CPA REG Ethics, Preparer Rules & Legal Duties Practice Questions
Ethics, Preparer Rules & Legal Duties makes up 3 of every 50 questions on a Tigertest CPA REG practice test. Here are 10 of the 12 questions on it, each with the answer and the reason.
Updated by the Tigertest team. Based on the AICPA's 2026 REG blueprint. Original multiple-choice questions; 50 per test, weighted like the real section's five areas, 75% target. Not affiliated with the AICPA or NASBA.
1. A CPA preparing a client's current return learns that the client left income off a prior-year return. Under Circular 230, the CPA must:
- A.Withdraw from the engagement
- B.Advise the client of the omission
- C.Notify the IRS of the omission
- D.Amend the prior return at once
Answer: B. Circular 230 section 10.21 requires the practitioner to promptly advise the client of the noncompliance and its consequences. The practitioner has no duty to tell the IRS or to amend the return without the client.
2. Under Circular 230, a practitioner may charge a contingent fee for:
- A.Planning a client's estimated tax
- B.Advising on a business purchase
- C.Preparing an original tax return
- D.Representing a client in Tax Court
Answer: D. Section 10.27 allows contingent fees for IRS audits or challenges of an original return, certain refund claims and judicial proceedings. Fees for preparing an original return may not be contingent.
3. A practitioner has a conflict of interest between two clients. Under Circular 230, the practitioner may still represent both if each client:
- A.Gives informed written consent
- B.Pays a separate retainer
- C.Gives oral consent in advance
- D.Is told after the work ends
Answer: A. Section 10.29 permits representation despite a conflict when the practitioner reasonably believes they can represent each client competently, the law allows it, and each affected client gives informed consent confirmed in writing.
4. A client in a fee dispute asks for the original records needed to file their return. Under Circular 230, the practitioner must generally:
- A.Send them straight to the IRS
- B.Return only photocopies
- C.Return the client's records
- D.Keep them until paid in full
Answer: C. Section 10.28 requires a practitioner to promptly return a client's records needed for the client to meet federal tax obligations, even in a fee dispute. The practitioner may keep copies.
5. Under Circular 230, a practitioner may generally rely in good faith on information a client provides unless it:
- A.Was given to them orally
- B.Lacks third-party proof
- C.Appears incorrect or incomplete
- D.Was not signed by a notary
Answer: C. A practitioner exercises due diligence but may rely on client information without verifying it. If the information looks wrong, inconsistent or incomplete, the practitioner must make reasonable inquiries.
6. Who is a tax return preparer under the Internal Revenue Code?
- A.A person paid to prepare a return
- B.A spouse preparing a joint return
- C.A volunteer at a free tax site
- D.Only a CPA or enrolled agent
Answer: A. A tax return preparer is anyone who prepares for compensation all or a substantial portion of a return or refund claim. Credentials do not matter, and unpaid preparers are not covered.
7. To avoid the preparer penalty for an undisclosed position that is not a tax shelter or reportable transaction, the position needs:
- A.Some written support
- B.Only a reasonable basis
- C.A realistic possibility
- D.Substantial authority
Answer: D. Under section 6694(a), an undisclosed position must have substantial authority. Reasonable basis is enough only when the position is adequately disclosed.
8. A preparer adequately discloses a position on the return. To avoid the unreasonable position penalty, the position needs at least:
- A.A private letter ruling
- B.A reasonable basis
- C.Substantial authority
- D.More likely than not support
Answer: B. Adequate disclosure lowers the standard to reasonable basis under section 6694(a). Tax shelters and reportable transactions still need a more likely than not belief.
9. A paid preparer must keep a copy of each return prepared, or a list of the clients and returns, for at least:
- A.5 years
- B.3 years
- C.1 year
- D.7 years
Answer: B. Section 6107 requires a copy or a list to be kept for 3 years after the close of the return period. Failing to do so carries a preparer penalty.
10. Which action can a state board of accountancy take against a CPA licensed in its state?
- A.Expel the CPA from the AICPA
- B.Impose a prison sentence
- C.Bar the CPA from IRS practice
- D.Revoke the CPA's license
Answer: D. A state board issues, suspends and revokes licenses. The IRS Office of Professional Responsibility handles practice before the IRS, the AICPA handles its own membership, and only courts impose criminal sentences.
Practice all 12 ethics, preparer rules & legal duties questions, and the rest of the 200-question bank, in the free CPA REG training sets. Questions you miss come back until you have mastered them.
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