Question

For each of the following independent factual situations in which a CPA sole practitioner has prepared and signed the taxpayer's income tax return, select from the options below the correct response regarding the tax preparer's responsibilities.

Options:

P. The tax preparer's action constitutes an act of tax preparer misconduct subject to the Internal Revenue Code penalty.

E. The Internal Revenue Service will examine the facts and circumstances to determine whether the reasonable cause exception applies; the good-faith exception applies; or both exceptions apply.

N. The tax preparer's action does not constitute an act of tax preparer misconduct.

The tax preparer disclosed taxpayer income tax return information under an order from a state court, without the taxpayer's consent

The tax preparer relied on the advice of an advisory preparer to calculate the taxpayer's tax liability. the tax preparer believed that the advisory preparer was competent and that the advice was reasonable. Based on the advice, the taxpayer had understated income tax liability.

The tax preparer did not charge a separate fee for the tax return preparation and paid the taxpayer the refund shown on the tax return less a discount. The tax preparer negotiated the actual refund check for the tax preparer's own account after receiving power of attorney from the taxpayer.

The tax preparer relied on information provided by the taxpayer regarding deductible travel expenses. The tax preparer believed that the taxpayer's information was correct but inquired about the existence of the travel expense records. The tax preparer was satisfied by the taxpayer's representations that the taxpayer had adequate records for the deduction. Based on this information, the income tax liability was understated.

The taxpayer provided the tax preparer with a detailed check register to compute business expenses. The tax preparer knowingly overstate the expenses on the income tax return.

The tax preparer disclosed taxpayer income tax return information during a quality review conductedy by CPAs. The tax preparer maintained a record of the review.

The tax preparer relied on incorrect instructions on an IRS tax form that were contrary to the regulations. The tax preparer was not aware of the regulations or the IRS announcement pointing out the error. The understatement was immaterial as a result of the isolated error.

The tax preparer used income tax return information without the taxpayers consent to solicit additional business.

The tax preparer knowingly deducted the expenses of the taxpayer's personal domestic help as wages paid in the taxpayer's business on the taxpayer's income tax return.

Answer 1

The question is very specific in nature. Therefore, no explanation is possible.

	Correct Option
The tax preparer disclosed taxpayer income tax return information under an order from a state court, without the taxpayer's consent.	N
The tax preparer relied on the advice of an advisory preparer to calculate the taxpayer's tax liability. the tax preparer believed that the advisory preparer was competent and that the advice was reasonable. Based on the advice, the taxpayer had understated income tax liability.	E
The tax preparer did not charge a separate fee for the tax return preparation and paid the taxpayer the refund shown on the tax return less a discount. The tax preparer negotiated the actual refund check for the tax preparer's own account after receiving power of attorney from the taxpayer.	P
The tax preparer relied on information provided by the taxpayer regarding deductible travel expenses. The tax preparer believed that the taxpayer's information was correct but inquired about the existence of the travel expense records. The tax preparer was satisfied by the taxpayer's representations that the taxpayer had adequate records for the deduction. Based on this information, the income tax liability was understated.	N
The taxpayer provided the tax preparer with a detailed check register to compute business expenses. The tax preparer knowingly overstate the expenses on the income tax return.	P
The tax preparer disclosed taxpayer income tax return information during a quality review conductedy by CPAs. The tax preparer maintained a record of the review.	N
The tax preparer relied on incorrect instructions on an IRS tax form that were contrary to the regulations. The tax preparer was not aware of the regulations or the IRS announcement pointing out the error. The understatement was immaterial as a result of the isolated error.	E
The tax preparer used income tax return information without the taxpayers consent to solicit additional business.	P
The tax preparer knowingly deducted the expenses of the taxpayer's personal domestic help as wages paid in the taxpayer's business on the taxpayer's income tax return.	P