Question

Which of the following is CORRECT about a CPA's responsibility with regard to tax return positions under Statements on Standards for Tax Services No. 1 (SSTS No. 1):

a. A CPA may not base his or her position on authority that is not approved by the IRS under Section 6662 (accuracy-related penalty).
b. A CPA may sign a return which has a tax position that has a realistic possibility of being sustained on the merits.
c. A CPA may not sign a return which has any tax position that is not fully disclosed.
d. All of the above statements are correct.

Answer 1

The correct statement regarding a CPA's responsibility under SSTS No. 1 is that a CPA may sign a return with a tax position if it has a realistic possibility of being sustained on the merits.

Step-by-step explanation:

When considering a Certified Public Accountant's (CPA's responsibility) with regard to tax return positions under Statements on Standards for Tax Services No. 1 (SSTS No. 1), the correct statement is that a CPA may sign a return which has a tax position that has a realistic possibility of being sustained on the merits. This is in accordance with the guideline that a tax preparer should have a good-faith belief that the tax position has at least a realistic possibility of being sustained administratively or judicially on its merits if challenged.

Statements 'a' and 'c' are incorrect because the SSTS do not require authority to be approved by the IRS under Section 6662, nor do they prohibit a CPA from signing a return that includes positions that are not fully disclosed, provided the positions meet the applicable non-disclosure threshold standard of being reasonable to not disclose and are not frivolous.