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Questions and Answers
What is the threshold for a substantial understatement in tax liability?
What is the threshold for a substantial understatement in tax liability?
More than 10% of the correct tax or $5000
What constitutes negligence in tax preparation?
What constitutes negligence in tax preparation?
Make a reasonable attempt to comply with the internal revenue laws.
What is the penalty for failure to file a tax return?
What is the penalty for failure to file a tax return?
What is the potential penalty for civil fraud?
What is the potential penalty for civil fraud?
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What is the penalty for filing a frivolous tax return?
What is the penalty for filing a frivolous tax return?
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Which statement is NOT true regarding the Earned Income Tax Credit (EITC)?
Which statement is NOT true regarding the Earned Income Tax Credit (EITC)?
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What is the penalty for aiding or abetting in the understatement of tax liability?
What is the penalty for aiding or abetting in the understatement of tax liability?
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What penalty can be imposed for unauthorized disclosure of tax return information?
What penalty can be imposed for unauthorized disclosure of tax return information?
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What is the maximum penalty for preparing a false or fraudulent return?
What is the maximum penalty for preparing a false or fraudulent return?
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Who is NOT eligible to practice before the IRS?
Who is NOT eligible to practice before the IRS?
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What can a representative NOT do during a suspension from practice?
What can a representative NOT do during a suspension from practice?
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What is the time limit to appeal a decision of the administrative law judge (ALJ)?
What is the time limit to appeal a decision of the administrative law judge (ALJ)?
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Which tax benefit is now subject to the due diligence requirement for individual income tax returns?
Which tax benefit is now subject to the due diligence requirement for individual income tax returns?
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What are appraisers?
What are appraisers?
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What conditions must attorneys meet to practice before the IRS?
What conditions must attorneys meet to practice before the IRS?
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Who can practice before the IRS?
Who can practice before the IRS?
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What must enrolled agents maintain to practice before the IRS?
What must enrolled agents maintain to practice before the IRS?
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What is required for enrolled retirement plan agents to practice?
What is required for enrolled retirement plan agents to practice?
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Who are low-income taxpayer clinic student interns?
Who are low-income taxpayer clinic student interns?
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What role do unenrolled return preparers play?
What role do unenrolled return preparers play?
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Which of the following statements is false regarding a taxpayer who wants representation before the IRS?
Which of the following statements is false regarding a taxpayer who wants representation before the IRS?
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What are some restrictions for tax preparers?
What are some restrictions for tax preparers?
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How may individuals lose their eligibility to practice before the IRS?
How may individuals lose their eligibility to practice before the IRS?
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Which condition is NOT included as a competency requirement under Circular 230?
Which condition is NOT included as a competency requirement under Circular 230?
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How is a proceeding for a violation of regulations in Circular 230 initiated?
How is a proceeding for a violation of regulations in Circular 230 initiated?
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What is the role of the Office of Professional Responsibility (OPR)?
What is the role of the Office of Professional Responsibility (OPR)?
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What is the purpose of the Sarbanes-Oxley Act of 2002?
What is the purpose of the Sarbanes-Oxley Act of 2002?
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What must an enrolled agent do for continuing education?
What must an enrolled agent do for continuing education?
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What constitutes 'tax advice'?
What constitutes 'tax advice'?
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Study Notes
Appraisers
- Individuals who prepare appraisals for asset valuation in federal tax matters are regulated by Circular 230.
Attorneys
- Attorneys not under suspension can represent clients before the IRS by filing the necessary documentation.
Certified Public Accountant (CPA)
- CPAs who meet qualifications and are not suspended can practice before the IRS with proper written declaration.
Enrolled Agents
- Active enrolled agents not under suspension are authorized to practice before the IRS.
Enrolled Retirement Plan Agents
- Active enrolled retirement plan agents can practice before the IRS if not suspended or disbarred.
Enrolled Actuaries
- Enrolled actuaries not under suspension are permitted to practice before the IRS.
Low Income Taxpayer Clinic Student Interns
- Under supervision, students may request permission to represent clients before the IRS.
Unenrolled Return Preparers
- Non-registered individuals who prepare tax returns can represent taxpayers if certain criteria are met.
Representatives
- Various individuals, including family members and fiduciaries, can represent others before the IRS.
Tax Preparer Restrictions
- Must not unreasonably delay IRS matters or accept help from suspended individuals.
- Cannot endorse client refund checks to accounts they control.
Loss of Eligibility
- Individuals become ineligible to practice before the IRS due to suspension, disbarment, or failure to meet renewal requirements.
Reporting Competence
- Representatives must demonstrate good character, reputation, and necessary qualifications for practice before the IRS.
Sanctions for Misconduct
- The Secretary may reprimand, suspend, or disbar representatives for incompetence or violations of regulations.
Confidentiality of Tax Advice
- Communications between taxpayers and federally authorized tax practitioners should be confidential, similar to attorney-client privilege.
Sarbanes-Oxley Act of 2002
- Enacted for reform in American business practices, influencing corporate governance and reporting.
PCAOB
- Established to oversee audits of public companies and ensure accurate audit reports for investor protection.
Circular 230
- Framework containing regulations for practicing before the IRS, covering duties, sanctions, and disciplinary rules.
Office of Professional Responsibility (OPR)
- Responsible for enforcing conduct standards and discipline among tax practitioners.
Continuing Professional Education (CPE) Requirements
- Enrolled agents must complete 72 hours of CPE every three years, including ethics courses.
Independent Representation Rules
- Limited partners in partnerships may not represent the partnership before the IRS.
Administrative Law Judge (ALJ)
- All hearings regarding disciplinary actions are recorded and can be appealed within 30 days.
Decision Outcomes
- Disbarment results in no practice until reinstatement; suspensions limit practice temporarily; censure allows conditional practice.
Penalties for Tax Related Misconduct
- Negligence, failure to file, and fraudulent returns incur significant penalties, including fines and criminal charges.
Frivolous Return Penalty
- Filing a frivolous tax return can lead to penalties of up to $5,000 for taxpayers.
Earned Income Tax Credit (EITC) Guidelines
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Tax practitioners must comply with specific regulations when preparing returns claiming EITC.### Penalties Related to Taxpayer Advocacy
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Understatement of Taxpayer's Liability:
- First-tier penalty for unreasonable position: greater of $1,000 or 50% of income related to refund claim.
- Second-tier penalty for willful/reckless conduct: greater of $5,000 or 75% of income related to refund claim.
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Negotiation of Taxpayer Checks:
- Penalty of $545 applies to tax preparers who endorse or negotiate government-issued checks linked to federal tax liabilities.
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Promoting Abusive Tax Shelters:
- Penalty typically equal to $1,000 or 100% of income earned from the sale of the abusive tax shelter.
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Aiding or Abetting in Tax Liability Understatement:
- Tax return preparers face $1,000 penalty for aiding an understatement; penalty increases to $10,000 for corporate tax returns.
Information Disclosure Penalties
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Unauthorized Disclosure:
- Penalty of $250 for each unauthorized disclosure related to taxpayer information, with a maximum of $10,000 per year.
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Knowing or Reckless Disclosure:
- Conviction can lead to a fine of up to $1,000, imprisonment for up to one year, or both, along with prosecution costs.
False or Fraudulent Returns
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Preparation of False Returns:
- Guilty of a felony: potential fine of up to $100,000 or up to one year in prison (or both).
- Guilty of a misdemeanor: potential fine of up to $10,000 or up to one year in prison (or both), with up to $50,000 if involving a corporation.
Eligibility and Representation Issues
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Eligibility to Practice Before IRS:
- Certified financial planner is not eligible to represent clients before the IRS when none are under suspension or disbarment.
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Actions Leading to Suspension:
- A representative cannot mislead or threaten clients with intent to defraud.
Tax Practitioner Regulations and Rights
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Disciplines Not Included in Circular 230:
- Refund offset is not listed as a type of tax practitioner discipline.
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Annual Filing Season Program (AFSP) Representation Rights:
- Participants can represent clients before revenue agents for returns they prepared and signed.
Tax Practitioner Responsibilities
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Non-Qualified Contributions Disclosure:
- Practitioners must immediately inform IRS examiners of any non-qualified contributions found during review.
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Client Records Requests:
- Practitioners are not obligated to return client records, even upon client request.
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Censorship and Suspension Examples:
- Practitioners may be censured or suspended for knowingly assisting others in practicing before the IRS during suspension.
Appeal Rights and Suspension Protocol
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Representation During Suspension:
- A practitioner suspended from practice can still represent clients during conferences, hearings, and meetings.
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Appeal Timeline:
- Both the Office of Professional Responsibility and practitioners have 30 days to appeal the ALJ's decision.
Diligence Requirements under TCJA
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Tax Benefits Impacted:
- Tax benefits subject to diligence requirements include the head of household filing status.
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