01.01 Regulations Governing Practice Before the IRS

Question 1

What does Circular 230 contain?

Answer 1

Circular 230 contains the IRS’s rules of practice governing CPAs and others who practice before the IRS.
It is the standards of conduct.

Question 2

What does “practicing” before the IRS mean?

Answer 2

“Practicing” entails primarily preparing and filing documents and communicating and meeting with IRS representatives on behalf of a taxpayer.

Question 3

What is Circular 230 Subpart A?

Answer 3

Subpart A provides rules related to the authority to practice before the IRS.
Sec. 10.3 - who may practice
Sec. 10.8 - return preparation and application of rules to other individuals

Question 4

What is Circular 230 Subpart B?

Answer 4

Subpart B describes the duties & restrictions of those authorized to practice before the IRS.
Sec. 10.20 - information to be furnished
Sec. 10.21 - knowledge of client’s omissions
Sec. 10.22 - diligence as to accuracy
Sec. 10.24 - assistance from the disbarred
Sec. 10.27 - fees
Sec. 10.28 - return of client’s records
Sec. 10.29 - conflicting interests
Sec. 10.30 - solicitation
Sec. 10.31 - negotiation of taxpayer checks
Sec. 10.34 - standards with respect to tax returns and documents, affidavits, and other papers
Sec. 10.37 - requirements for other written advice

Question 5

What is Circular 230 Subpart C?

Answer 5

Subpart C indicates sanctions for violations.
Sec. 10.50 - sanctions
Sec. 10.51 - incompetence and disreputable conduct

Question 6

What is Circular 230 Subpart D?

Answer 6

Subpart D provides rules for disciplinary proceedings.
Sec. 10.60 - institution of proceeding

Question 7

What is Circular 230 Subpart E?

Answer 7

Subpart E relates to the availability of public records.

Question 8

What does Circular 230 Subpart A Section 10.3 state?

Answer 8

Section 10.3 - Who May Practice; sets forth rules governing authority to practice before the IRS. Examples include attorneys, CPAs, enrolled agents/actuaries/retirement plan agents.

Question 9

What does Section 10.3 state as requirements for a CPA to practice before the IRS?

Answer 9

The CPA must not currently be under suspension or disbarment from practice before the IRS; and must file a declaration with the IRS indicating the CPA is currently qualified as a CPA and authorized to represent the party.

Question 10

True or False: A PTIN is required to prepare a tax return or claim for refund in exchange for compensation.

Answer 10

True.

Question 11

When can a practitioner not submit records or information to the IRS?

Answer 11

When the practitioner believes in good faith and on reasonable grounds that the records or information are privileged.

Question 12

When a practitioner becomes aware of an incident of a client’s noncompliance with tax laws, or of an error or omission on a filing with the IRS, what is the practitioner required to do?

Answer 12

The practitioner is required to promptly advise the client of the circumstance (even if the statute of limitations has expired) and advise the client as to the potential consequences.
The practitioner does not need to notify the IRS of the error and may not do so without the client’s permission.

Question 13

True or False: A practitioner should not knowingly accept even indirect assistance from any person disbarred or suspended from practice by the IRS.

Answer 13

True.

Question 14

What are the exceptions regarding contingent fees?

Answer 14

Contingent fees may be charged for:
1. an administrative examination or a challenge to an original return, an amended return, or a claim for refund (not for preparing original return);
2. services related to a claim for credit or refund in connection with statutory interest or penalties charged by the IRS;
3. services related to a judicial proceeding under the IRC.

Question 15

When can a practitioner temporarily withhold the records from the client?

Answer 15

If the practitioner’s state law allows the retention of client records as a result of a dispute over fees.

Question 16

When can a practitioner represent a client despite a conflict of interest?

Answer 16

A practitioner may represent a client despite a conflict of interest if all of the following apply:
1. it is reasonable for the practitioner to believe that representation will be competent and diligent;
2. representation is not prohibited by law;
3. all affected clients waive the conflict of interest, by giving their written, informed consent.

Question 17

True or False: A tax preparer may endorse or otherwise negotiate a client’s government check issued in relation to a federal tax liability (e.g. a client’s tax refund).

Answer 17

False.

Question 18

True or False: A practitioner may, in good faith, rely on information obtained from a client without verification.

Answer 18

True.
However, if information appears incorrect/incomplete, that fact may not be ignored by the practitioner.

Question 19

What circumstances would lead the practitioner to be censured, suspended, or disbarred from practice?

Answer 19

If the practitioner is shown to be incompetent or disreputable; violates requirements either willfully or as a result of gross incompetence; or willfully and knowingly misleads or threatens a client or prospective client with the intent to defraud.
The maximum penalty equals 100% of the gross income derived from the prohibited conduct.