Question 1
A startup software LLC is being pitched by a credit promoter to claim the research credit for bug fixes, routine QA, and implementation work. The promoter provides a templated study and offers a success-based fee. Management wants the credit booked this quarter and asks you to sign the return and 'keep the disclosures to a minimum.' Their contemporaneous project tracking is inconsistent, and engineers are salaried. You are engaged to prepare the return and advise on the credit, and you must decide how to respond.
Which response aligns with Circular 230?
- Rely on the promoter's study and claim the full credit, omitting disclosure because it is 'industry standard.'
- Take a smaller credit to reduce audit exposure without evaluating whether activities qualify.
- File amended returns immediately to secure the statute, adding a boilerplate caution without analysis.
- Perform due diligence to assess qualification and authority; if only a reasonable basis exists, advise Form 8275 disclosure and penalty implications before proceeding.
Explanation: Circular 230 §§10.34, 10.22, and 10.37 require factual and legal diligence; if substantial authority is lacking and only a reasonable basis exists, the practitioner should advise on penalties and disclosure (e.g., Form 8275). The other options rely on promoters, minimize disclosure, or rush filing without adequate analysis.