SURGENT STUDY GUIDE 105 (4111) COPY

Question 1

4111.01

Answer 1

The Secretary of the Treasury has the power to prescribe rules and regulations regarding the conduct of tax practitioners who represent taxpayers before the IRS. These rules are in Title 31 of the Code of Federal Regulations and are commonly referred to as “Circular 230.”

Question 2

4111.03

Answer 2

Practice before the IRS is defined in Circular 230 as involving all matters connected with a presentation to the IRS, or any of its officers or employees, relating to a taxpayer’s rights, privileges, or liabilities under laws or regulations administered by the IRS. This includes:

-preparing and filing documents,
-corresponding and communicating with the IRS,
-rendering written advice with respect to any entity, transaction, plan, or arrangement, and
-representing a client at conferences, hearings, and meetings.

REFERENCE 4111.03

Question 3

4111.04

Answer 3

Certified public accountants (CPAs) and attorneys may practice before the IRS provided they are not under suspension or disbarment from practice before the IRS. A CPA is any person duly qualified to practice as a CPA in any state, possession, territory, commonwealth, or the District of Columbia. An attorney is a person who is a member in good standing of the bar of the highest court of any state, possession, territory, commonwealth, or the District of Columbia. CPAs and attorneys must file a written declaration that they are currently qualified as a CPA or attorney and that they are authorized to represent the taxpayer in question.

Question 4

4111.09

Answer 4

Circular 230 allows individuals who are not CPAs, attorneys, or enrolled agents to engage in limited practice before the IRS. As a result, an individual can represent themselves before the IRS provided they present satisfactory identification.

Question 5

4111.10

Answer 5

An individual may also engage in limited practice before the IRS even if the taxpayer is not present, in the following situations:

• An individual may represent a member of their immediate family.
• A regular, full-time employee of an individual employer may represent the employer.
• A general partner or a regular full-time employee of a partnership may represent the partnership.
• A bona fide officer or regular full-time employee of a corporation (including a parent, subsidiary, or other affiliated corporation), association, or organized group may represent the corporation, association, or organized group.
• A regular full-time employee of a trust, receivership, guardianship, or estate may represent the trust.
• An officer or a regular employee of a government unit, agency, or authority may represent the governmental unit, agency, or authority in the course of his or her official duties.
• An individual may represent any individual or entity who is outside the United States, when the representation takes place outside the United States.
• An individual who signs the taxpayer’s return as the preparer (or who prepares a return but is not required to sign the tax return) may represent the taxpayer before IRS employees of the examination division regarding the tax liability of the taxpayer for the period covered by the return.

Question 6

4111.11

Answer 6

A practitioner has a duty to promptly submit records or information to the IRS upon proper request. Also, there is a duty not to interfere with any lawful effort of the IRS to obtain such records or information. These duties exist unless the practitioner in good faith and on reasonable grounds believes the record or information is privileged.

Question 7

4111.12

Answer 7

A practitioner has a duty to provide the director of practice with any requested information regarding violations of any regulations dealing with practice before the IRS.

Question 8

4111.13

Answer 8

A practitioner who knows that a client has not complied with the revenue laws of the United States, or has made an error in or omission from any return, document, affidavit, or other paper, has a duty to advise the client promptly of such noncompliance, error, or omission.

Treasury Circular 230, 10.21

Question 9

4111.14

Answer 9

A practitioner must exercise due diligence in the following situations:

-In preparing or assisting in the preparation of, approving, and filing returns, documents, affidavits, and other papers relating to IRS matters
-In determining the correctness of oral or written representation made by the practitioner to the Department of the Treasury
-In determining the correctness of oral or written representations made by the practitioner to clients with reference to any matter administered by the IRS

A practitioner will be presumed to have exercised due diligence if the practitioner relies on the work product of another person.

Question 10

4111.15

Answer 10

A practitioner may not unreasonably delay prompt disposition of any matter before the IRS.

Question 11

4111.16

Answer 11

Question 12

4111.17

Answer 12

Question 13

4111.18

Answer 13

Question 14

4111.19

Answer 14

A practitioner generally may not charge a contingent fee for services rendered in connection with any matter before the IRS. However, a practitioner may charge a contingent fee for services rendered in connection with the IRS’s examination of or challenge to:

-an original return or
-an amended return or claim for refund or credit where the amended return or claim for refund or credit was filed within 120 days of the taxpayer receiving a written notice of the examination of or a written challenge to the original return.

A practitioner may charge a contingent fee for services rendered in connection with a claim for credit or refund filed solely in connection with the determination of statutory interest or penalties assessed by the IRS. A practitioner can charge a contingent fee for services rendered in connection with any judicial proceeding arising under the Internal Revenue Code.

Question 15

4111.20

Answer 15

In general, a practitioner must, at the request of the client, promptly return any and all records of the client that are necessary for the client to comply with his or her federal tax obligations. The practitioner may retain copies of the records returned to a client (Circular 230, Section 10.28).

Question 16

4111.21

Answer 16

Generally, a practitioner is not allowed to represent conflicting interests in his or her practice before the IRS. However, the practitioner may represent conflicting interests provided the representation is not prohibited by law, and each affected client waives the conflict of interest by informed, written consent.

-The AICPA Code of Professional Conduct and Treasury Circular 230 both address conflicts of interest, but also have key differences.

Client relationships
AICPA Code of Professional Conduct
Addresses conflicts arising from client relationships with other members of the same firm No reference to client relationships with other members of the same firm

Client relationships
Treasury Circular 230
No reference to client relationships with other members of the same firm

Waiver of Conflicts
AICPA Code of Professional Conduct
Does not need to be in writing Must be in writing

Waiver of Conflicts
Treasury Circular 230
Must be in writing

Perception of others
AICPA Code of Professional Conduct
Perception of others about independence matters

Perception of others
Treasury Circular 230
No reference to perception of others

-Practitioners providing tax services must consider both the AICPA Code of Professional Conduct and Treasury Circular 230 when determining whether a conflict of interest exists.
-Member firms must have a procedure in place to determine whether a conflict of interest exists. Such procedure must be appropriate for the size of the firm and type of practice. Per Circular 230 guidelines, the firm’s tax leaders are responsible to ensure all firm members comply with such procedures.

Question 17

4111.22

Answer 17

Reference: 4111.22
Practitioners are subject to various duties and restrictions regarding advertising and solicitation. For example, a practitioner may not use any form of public communication that contains any statement or claim that is false, fraudulent, unduly influencing, coercive, unfair, misleading, or deceptive. Also, a practitioner may not make any uninvited written or oral solicitation of employment in matters before the IRS if the solicitation violates federal or state law or other applicable rule.

Question 18

4111.23

Answer 18

A practitioner who prepares tax returns may not endorse or otherwise negotiate any check (including directing or accepting payment by any means, electronic or otherwise, into an account owned or controlled by the practitioner or any firm or other entity with whom the practitioner is associated) issued to a client by the government in respect of a federal tax liability.

Question 19

4111.24

Answer 19

Question 20

4111.25

Answer 20

Question 21

411.26

Answer 21

A practitioner must inform a client of any penalties that are reasonably likely to apply to the client with respect to a position taken on a tax return if the practitioner advised the client with respect to the position or the practitioner prepared or signed the return. Also, a practitioner must inform the client of any penalties reasonably likely to apply regarding any document, affidavit, or other paper submitted to the IRS. A practitioner must inform the client of the opportunity to avoid any penalties by disclosure, if relevant, and of the requirements for adequate disclosure.

Question 22

4111.27

Answer 22

A practitioner can generally rely on information furnished by a client without verification. However, a practitioner cannot ignore information which is actually known and must make reasonable inquiries if the information furnished by the client appears incorrect, inconsistent, or incomplete.

Question #100070

Question 23

4111.28

4111.28

Answer 23

A practitioner may give written advice (including electronic communication) concerning federal tax issues only if the practitioner:

-bases the written advice on reasonable factual or legal assumptions (including assumptions as to future events),
-reasonably considers all relevant facts and circumstances that the practitioner knows or has reason to know,
-uses reasonable efforts to identify and ascertain the facts relevant to written advice on each federal tax matter,
-does not rely upon representations, statements, findings, or agreements (including projections, financial forecasts, or appraisals) of the taxpayer or any other person if reliance on them would be unreasonable,
-relates applicable law and authorities to facts, or
-does not, in evaluating federal tax matters, take into account the possibility that a tax return will not be audited or that a matter will not be raised on audit.

Email communication with clients on simple matters will not be held to the rigorous standards set out above.

Example: J, a practitioner, fails to note that there is a split among the circuit courts on the subject matter of his legal advice. This is a violation of e. above.

Question 24

4111.29

Answer 24

The Secretary of the Treasury, after notice and an opportunity for a proceeding, may censure (a public reprimand), suspend, or disbar any practitioner from practice before the IRS if the practitioner:

-is shown to be incompetent, or disreputable,
-refuses to comply with any rules in Circular 230, or
-with intent to defraud, willfully and knowingly misleads or threatens a client or prospective client.

Question 25

4111.30

Answer 25

Incompetence and disreputable conduct for which a practitioner may be sanctioned includes, but is not limited to, the following:

• Conviction of any criminal offense under the federal tax laws
• Conviction of any criminal offense involving dishonesty or breach of trust
• Conviction of any felony under federal or state law for which the conduct involved renders the practitioner unfit to practice before the IRS
• Giving false or misleading information, or participating in any way in the giving of false or misleading information to the Department of the Treasury or any officer or employee thereof, or to any tribunal authorized to pass upon federal tax matters, in connection with any matter pending or likely to be pending before them, knowing the information to be false or misleading. Facts or other matters contained in testimony, federal tax returns, financial statements, applications for enrollment, affidavits, declarations, and any other document or statement, written or oral, are included in the term “information.”
  * Solicitation of employment as prohibited under Circular 230, the use of false or misleading representations with intent to deceive a client or prospective client in order to procure employment, or intimating that the practitioner is able improperly to obtain special consideration or action from the IRS or any officer or employee thereof
• Willfully failing to make a federal tax return in violation of the federal tax laws, or willfully evading, attempting to evade, or participating in any way in evading or attempting to evade any assessment or payment of any federal tax
• Willfully assisting, counseling, encouraging a client or prospective client in violating, or suggesting to a client or prospective client to violate, any federal tax law, or knowingly counseling or suggesting to a client or prospective client an illegal plan to evade federal taxes or payment thereof
• Misappropriation of, or failure properly or promptly to remit, funds received from a client for the purpose of payment of taxes or other obligations due the United States
• Directly or indirectly attempting to influence, or offering or agreeing to attempt to influence, the official action of any officer or employee of the IRS by the use of threats, false accusations, duress, or coercion; by the offer of any special inducement or promise of an advantage; or by the bestowing of any gift, favor, or thing of value
• Disbarment or suspension from practice as an attorney, certified public accountant, public accountant, or actuary by any duly constituted authority of any state, territory, or possession of the United States, including a commonwealth, or the District of Columbia, any federal court of record or any federal agency, body, or board
• Knowingly aiding and abetting another person to practice before the IRS during a period of suspension, disbarment, or ineligibility of such other person
• Contemptuous conduct in connection with practice before the IRS, including the use of abusive language, making false accusations or statements, knowing them to be false, or circulating or publishing malicious or libelous matter
• Giving a false opinion, knowingly, recklessly, or through gross incompetence, including an opinion which is intentionally or recklessly misleading, or engaging in a pattern of providing incompetent opinions on questions arising under the federal tax laws
• Willfully failing to sign a tax return prepared by the practitioner when the practitioner’s signature is required by federal tax laws unless the failure is due to reasonable cause and not due to willful neglect
• Willfully disclosing or otherwise using a tax return or tax return information in a manner not authorized by the Internal Revenue Code, contrary to the order of a court of competent jurisdiction, or contrary to the order of an administrative law judge in a disciplinary proceeding

Question 26

4111.31

Answer 26

A practitioner may also be disbarred or suspended from practice for:

-willfully violating the regulations in Circular 230 or
-through recklessness or gross incompetence, violating the standards in Circular 230 with respect to tax returns, documents, affidavits, and other written advice.

Question 27

4111.32

Answer 27

Rules applicable to disciplinary proceedings

-Circular 230 contains detailed rules regarding the process to be followed in disciplinary hearings regarding a practitioner’s violation of any of the rules.
-Proceedings are held before an administrative law judge following procedures specified in Circular 230. The judge files his or her decision with the Director of Practice.
-An appeal of the decision of the administrative law judge can be made to the Secretary of the Treasury within 30 days of the decision.
-If a practitioner is suspended as a result of the proceedings, they are prohibited from practicing before the IRS during the period of the suspension.
-If a practitioner is disbarred, the practitioner is not allowed to practice before the IRS until authorized to do so by the Director of Practice. A practitioner who is disbarred may petition for reinstatement after five years from the date of disbarment. Reinstatement is only granted if the Director of Practice believes that the petitioner is not likely to conduct themselves in violation of the rules and that granting reinstatement is not contrary to public policy.