CPA Exam — REG (Regulation)Ethics, Professional Responsibilities, and Federal Tax ProceduresMedium
A tax practitioner discovers an error in a client's previously filed tax return that resulted in a material understatement of tax liability. The client is unaware of the error. Under Circular 230, which of the following actions is the practitioner REQUIRED to take?
- ADo nothing, as the practitioner's duty of confidentiality prevents disclosure to any party, including the client.
- BAdvise the client promptly of the error and the potential consequences, recommending corrective measures.
- CCorrect the error on the client's behalf by filing an amended return without prior client approval.
- DImmediately notify the IRS of the error, as the practitioner has a duty to the government.
Show answer & explanationAnswer & explanation
Correct answer: B. Advise the client promptly of the error and the potential consequences, recommending corrective measures.
Under Circular 230, if a practitioner discovers an error or omission on a client's previously filed return, they must promptly advise the client of the error, its potential consequences, and recommend corrective measures. The decision to amend rests with the client.
Why the other options are wrong
- A. A practitioner has an affirmative duty to inform the client of errors, and confidentiality does not extend to concealing material errors from the client.
- C. Filing an amended return without client approval violates the client's autonomy and engagement terms.
- D. The practitioner's primary duty is to the client regarding reporting the error, not directly to the IRS.
Circular 230 Error Discovery
If a practitioner discovers an error or omission on a client's previously filed return, they must inform the client and recommend corrective action.
- Applies to errors or omissions on prior returns.
- Practitioner must promptly advise the client.
- Must inform of potential consequences and recommend corrective measures.
- The decision to amend rests with the client.
Memory trick: Find the old mistake, advise the client's sake.