2021 AICPA Newly Released Questions—Regulation
REGULATION
July 2021
AICPA Newly
Released MCQs
Page 1 of 43
, 2021 AICPA Newly Released Questions—Regulation
2020 AICPA Regulation Newly Released MCQs—Medium (Moderate) Rating
1.
Which of the following situations would most likely be a violation of the Treasury Circular 230 solicitation
guidelines by a CPA, assuming that there are no violations of federal or state laws or other rules?
A. The CPA sends unsolicited e-mails to potential clients guaranteeing tax refunds from the Internal
Revenue Service.
B. The CPA mails solicitation letters, clearly identified as such, to randomly selected business firms from
a local directory, disclosing how the firms were selected to be contacted.
C. The CPA records a radio advertising broadcast that fails to disclose the fee charged for an initial
consultation.
D. The CPA advertises in a local newspaper as providing accounting and tax services without disclosing
f ee inf ormation.
ANSWER:
Choice "A" is correct. Circular 230 regulations provide that a practitioner may not, with respect to any IRS
matter, in any way use or participate in the use of any form of public communication or private solicitation
containing a false, fraudulent, or coercive statement or claim, or a misleading or deceptive statement or
claim.
The unsolicited e-mails to potential clients are a f orm of private solicitation, and guaranteeing tax refunds
f rom the IRS is a false or misleading claim, so the situation violates the solicitation guidelines of Circular
230.
Choice "B" is incorrect. The letters are a f orm of private solicitation but disclosing how the firms were
selected to be contacted is not a false, fraudulent, coercive, misleading, or deceptive statement that
violates the Circular 230 solicitation guidelines.
Choice "C" is incorrect. The radio advertising broadcast is a form of public communication. However,
although Circular 230 does include specific guidelines for communicating fee information, there is no
requirement that the fee charged for an initial consultation be disclosed.
Choice "D" is incorrect. The advertisement in a local newspaper for providing accounting and tax services
is a form of public communication. However, although Circular 230 does include specific guidelines for
communicating fee information, there is no requirement that fee information be disclosed.
Page 2 of 43
, 2021 AICPA Newly Released Questions—Regulation
2.
Which of the following statements is correct regarding a tax return preparer's penalty for aiding and
abetting the understatement of a tax liability?
A. The penalty applies to a person who provides only clerical assistance.
B. The penalty does not apply if another penalty is assessed with respect to the same action.
C. The taxpayer must have knowledge of the action causing the penalty for the penalty to apply.
D. The penalty applies to a return preparer who knows about and does not prevent the actions of a
subordinate who understates the tax liability.
ANSWER:
Choice "D" is correct. The IRC Section 6701 penalty for aiding and abetting the understatement of a tax
liability applies to any person who knows about the actions of a subordinate to understate a tax liability
and does not prevent those actions.
Choice "A" is incorrect. A person furnishing typing, reproducing, or other mechanical assistance is not
treated as having aided or assisted in the preparation of the document for purposes of the penalty for
aiding and abetting the understatement of a tax liability.
Choice "B" is incorrect. The penalty for aiding and abetting the understatement of a tax liability can be
imposed in addition to any other penalty provided by law other than the penalty for understatement of a
taxpayer's liability by a tax return preparer (IRC Section 6694) or the penalty for promoting abusive tax
shelters (IRC Section 6700).
Choice "C" is incorrect. The penalty for aiding and abetting the understatement of a tax liability applies
whether or not the understatement is with the knowledge or consent of the person authorized or required
to f ile the return, affidavit, claim, or other document.
Page 3 of 43
, 2021 AICPA Newly Released Questions—Regulation
3.
A tax return preparer is researching authorities to support a position of deferral of gain taken on the
disposal of an asset. Which of the following will provide the highest authority for this position?
A. A conclusion reached in a legal periodical.
B. An opinion rendered by a tax professional.
C. A private letter ruling issued to another taxpayer.
D. A temporary regulation issued by the Treasury Department.
ANSWER:
Choice "D" is correct. A temporary regulation issued by the U.S. Department of the Treasury is a primary
authority because it is official tax law issued by a branch of the federal government, the administrative
branch. Regulations are the Treasury Department's official interpretation of the Internal Revenue Code
and have the highest authoritative weight of the administrative sources of tax law. A temporary regulation
has the same authoritative weight as a final regulation.
Choice "A" is incorrect. A legal periodical is secondary authority, which is an unofficial interpretation or
explanation of primary sources of tax law. Secondary authority cannot be relied on as precedent by
taxpayers.
Choice "B" is incorrect. An opinion rendered by a tax professional is not primary or secondary authority. It
is not a secondary authority because it is not a published, unofficial interpretation of primary sources of
tax law.
Choice "C" is incorrect. A private letter ruling (PLR) is the IRS's application of the Internal Revenue Code
and other primary tax authority to a specific taxpayer situation. It is a primary source of law because it is
issued by the IRS, but it has lower authority because it is limited to the particular taxpayer to whom it is
issued and cannot be relied on as precedent by other taxpayers.
Page 4 of 43
REGULATION
July 2021
AICPA Newly
Released MCQs
Page 1 of 43
, 2021 AICPA Newly Released Questions—Regulation
2020 AICPA Regulation Newly Released MCQs—Medium (Moderate) Rating
1.
Which of the following situations would most likely be a violation of the Treasury Circular 230 solicitation
guidelines by a CPA, assuming that there are no violations of federal or state laws or other rules?
A. The CPA sends unsolicited e-mails to potential clients guaranteeing tax refunds from the Internal
Revenue Service.
B. The CPA mails solicitation letters, clearly identified as such, to randomly selected business firms from
a local directory, disclosing how the firms were selected to be contacted.
C. The CPA records a radio advertising broadcast that fails to disclose the fee charged for an initial
consultation.
D. The CPA advertises in a local newspaper as providing accounting and tax services without disclosing
f ee inf ormation.
ANSWER:
Choice "A" is correct. Circular 230 regulations provide that a practitioner may not, with respect to any IRS
matter, in any way use or participate in the use of any form of public communication or private solicitation
containing a false, fraudulent, or coercive statement or claim, or a misleading or deceptive statement or
claim.
The unsolicited e-mails to potential clients are a f orm of private solicitation, and guaranteeing tax refunds
f rom the IRS is a false or misleading claim, so the situation violates the solicitation guidelines of Circular
230.
Choice "B" is incorrect. The letters are a f orm of private solicitation but disclosing how the firms were
selected to be contacted is not a false, fraudulent, coercive, misleading, or deceptive statement that
violates the Circular 230 solicitation guidelines.
Choice "C" is incorrect. The radio advertising broadcast is a form of public communication. However,
although Circular 230 does include specific guidelines for communicating fee information, there is no
requirement that the fee charged for an initial consultation be disclosed.
Choice "D" is incorrect. The advertisement in a local newspaper for providing accounting and tax services
is a form of public communication. However, although Circular 230 does include specific guidelines for
communicating fee information, there is no requirement that fee information be disclosed.
Page 2 of 43
, 2021 AICPA Newly Released Questions—Regulation
2.
Which of the following statements is correct regarding a tax return preparer's penalty for aiding and
abetting the understatement of a tax liability?
A. The penalty applies to a person who provides only clerical assistance.
B. The penalty does not apply if another penalty is assessed with respect to the same action.
C. The taxpayer must have knowledge of the action causing the penalty for the penalty to apply.
D. The penalty applies to a return preparer who knows about and does not prevent the actions of a
subordinate who understates the tax liability.
ANSWER:
Choice "D" is correct. The IRC Section 6701 penalty for aiding and abetting the understatement of a tax
liability applies to any person who knows about the actions of a subordinate to understate a tax liability
and does not prevent those actions.
Choice "A" is incorrect. A person furnishing typing, reproducing, or other mechanical assistance is not
treated as having aided or assisted in the preparation of the document for purposes of the penalty for
aiding and abetting the understatement of a tax liability.
Choice "B" is incorrect. The penalty for aiding and abetting the understatement of a tax liability can be
imposed in addition to any other penalty provided by law other than the penalty for understatement of a
taxpayer's liability by a tax return preparer (IRC Section 6694) or the penalty for promoting abusive tax
shelters (IRC Section 6700).
Choice "C" is incorrect. The penalty for aiding and abetting the understatement of a tax liability applies
whether or not the understatement is with the knowledge or consent of the person authorized or required
to f ile the return, affidavit, claim, or other document.
Page 3 of 43
, 2021 AICPA Newly Released Questions—Regulation
3.
A tax return preparer is researching authorities to support a position of deferral of gain taken on the
disposal of an asset. Which of the following will provide the highest authority for this position?
A. A conclusion reached in a legal periodical.
B. An opinion rendered by a tax professional.
C. A private letter ruling issued to another taxpayer.
D. A temporary regulation issued by the Treasury Department.
ANSWER:
Choice "D" is correct. A temporary regulation issued by the U.S. Department of the Treasury is a primary
authority because it is official tax law issued by a branch of the federal government, the administrative
branch. Regulations are the Treasury Department's official interpretation of the Internal Revenue Code
and have the highest authoritative weight of the administrative sources of tax law. A temporary regulation
has the same authoritative weight as a final regulation.
Choice "A" is incorrect. A legal periodical is secondary authority, which is an unofficial interpretation or
explanation of primary sources of tax law. Secondary authority cannot be relied on as precedent by
taxpayers.
Choice "B" is incorrect. An opinion rendered by a tax professional is not primary or secondary authority. It
is not a secondary authority because it is not a published, unofficial interpretation of primary sources of
tax law.
Choice "C" is incorrect. A private letter ruling (PLR) is the IRS's application of the Internal Revenue Code
and other primary tax authority to a specific taxpayer situation. It is a primary source of law because it is
issued by the IRS, but it has lower authority because it is limited to the particular taxpayer to whom it is
issued and cannot be relied on as precedent by other taxpayers.
Page 4 of 43
