Free CPA REG (Taxation & Regulation) Ethics, Professional Responsibilities and Federal Tax Procedures Practice Questions

D is correct. Under Treasury Circular 230 Section 10.21, a practitioner who knows that a client has not complied with the revenue laws or has made an error or omission in any return must promptly advise the client of the noncompliance, error, or omission and the consequences under the Code. However, the practitioner is not authorized to file an amended return without the client's consent.
B is incorrect because the CPA cannot unilaterally file an amended return — the decision to correct rests with the client.
A is incorrect because Circular 230 does not require the practitioner to report errors directly to the IRS; the duty is to inform the client.
C is incorrect because while withdrawal may be appropriate in some circumstances, Circular 230 does not require the CPA to inform the IRS of the reason for withdrawal in this context.

B is correct. SSTS No. 1 provides that a CPA should not recommend a tax return position unless the CPA has a good-faith belief that the position has a realistic possibility of being sustained administratively or judicially on its merits if challenged. However, a position that does not meet the realistic possibility standard may still be recommended if it has a reasonable basis and is adequately disclosed on the return. Choice D sets an impossible standard of certainty that no professional standard requires. Choice A is too restrictive because it ignores the disclosure option and the realistic possibility standard from SSTS.

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