Questions and Answers
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?
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 potential penalty for civil fraud?
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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)?
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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?
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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?
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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)?
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Which tax benefit is now subject to the due diligence requirement for individual income tax returns?
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What are appraisers?
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What conditions must attorneys meet to practice before the IRS?
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Who can practice before the IRS?
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What must enrolled agents maintain to practice before the IRS?
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What is required for enrolled retirement plan agents to practice?
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Who are low-income taxpayer clinic student interns?
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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?
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What are some restrictions for tax preparers?
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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?
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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)?
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What is the purpose of the Sarbanes-Oxley Act of 2002?
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What must an enrolled agent do for continuing education?
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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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