ExpertHard1 markMultiple Choice
CPA · Question 01 · Area I: Ethics & Tax Procedures
A CPA is preparing an original tax return for a client who is claiming a refund based on a position that has a reasonable basis but does not meet the substantial authority standard. Under Treasury Department Circular No. 230, which of the following actions must the CPA take to avoid a violation?
A CPA is preparing an original tax return for a client who is claiming a refund based on a position that has a reasonable basis but does not meet the substantial authority standard. Under Treasury Department Circular No. 230, which of the following actions must the CPA take to avoid a violation?
Answer options:
A.
The CPA must ensure the position is more likely than not to be sustained on its merits.
B.
The CPA must advise the client to disclose the position on the tax return.
C.
The CPA must obtain a written opinion from another practitioner supporting the position.
D.
The CPA must withdraw from the engagement if the client refuses to file an amended return.
How to approach this question
Recall the hierarchy of confidence levels: Frivolous < Reasonable Basis < Substantial Authority < More Likely Than Not. Reasonable basis positions require disclosure.
Full Answer
B.The CPA must advise the client to disclose the position on the tax return.✓ Correct
Under Circular 230 §10.34, a practitioner may not sign a tax return if it contains a position that lacks substantial authority, unless there is a reasonable basis for the position AND the position is adequately disclosed to the IRS.
Common mistakes
Confusing 'substantial authority' (no disclosure needed) with 'reasonable basis' (disclosure needed).
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