Study Unit 1

Question 1

Give examples of practices before the IRS.

Answer 1

• Representing a taxpayer at conferences, hearings, or meetings with the IRS
• Preparing necessary documents and filing them with the IRS for a taxpayer
• Rendering written advice with respect to any entity, transaction, plan, or arrangement having a potential for tax avoidance or evasion

Question 2

Give examples of practices that do not constitute practicing before the IRS.

Answer 2

• Preparing less that substantially all of a tax return, an amended return, or a claim for refund
• Furnishing information upon request to the IRS
• Appearing as a witness for a person

Question 3

List the personal authorized to practice before the IRS.

Answer 3

Person(s) whose practices are unlimited - Attorneys, Certified Public Accountants (CPAs), Enrolled Agents (EAs)

Person(s) whose practices are limited - Enrolled actuaries, Enrolled retirement plan agents, Annual filing season program (AFSP) participants

Question 4

Compare the different practitioners before the IRS in terms of representation of taxpayers.

Answer 4

Attorney, CPA, EA - before anyone at the IRS, Examination and appeals, any return or refund

AFSP Participants - before IRS revenue agents, customer service representatives, and employees, During examination only, Return that tax return preparer signed for their period under examination

Question 5

Compare the difference practitioners before the IRS in term of their ability to provide tax advice.

Answer 5

Attorney, CPA, EA - unlimited including tax planning

AFSP Participants - Limited to return or refund preparation

Question 6

List the nine rules of conduct before the IRS under Circular 230.

Answer 6

Practitioners are required to

1. Avoid conflicts of interest
2. Exercise diligence
3. Submit information or records to the IRS
4. Advise client about noncompliance
5. Avoid negotiating or endorsing income tax refund checks
6. Avoid charging unconscionable fees
7. Avoid charging contingent fees
8. Return client records (regardless of fee disputes)
9. Advertising and solicit inn accordance with laws

Question 7

In the context of practice before the IRS under Circular 230, describe a conflict of interest.

Answer 7

A conflict of interest exists if
- The practitioner’s representation of a client will be directly adverse to another client or

- There is a significant risk that the representation of one or more clients will be materially limited by the practitioner’s responsibilities to another or former client, a third person, or by the practitioner’s personal interest(s).

Question 8

Under what circumstances may a practitioner represent conflicting interests?

Answer 8

A practitioner may represent conflicting interests before the IRS only if

• All directly affected parties provide informed, written on sent within 30 days,
• The representation is not prohibited by law, and
• The practitioner reasonably believes that (s)he can provide competent and diligent representation to each client.

Question 9

Under Circular 230, when is a practitioner before the IRS excused from submitting information or records?

Answer 9

A practitioner is excused from submitting requested information if reasonable basis exists for a good-faith belief that

• The information is privileged or
• The request is not proper and lawful.

Question 10

Under Circular 230, when a practitioner before the IRS knows about a client noncompliance, what action(s) should (s)he take?

Answer 10

The practitioner is required to promptly advise the client of noncompliance and the consequences of such noncompliance, error, or omission.

Question 11

Under Circular 230, what record are practitioners before the IRS obligated to return to their clients?

Answer 11

Record necessary for a client to comply with his or her federal tax obligations must be returned on request.

NOTE: These records do not include documents prepared by the practitioner that (s)he is withholding pending payment of a fee.

Question 12

Under Circular 230, what kinds of advertisement and solicitation are not allowed?

Answer 12

False, fraudulent, misleading, deceptive, or unfair statement or claims are not allowed. Claims must be subject to factual verification.

Question 13

When preparing written advice about federal tax matters, what is a practitioner before the IRS required to do?

Answer 13

A practitioner must

• Base the advise on reasonable assumptions
• Reasonably consider all relevant facts that are known or should be known
• Use reasonable efforts to identity and determine the relevant facts
• Not consider the possibility that a tax return will not be audited

Question 14

If a practitioner before the IRS is disbarred or suspended, who receives notice of the disbarment or suspension?

Answer 14

• IRS employees
• Interested departments and agencies of the federal government
• State licensing authorities

Question 15

Define a tax return preparer.

Answer 15

A return preparer is any person who prepares for compensation, or employs one or more persons to prepare for compensation, all or a substantial portion of any return of tax or claim for refund under the Internal Revenue code (IRC).

Question 16

Give examples of persons not considered tax return preparers.

Answer 16

• An employee who prepares a return for the employer by whom (s)he is regularly and continuously employed
• A fiduciary who prepares a return or refund claim for any person
• A person who prepare a refund claim in response to a notice of deficiency issued to another
• A person who provides typing, reproducing, or other mechanical assistance, i.e., planning

Question 17

Define a listed transaction.

Answer 17

A listed transaction is a transaction that is the same as, or substantially similar to , one of the types of transactions that IRS has determined to be a tax avoidance transaction.

Question 18

Give examples of procedural requirements of tax return preparers.

Answer 18

Tax return preparers are required to

• Sign the completed return before presenting it to the taxpayer
• Provide a completed copy of the return to the taxpayer before the taxpayers signs it
• Retain a completed copy of the return or a list that includes the appropriate return information

Question 19

How long should a tax return preparer retain a completed coy of a return or claim?

Answer 19

Three years after the close of the return period.

Question 20

When is the penalty for unauthorized disclosure of taxpayer information not imposed?

Answer 20

The penalty is not imposed if the disclosure ie made

• Under a court order (subpoena) of to the tax return preparer’s legal counsel in the event of legal proceedings
• For the purpose of a quality or peer review
• For use in preparing, assisting in preparing, or providing services in connection with tax return preparation
• In accordance with the IRC
• To a related taxpayer, provided the taxpayer did not expressly prohibit the disclosure
• To tax return preparers within the same firm

Question 21

Give examples of penalties imposed on tax return preparers.

Answer 21

Penalties may be imposed on tax return preparers for

• Understating a taxpayer’s tax liability
• Violating procedural requirement (e.g., negotiating or endorsing a taxpayer’s checks)
• Disclosure or use of tax return information without consent
• Preparing fraudulent or false returns, statements, or other documents