Final answer:
A CPA engages in the unauthorized practice of law when they perform tasks requiring the expertise of licensed attorneys, such as drafting a contract. Filing state tax returns and answering estate tax questions fall within a CPA's qualifications, while representing a client before the IRS is permissible under specific regulations.
Step-by-step explanation:
A Certified Public Accountant (CPA) would be engaged in the unauthorized practice of law when performing legal services that they are not licensed to offer, which varies by jurisdiction. Specifically, a CPA may encounter an unauthorized practice of law if they overstep the boundaries of tax advice into areas that require legal licensure. Regarding the options provided:
- Drafting a contract for a small business client could be considered practicing law, as creating legally binding contracts typically involves intricate legal knowledge and decision-making power reserved for licensed attorneys.
- Filing a client's state tax return is generally a recognized activity within a CPA's professional scope.
- Answering estate tax questions could be viewed as tax advice and typically falls within the expertise of a CPA.
- Representing a client before the IRS is an activity CPAs are authorized to conduct, given their specialized knowledge in tax law and provisions made under Circular 230, which allows CPAs to practice before the IRS.
Based on these clarifications, option a) drafting a contract for a small business client could most likely lead to the unauthorized practice of law, especially if it involves legal interpretations or customized legal clauses that should be handled by an attorney. This situation exceeds the customary tax-related services a CPA provides.