1. Penalties may be imposed on a tax return preparer for an understatement of tax liability because of a position for which there is not a reasonable belief that there is substantial authority that the position will be sustained on its merits. But the penalties may be excused if

A. The preparer knew or should have known of the position. B. The position was disclosed. C. The understatement was unintentional. D. There is reasonable cause and good faith.

2. Under the Securities Exchange Act of 1934, a person is liable for making a false or misleading statement (or omission) of a material fact in an SEC filing (Section 18). Moreover, defrauding anyone in the purchase or sale of any security is illegal (Section 10). Under these provisions, a plaintiff must bring a suit within

A. 5 years after the filing or the purchase or sale. B. 2 years after the cause of action arose. C. 5 years after discovery of the facts on which the suit is based. D. The earlier of 2 years after discovery of the facts on which the suit is based or 5 years after the cause of action arose.

3. Fact Pattern: Brown & Co., CPAs, prepared tax returns for its client, King Corp. Based on the strength of Kings tax returns, Safe Bank lent King $500,000. Brown was unaware that Safe would receive a copy of the tax returns or that they would be used in obtaining a loan by King. King defaulted on the loan.

Safe commences an action for common law negligence against Brown. If Brown is able to prove that it prepared the returns in accordance with standards applicable to preparers, Brown will

A. Be liable because Safe relied on the financial statements. B. Be liable because the statute of frauds has been satisfied. C. Not be liable because the conclusive presumption is that following applicable standards is the equivalent of acting reasonably and with due care. D. Not be liable because Safe was not a foreseen user.

4. All of the following statements concerning court appeals and court petitions are true except

A. Both the taxpayer and the government may appeal decisions of the Tax Court or a district court to the appropriate circuit court of appeals. B. The decisions of courts of appeal and some decisions of other federal courts may be reviewed by the U.S. Supreme Court. C. For federal tax purposes, the most common type of case that the U.S. Supreme Court hears is one in which a federal tax statute is ruled to be invalid. D. If a taxpayers claim for refund is denied by the Internal Revenue Service or if no decision is made in 6 months, the taxpayer may petition either the U.S. Court of Federal Claims or the U.S. Circuit Court of Appeals.

5. A calendar-year C corporation received an automatic extension of time for filing its Year 1 return by submitting an application on Form 7004. On what date is the corporations return due?

A. October 30, Year 2. B. October 15, Year 2. C. August 15, Year 2. D. April 15, Year 2.