.
c.
d.
Make an assessment of Mark’s tax liability.
Ask the court for a third-party recordkeeper subpoena.
Mail Mark a statutory notice of deficiency.
44. Mr. Shell’s 2006 income tax return was examined by the Internal Service and he agreed with the
proposed changes. He has several ways by which he may settle his account and pay any additional tax
that is due. All of the following statements with respect to this situation are correct except:
a.
b.
c.
d.
If he pays when he signs the agreement, the interest is generally figured from the due date of the
return to the date of his payment.
If he does NOT pay the additional tax when he signs the agreement, he will receive a bill. The
interest on the additional tax is generally figured from the due date of the return to the billing date.
If the bill is delayed, he will NOT be billed for additional interest for more than 60 days from the
date he signed the agreement.
If he pays the amount due within 10 days of the billing date, he will NOT have to pay more
interest or penalties.
45. The Statutory Notice of Deficiency is also known as:
a.
b.
c.
d.
A 30-day letter because the taxpayer generally has 30 days from the date of the letter to file a
petition with the Tax Court.
A 90-day letter because the taxpayer generally has 90 days from the date of the letter to file a
petition with the Tax Court.
An Information Document Request (IDR) because the taxpayer is asked for information to support
its position regarding liability for tax.
A notice and demand because the taxpayer is put on notice that the tax liability is due and owing.
46. If a taxpayer with a notice of deficiency wishes his/her case heard by a court before paying the tax,
which court would the taxpayer petition?
a.
b.
c.
d.
United States Tax Court
United States Claims Court
United States District Court
United States Court of Appeals
47. Which of the following statements about a statutory notice of deficiency is true?
a.
b.
c.
d.
If you do not respond to the 30-day letter or if you later do not reach an agreement with an
Appeals Officer, the IRS will send you a 60-day letter, also known as a notice of deficiency.
If you receive a 30-day letter and send in an amount which is the same as or more than the
proposed liability, the IRS will not send you a notice of deficiency. If the IRS does not send you a
notice of deficiency, you cannot take your case to the Tax Court.
If addressed to you outside the United States, the notice of deficiency provides 200 days to either
agree to the deficiency or to file a petition with the Tax Court for a redetermination of the
deficiency.
If you consent, the IRS can withdraw any notice of deficiency. After the notice is withdrawn, you
can file a petition with the Tax Court based on the withdrawn notice. The IRS may later issue a
notice of deficiency for a greater or lesser amount than the withdrawn deficiency.
48. Sam is the sole shareholder in an S corporation. The S corporation was examined and the IRS
proposed a $20,000 deficiency. What must Sam do to request an Appeals conference?
a.
b.
c.
File a formal written protest.
Pay the deficiency.
Hire a federally authorized tax practitioner to represent the S corporation.
d.
Nothing because he is eligible for the small case procedure.
49. With respect to preparation of a case for IRS Appeals the following statements are correct except:
a.
b.
c.
d.
A brief written statement of the disputed issue(s) is not required if the increase or decrease in tax,
including penalties, or refund, determined by examination is more than $2,500 but not more than
$25,000.
If the proposed increase or decrease in tax, including penalties or claimed refund is more than
$25,000, the taxpayer must submit a written protest of the disputed issues, including a statement of
facts supporting the taxpayer’s position on all disputed issues.
A declaration that the statement of facts is true under penalties of perjury must be added and
signed by the taxpayer.
If a representative submits the protest for the taxpayer, he/she must submit a declaration stating,
that he/she submitted the protest and accompanying documents and whether he/she knows
personally that the statement of facts in the protest and accompanying documents are true and
correct.
50. The IRS has the burden of proof for any factual issue in a court proceeding if the taxpayer has:
a.
b.
c.
d.
Provided credible evidence relating to the issue in a court proceeding.
Complied with all substantiation requirements and maintained all required records.
Cooperated with all reasonable request by the IRS for information regarding the preparation and
related tax treatment of any item reported on the return.
All of the above.
51. Gina disagrees with the results of an IRS examination of her tax return. She pursued the appeals
procedures and disagreed with the Appeals Officer. If she wishes to appeal further, Gina may:
a.
b.
c.
d.
Request a conference with a new Appeals Officer in a different district.
Wait for notice of deficiency, NOT pay the tax, and petition the District Court.
Wait for a notice of deficiency, NOT pay the tax, and petition the Tax Court.
Submit a revised written protest that outlines the issues and authority for the position taken.
52. Which statement is NOT correct concerning the small tax case procedure of the Tax Court?
a.
b.
c.
d.
The disputed tax must be $50,000 or less for any one year or period.
The decision is final.
No appeal is available for cases decided under this procedure.
The tax must have been assessed and paid before the Tax Court proceedings.
53. A disagreement with the Internal Revenue Service can be taken to the United States Tax Court if:
a.
b.
c.
d.
It pertains to income tax.
A statutory notice of deficiency has been issued.
A petition is filed within 90 days from the date a statutory notice of deficiency is mailed (150 days
if it is addressed to the taxpayer outside the United States).
All of the above.
54. Which of the following statements is NOT correct regarding a Memorandum Decision of the Tax
Court?
a.
b.
c.
d.
it is thought to be of little value because it is fact-based and/or has been litigated before
it is not published by the U.S. Government Printing Office
it may not be appealed
all of the above are characteristics of a Memorandum Decision
55. If a taxpayer and the IRS still disagree after an Appeals conference, the taxpayer can take his case to:
a.
b.
c.
d.
United States Tax Court
United States Court of Federal Claims
United State District Court
Any of the above
56. A taxpayer may choose to pay a disputed deficiency and then file a claim for refund. If the claim is
denied by the Internal Revenue Service or if no decision is made in 6 months, the taxpayer may
petition
a.
b.
c.
d.
The United States Tax Court.
The Court of Appeals.
Either the United States District Court or the Court of Appeals.
Either the United States District Court or the United States Claims Court.
57. Which of the following statements is correct with respect to court petitions and court appeals?
a.
b.
c.
d.
A taxpayer may petition the United States Tax Court for a judicial determination of his or her tax
liability within a specified period (generally 90 days) after receiving a notice of deficiency or
paying the tax.
Both the taxpayer and the Government may appeal decisions of the Tax Court or District Court to
the appropriate Circuit Court of Appeals.
Decisions of the Courts of Appeals and some decisions of other Federal courts CANNOT be
reviewed by the United States Supreme Court.
If a taxpayer’s claim for refund is denied by the IRS or if no decision is made by the IRS in 6
months, the taxpayer may petition either the United States Claims Court or the United States
Circuit Court of Appeals having jurisdiction over the taxpayer.
58. Mr. G does not agree with the findings of the Tax Court and his case was not handled under the “small
tax case procedure”. Which one of the following courts would he appeal to first?
a.
b.
c.
d.
Court of Appeals
U.S. Court of Appeals for the Federal Circuit
U.S. Supreme Court
Claims Court
59. Which of the following statements is false regarding tax return preparers?
a.
b.
c.
d.
Only a person who signs a return as the preparer may be considered the preparer of the return.
Unpaid preparers, such as volunteers who assist low-income individuals, are not considered to be
preparers for purposes of preparer penalties.
An employee who prepares the return of his/her employer does not meet the definition of a tax
return preparer.
The preparation of a substantial portion of a return for compensation is treated as the preparation
of that return.
60. Which of the following would NOT be a tax return preparer?
a.
b.
c.
d.
Someone who employs one or more persons to prepare for compensation, all or a substantial
portion of any tax return under subtitle A of the Code.
Someone who prepares a substantial portion of a return or claim for refund under Subtitle A of the
Code.
Someone who prepares an information return for a person or entity under subtitle A of the Code.
Someone who prepares, as a fiduciary, a return or claim for refund for any person.
61. Which one of the following individuals is not considered a tax return preparer?
a.
b.
c.
d.
Alfred, who prepared, for compensation, Schedule E for a federal income tax return. The
Schedule E showed a net loss of ($10,000) and the adjusted gross income was $40,000.
Shirley, who gave an opinion, for compensation, regarding the tax implications of an investment
package a company was contemplating.
Larry, who prepared a tax return for a free paint job for his car.
Sue, who prepares income tax returns for compensation, but does not have a college degree.
62. Circular 230, Sec. 10.34 discusses standards for advising clients with respect to tax return positions
and for preparing or signing returns. Which of the statements below is true?
a.
b.
c.
d.
A practitioner may not sign a tax return as a preparer if the practitioner determines that the tax
return contains a position that does not have a realistic possibility of being sustained on its merits
(the realistic possibility standard) unless the position is not frivolous and is adequately disclosed to
the Internal Revenue Service.
A practitioner advising a client to take a position on a tax return, or preparing or signing a tax
return as a preparer, must inform the client with respect to the position advised, prepared, or
reported.
A practitioner advising a client to take a position on a tax return, or preparing or signing a tax
return as a preparer, generally may rely in good faith without verification upon information
furnished by the client. The practitioner may not, however, ignore the implications of information
furnished to, actually known by, the practitioner, and furnished appears to be incorrect,
inconsistent with an important fact or another factual assumption, or incomplete.
All of the above.
63. An enrolled agent can recommend a position on the client’s 2007 return as long as the position is:
a.
b.
c.
d.
Reasonable
Not frivolous
Adequately disclosed
All of the above.
64. Bernard is a tax return preparer. While preparing a tax return for a client, Bernard determines the
client owns a substantial amount of tax. In order to generate a refund for the client, Bernard
substantially overstates itemized deductions and expenses claimed on the Schedule C. Bernard is
subject to a minimum penalty of at least:
a.
b.
c.
d.
$5,000, or if greater, 50% of the income from the engagement
$1,000, or if greater, 50% of the income from the engagement
$250
$100
65. Delores is a tax return preparer. While preparing a return for a client, she knowingly takes an
unrealistic position that she does NOT disclose. She also intentionally disregards rules and
regulations. The position Delores takes causes an understatement of her client’s liability. With regard
to the penalties that may be assessed against Delores, which of the following statements is true?
a.
b.
c.
Only the penalty for understatement of liability due to unrealistic positions may be assessed
against Delores.
Only the penalty for willful or reckless conduct may be assessed against Delores.
Delores must pay both the penalty for understatement of liability due to an unrealistic position
AND the penalty for willful or reckless conduct.
d.
Delores is liable for BOTH penalties, but the penalty for willful or reckless conduct will be
reduced by the amount of the penalty for understatement due to unrealistic positions.
66. Which of the following statements is not correct in respect to a penalty proposed pursuant to Code
section 6694?
a.
b.
c.
d.
The IRS must send a letter to the tax return preparer at least 30 days before the statute of
limitations expires.
After the IRS sends the tax return preparer a letter, that preparer has 30 days to request further
consideration.
If the IRS assesses either of the two penalties, within 30 days the preparer can either pay the entire
amount and then file for refund, or pay at least 15 percent of the entire amount and then file a
claim for the amount paid.
The preparer may bring suit in district court to determine liability for the penalty if the claim for
refund is denied.
67. Which of the following situations describes a disclosure of tax return information by a tax return
preparer which would subject the preparer to a penalty?
a.
b.
c.
d.
Grandfather’s tax information is made available to his granddaughter to inform her she will be
claimed as a dependent on the grandfather’s return.
Employee of the tax return preparer makes corporate return information available to shareholders.
After a client files for bankruptcy, the tax return preparer provides a copy of the last return filed to
the court-appointed fiduciary without written permission.
None of the above.
68. When a prepared return claims the earned income credit, which of the following is NOT true?
a.
b.
c.
d.
Due diligence requirements apply.
No special requirements apply to returns claiming earned income credit.
The preparer may be penalized $100 if no attempt is made to determine eligibility for the credit.
The preparer must take additional steps to ensure that a client is eligible for earned income credit.
69. Mr. K employs X, Y, and Z to prepare income tax returns for taxpayers. X and Y collect the
information from taxpayers and apply the tax laws. The return forms are completed by a computer
service. One day, when certain returns prepared by X and Y were ready for their signatures, X was out
of town for 2 weeks and Y was out of the office for the day. Which one of the following statements is
correct?
a.
b.
c.
d.
Z may sign the returns prepared by X and Y, if Z reviews the information obtained by X and Y
from the taxpayers and reviews the preparation of the returns.
Z may sign the returns prepared by X, if Z reviews the information obtained by X from the
taxpayers and reviews the preparation of the returns.
Z may sign the returns prepared by Y if he reviews the information obtained by Y from the
taxpayers and reviews the preparation of the returns.
X and Y must sign the returns that each one prepared.
70. The duties in the preparation of Corporation XYZ’s income tax return were assigned and completed as
follows:
Joe – obtained the necessary information, applied to the tax law to the information, and performed
the necessary calculations.
Sue – Joe’s supervisor reviews Joe’s work. In her review, Sue reviews the information provided
and the application of the tax laws.
Company A – A company tax service which takes the information provided by Sue, verifies the
mathematical accuracy and prints the return form.
Pat – A partner in the firm where Joe and Sue work. Pat reviews the return, the information
provided, and applies this information to XYZ’s affairs. Pat also verifies that the partnership’s
policies have been followed and makes the final determination.
Who is the preparer of XYZ’s return and therefore required to sign it?
a.
b.
c.
d.
Joe
Sue
Company A
Pat
71. With regard to the requirements for preparers signing returns under Code section 6695, all of the
following statements are correct except:
a.
b.
c.
d.
A $50 penalty is imposed on any preparer who does NOT inscribe his and his employer’s
identification number on the return.
If more than one preparer is involved in the preparation of the return the individual with primary
responsibility for the overall accuracy of the preparation of the return must sign it.
If a substitute preparer has first reviewed both the information obtained by the original preparer
and has reviewed the original preparer’s preparation of the return, then the substitute preparer may
sign the return (assume the original preparer is available to sign).
A facsimile signature stamp or gummed label will NOT satisfy the signature requirement for
individual income tax returns.
72. When must an income tax return preparer provide a copy of an income tax return to a taxpayer?
a.
b.
c.
d.
Within 45 days after the return is filed, including extensions.
Within 48 hours after the taxpayer requests a copy of the income tax return.
Not later than the time the original return is presented to the taxpayer for signature.
None of the above.
73. Identify the item below that is NOT accurate regarding preparer retention of records:
a.
b.
c.
d.
The preparer must retain a completed copy of each return or claim for refund prepared or retain a
record, by list, card file, or otherwise of information, as required by regulation, about each return
prepared.
The preparer must retain information about the preparer of each return presented to a taxpayer for
signature. This information may be retained via retention of a copy of the return or claim for
refund, maintenance of a list or card file, or otherwise.
The preparer must make the copy or record of returns and claims for refund and record the
individuals required to sign available for inspection upon request by the district director.
None of the above.
74. Jack, a return preparer, did NOT retain copies of all returns that he prepared, but did keep a list that
reflected the taxpayer’s name, identification number, tax year, and type of return for all of his clients.
Which of the following statements best describes this situation?
a.
b.
c.
Jack IS in compliance with the provisions of Code Section 6107 if he retains the list for a period of
one year after the close of the return period in which the return was signed.
Jack IS in compliance with the provisions of Code Section 6107 providing he retains the list for a
three-year period after the close of the return period in which the return was signed.
Jack is NOT in compliance with Code Section 6107 since he must retain copies of all returns filed.
d.
Jack is NOT in compliance with Code Section 6107 since he has not kept all the information
required by the code.
75. Which of the following is not true regarding the filing of information returns concerning employees
who prepare tax returns?
a.
b.
c.
d.
Annual listings of preparers, identification numbers, and place of work are required for preparers
who employ others to prepare returns.
The period for which the information return is required is a 12-month period beginning July 1 of
each year.
No information return is actually required to be submitted; a list is made and kept by the
employing preparer.
Information returns of income tax return preparers must be maintained by the preparer for two
years.
76. If a penalty is proposed against a preparer that the preparer does not agree with, what actions are
available to the preparer?
a.
b.
c.
d.
Request a conference with the agent and present additional information and explanations showing
that the penalty is not warranted.
Wait for the penalty to be assessed and a notice and demand statement to be issued, then pay the
penalty within 30 days and file a claim for refund.
Wait for the penalty to be assessed and a notice and demand statement to be issued, then pay at
least 15% of the penalty within 30 days and file a claim for refund.
Any of the above.
77. Which of the following persons would be subject to the penalty for improperly negotiating a
taxpayer’s refund check?
a.
b.
c.
d.
An income tax return preparer who operates a check-cashing agency that cashes, endorses, or
negotiates income tax refund checks for returns he prepared.
An income tax return preparer who operates a check-cashing business and cashes checks for his
clients as part of a second business.
The firm which prepared the tax return and is authorized by the taxpayer to receive an income tax
refund, but NOT to endorse or negotiate the check.
A business manager who prepares income tax returns for clients who maintain special checking
accounts against which the business manager is authorized to sign certain checks on their behalf.
The clients’ federal income tax refunds are mailed to the business manager, who has the clients
endorse the checks and deposits them in the special accounts.
78. Jim, a tax return preparer, has several clients who travel extensively. They have requested that all
returns and correspondence with the IRS bear their preparer’s address so that he can handle their tax
matters timely. Several have given Jim power of attorney. From time to time, a refund check will be
received for one of these clients and Jim will deposit it to that client’s account. Based on these facts,
it can be concluded that, regarding the prohibition against endorsing or negotiating a refund check,
a.
b.
c.
d.
Jim has not violated the prohibition in any circumstance
Jim has not violated the prohibition in any case when the client is present to endorse the check
Jim is automatically in violation of the prohibition because he receives the check
None of the above
79. Which of the following is not a “covered opinion” relating to tax advice under Circular 230?
a. confidentiality
b. contractual protection
c. simultaneous opinion
d. marketed opinion
80. Under the “covered opinion” rules, a reliance opinion arrive at a conclusion in the taxpayer’s favor of
at least
a.
b.
c.
d.
a confidence level “not frivolous” ( higher than 5%)
a confidence level of “reasonable basis” (higher than 20%)
a confidence level of “realistic possibility” (higher than 33 1/3 %)
a confidence level of “more likely than not” (higher than 50%)
81. A “covered opinion” must include a discussion of
a.
b.
c.
d.
significant issues concluded in the taxpayer’s favor
significant issues with no conclusion
significant issues that are not concluded in the taxpayer’s favor
all of the above
82. Certain types of tax advice are not considered to be “covered opinions,” and, as a result, must only
meet the less stringent requirements for “other written advice.” Which of the following types of
advice does NOT qualify for this exception?
a.
b.
c.
d.
advice related to ongoing litigation related to a tax return under audit by the IRS
advice where the fee is contingent on realizing certain promised tax savings
advice from an employer to an employee regarding preparation of the company tax return
advice related to a qualified pension plan
Part 3
Answers and Explanations to Questions
Question
Answer
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
b
b
d
d
d
d
d
c
b
a
b
a
b
a
b
d
d
c
d
c
c
d
d
d
b
d
c
d
a
c
d
d
b
c
c
a
b
d
b
d
d
c
a
c
b
Explanation
Merely preparing a tax return does not constitute practice before the IRS
A certified financial adviser is not automatically granted representation
Unenrolled preparers may never receive refund checks
All are qualified under the special rules
Neither of these individuals qualify for practice
Individuals under suspension or disbarment may not practice
Appeal must be filed with Secretary of the Treasury within 30 days
Assistance may be accepted from someone with temporary grants to prac
The last digit of the SS number determines the enrollment period
The preceding November 30th until January 31st of the expiration year
Records must be kept 3 years beyond next enrollment date
Requirements do not specify prerequisite IRS approval
Minimum hours per year are 16 hours
No such requirement exists for furnishing documents
Endorsing the check is not permitted
These are the two conditions for a power of attorney to include signing
Such a statement is not required on the attestation
Name of the preparer of the tax return is not required
The new representative is assumed to replace the old one
The word “REVOKE” should be written across the power of attorney
A power of attorney is not required with a TIA request
Most powers listed are with a power of attorney, not a TIA
The CAF number is asked for (if held), but is not required
A CAF number is issued for most representative functions
These are grounds for refusing to disclose the information
All three actions are instances of disreputable conduct
Proceeding is instituted by a complaint signed by the Director of OPR
Each allegation must be addressed, unless there is insufficient info
Hearing conducted by an Administrative Law Judge, not District Judge
Administrative law judge’s ruling may be appealed within 30 days
The practitioner may apply after a minimum of 5 years
All actions are options available to the Director
Preparing the tax return of the individual is not a violation of the rules
More than 100 partners requires electronic filing
Must retain signed 8453, W-2, 1099-R and any other relevant document
Basic 1040 returns are eligible for e-filing; others listed are not
Reasonable attempts to contact the taxpayer must be made within 24 hrs.
Must be retained until end of calendar year following last broadcast
The RAL indicator must be included in the transmitted electronic data
Fees based on a pct. or separate direct deposit charges are not allowed
A transfer to the location of the books and records is reasonable
Contact with the office is suggested under the repetitive audit rules
The IRS must generally provide reasonable notice of such actions
Taxpayer must pay within 10 days to avoid interest
The statutory notice is also known as a 90-day letter
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
a
b
a
a
d
c
d
d
c
d
d
b
a
a
d
b
d
d
a
d
a
d
b
b
d
c
c
d
b
d
d
a
b
b
d
d
b
Only the Tax Court does not require payment first
You must receive a notice of deficiency to go to the Tax Court
Case involves an S Corporation; a formal written protest is required
A brief statement is required at this level ($2,500 to $25,000)
All conditions are required to shift the burden of proof to the IRS
The only option with not paying the deficiency is to go to Tax Court
Tax does not have to be paid first to go to Tax Court (incl. small cases)
All of the characteristics listed are true
Memorandum decisions may be appealed
The three courts listed are all possible as initial courts of entry
These courts require payment first (assuming no tax court petition filed)
Either party may appeal
Tax Court decisions are appealed to the regular Circuit Court of Appeals
The signer is not determinative of ITP status
A fiduciary traditionally does not accept compensation; not an ITP
Giving investment opinions is not tax return preparation
All statements are true regarding tax preparers
All items are required to avoid a penalty
The willful neglect penalty is $1,000
The willful penalty is reduced by the reasonable position penalty
The preparer has 30 days to respond, not the IRS
None appear to violate the requirements (assuming no instr. to contrary)
Certain due diligence requirements must be met and records kept
X is absent for at least 2 weeks, and Z has reviewed materials thoroughly
Pat appears to be the person with primary responsibility
The original preparer is available to sign, so there is no need to substitute
Copy must be presented no later than when return is presented to sign
All answers are accurate and are required
The retained list with the 3 items of info per taxpayer is sufficient
The list must be maintained for 3 years, not 2
All actions are acceptable, though the practitioner needs only to pay 15%
Check-cashing business cannot be part of the tax preparation business
If Jim endorses the checks, he will be in violation of the prohibition
There is no “simultaneous” opinion
A reliance opinion must meet a “more likely than not” standard
All components are required of a covered opinion
Advice contingent on promised tax savings is a covered opinion