Free CPA REG (Taxation & Regulation) Ethics, Professional Responsibilities and Federal Tax Procedures Practice Questions

B is correct, a revenue procedure supplies instructions for carrying out tax administration requirements or using an administrative procedure. Revenue rulings principally explain the IRS's treatment of stated facts under tax law (IRS published-guidance primer).

More-likely-than-not means the position has a greater than 50% likelihood of being sustained on its merits. This is the highest of the three commonly tested return-position standards: reasonable basis (roughly 20%), substantial authority (roughly 35–40%), and more-likely-than-not (greater than 50%). For tax shelters and reportable transactions under §6662A, more-likely-than-not is the threshold required to avoid an accuracy-related penalty. For preparers under §6694, the standard for an undisclosed tax-shelter position is also more-likely-than-not. The standard does not require a Revenue Ruling on point; weight of authority is judged on the totality of relevant tax authorities including statutes, regulations, court decisions, IRS rulings, and other guidance.

The three rules form a spectrum on how far accountant negligence liability extends to non-privity third parties. Ultramares (narrowest) requires privity or near-privity — the third party must be specifically known to the CPA. Restatement Second § 552 (middle) reaches a limited group of persons whom the CPA knows will receive and rely on the information, even if specific identities are not known. The foreseeability rule (broadest) reaches anyone whose reliance was reasonably foreseeable, regardless of whether the CPA knew of the user. All three rules limit ordinary-negligence liability; fraud and constructive fraud reach all foreseeable third parties under any of the three regimes.