Due Diligence and Client Errors
Learn the decision pattern the exam can test, then apply it to a realistic taxpayer fact pattern.
What changes the answer?
The duty to advise does not automatically authorize disclosure or correction without the client's consent.
A tax-practice scenario
A new client reveals unreported prior-year income and asks the EA to ignore it on the current engagement. Decide advice, documentation, and engagement response.
Identify the taxpayer, entity, transaction, and tax period first. Write the controlling tests in order, apply only the relevant facts, and keep the reporting result separate from any planning recommendation.
Do not take this shortcut.
Quietly fixing a prior return or contacting the IRS without authority.
Turn the rule into recall.
Document the discovered fact, advice given, consequence explained, client decision, and effect on continued work.
- ExplainState the governing distinction without notes.
- ApplyChange one fact in the scenario and predict the new result.
- RetrieveAnswer an unseen question, then review every option.
Official source and scope
This lesson follows the current PSI content outline and uses the IRS reference below for the underlying tax or practice framework. Always confirm current forms, instructions, thresholds, and effective dates before advising a taxpayer.