1 EA Exam Lite Part 3 Representation, Practice and Procedures.

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EA Exam LiteEA Exam LitePart 3 Part 3

Representation, Practice Representation, Practice and Proceduresand Procedures

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Topic 1Topic 1

Practice Before the Practice Before the IRS & Unenrolled IRS & Unenrolled

PreparersPreparers

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1A Acts Constituting Practice 1A Acts Constituting Practice Before the IRSBefore the IRS

Circular 230Circular 230 – Rules for enrollment and renewal – Rules for enrollment and renewal Tax ReturnsTax Returns - Include amended returns & claims - Include amended returns & claims Practice Before IRSPractice Before IRS – All matters related to – All matters related to

representations to IRS for clientsrepresentations to IRS for clients IncludesIncludes – Communicating with IRS, represent – Communicating with IRS, represent

at hearings (but at hearings (but not not Tax Court), prepare and file Tax Court), prepare and file documents with IRS for clientdocuments with IRS for client

Does Not IncludeDoes Not Include – Preparing tax return, or – Preparing tax return, or furnishing information at request of IRSfurnishing information at request of IRS

Question 1Question 1

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1B Automatic Categories of 1B Automatic Categories of Representation Before IRSRepresentation Before IRS

Circular 230Circular 230 – Provides certain automatic – Provides certain automatic privileges to represent taxpayersprivileges to represent taxpayers

Automatic CategoriesAutomatic Categories – Include: – Include: Attorneys in good standingAttorneys in good standing CPAs in good standingCPAs in good standing Enrolled agentsEnrolled agents Enrolled actuaries (only for areas of expertise)Enrolled actuaries (only for areas of expertise)


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1C Unenrolled Individuals Who 1C Unenrolled Individuals Who May Practice Before IRSMay Practice Before IRS

UnenrolledUnenrolled Preparer Preparer – Not automatic; – Not automatic; Only represent for tax return preparedOnly represent for tax return prepared Only appear before IRS Examination DivisionOnly appear before IRS Examination Division

Duties Not AllowedDuties Not Allowed – Sign claims, receive refund – Sign claims, receive refund checks, or sign consents, closing agreements, checks, or sign consents, closing agreements, or waivers of assessmentor waivers of assessment

Other Enrolled Individuals QualifyingOther Enrolled Individuals Qualifying – With ID, – With ID, can qualify: self-represent, family member, can qualify: self-represent, family member, officer, partner, alien, employee, trustee/ officer, partner, alien, employee, trustee/ guardian, and others guardian, and others ifif IRS authorizes IRS authorizes

Question 3 and Question 4Question 3 and Question 4

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1D Individuals Who May 1D Individuals Who May NOT NOT Practice Before IRSPractice Before IRS

Ineligible IndividualsIneligible Individuals – Include: – Include: Criminal offense convictionsCriminal offense convictions Convictions for dishonesty/breachConvictions for dishonesty/breach Disbarred/ suspended individuals Disbarred/ suspended individuals Individuals denied application Individuals denied application Officers & employees of U.S., state, Congress Officers & employees of U.S., state, Congress

(if compensated)(if compensated)


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Topic 2Topic 2

Enrollment to Enrollment to Practice and CPE Practice and CPE

RequirementsRequirements

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2A Enrollment – Basic Privilege2A Enrollment – Basic Privilege

General EnrollmentGeneral Enrollment – Passing EA exam (duh!), – Passing EA exam (duh!), or past IRS technical experience requirementsor past IRS technical experience requirements

Director of PracticeDirector of Practice – May grant temporary – May grant temporary enrollment (may assist enrolled reps)enrollment (may assist enrolled reps)

Denial of ApplicationDenial of Application - 30 days to appeal – Treas - 30 days to appeal – Treas Automatic EnrolleesAutomatic Enrollees – (CPA, Attorney, etc.) - – (CPA, Attorney, etc.) -

File written declaration with IRS, may represent File written declaration with IRS, may represent conflicting interests if all consent.conflicting interests if all consent.

RepresentativesRepresentatives – Bound by Circular 230 – Bound by Circular 230 Question 7 and Question 8Question 7 and Question 8

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2B Enrollment Cycles and 2B Enrollment Cycles and RenewalsRenewals

Enrollment CardsEnrollment Cards – By Director of Practice – By Director of Practice Enrollment PeriodEnrollment Period – 3-year cycles; each begins – 3-year cycles; each begins

April 1April 1stst (last begin 4/1/2005) (last begin 4/1/2005) Renewal PeriodRenewal Period – November 1 – November 1stst – January 31 – January 31stst

of last year of current period (last was 11/1/2004 of last year of current period (last was 11/1/2004 – 1/31/05)– 1/31/05)

Staggered Renewal ScheduleStaggered Renewal Schedule – By last digit of – By last digit of SS#, either 2007 (0-3), 2008 (4-6), or 2009 (7-9)SS#, either 2007 (0-3), 2008 (4-6), or 2009 (7-9)


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2C Enrollment CPE 2C Enrollment CPE RequirementsRequirements

EnrolleeEnrollee – Must certify CPE requirements are – Must certify CPE requirements are met in each enrollment year (4/1 – 3/31), and met in each enrollment year (4/1 – 3/31), and keep records for 3 years afterward keep records for 3 years afterward

Specific CPE RequirementsSpecific CPE Requirements:: 72 hours during each 3-year cycle72 hours during each 3-year cycle 16 hours minimum completed in each year (2 ethics)16 hours minimum completed in each year (2 ethics) 2 hours for each month if enroll during cycle2 hours for each month if enroll during cycle

Instructing/Preparing CoursesInstructing/Preparing Courses – Up to 50% CPE – Up to 50% CPE Question 11 and Question 12Question 11 and Question 12

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2D Failure to Comply With CPE2D Failure to Comply With CPE

Failure to ComplyFailure to Comply – Procedures are: – Procedures are: Notice from Director of Practice Notice from Director of Practice 60 days to respond, 60 days to respond, If no response, then placed into inactive If no response, then placed into inactive

status for 3 yearsstatus for 3 years

Question 13 Question 13

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Topic 3Topic 3

Power of Attorney Power of Attorney Issues Issues

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3A – Scope of a Power of 3A – Scope of a Power of AttorneyAttorney

Power of AttorneyPower of Attorney – Written authorization to act – Written authorization to act on someone else’s behalf for taxon someone else’s behalf for tax

RequiredRequired – To represent taxpayer at conference – To represent taxpayer at conference or file written response to IRSor file written response to IRS

PermissiblePermissible – Represent TP; record interview; – Represent TP; record interview; sign waiver, consent, & closing agreements; and sign waiver, consent, & closing agreements; and receive but receive but not not endorse refund check endorse refund check

TaxpayerTaxpayer - receives documents, not represent. - receives documents, not represent. Question 14 and Question 15Question 14 and Question 15

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3B Powers of Attorney – Special 3B Powers of Attorney – Special RestrictionsRestrictions

Signing returnSigning return – Not allowed unless – Not allowed unless specifically authorized by taxpayerspecifically authorized by taxpayer

Other LimitationsOther Limitations – Substitute another rep – Substitute another rep only if allowed by PA, put in CAF, PA not only if allowed by PA, put in CAF, PA not required for info disclosure (only Form required for info disclosure (only Form 8821), and is not required for attorney in 8821), and is not required for attorney in Tax Court or by fiduciary, Tax Court or by fiduciary,

Taxpayer – May revoke the PATaxpayer – May revoke the PA Question 16Question 16

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3C Power of Attorney – Form 3C Power of Attorney – Form 2848 Requirements2848 Requirements

Form 2848 (POA)Form 2848 (POA) – Requires ID, name, CAF #, – Requires ID, name, CAF #, type of tax, forms, years coveredtype of tax, forms, years covered

Required AttestationsRequired Attestations – Qualified, aware of – Qualified, aware of Circular 230, not disbarred, represents TPCircular 230, not disbarred, represents TP

Signatures on 2848Signatures on 2848 – Individuals (just sign), joint – Individuals (just sign), joint (sign only for TP rep), corp (officer), association (sign only for TP rep), corp (officer), association (officer), p’ship (all)(officer), p’ship (all)

FiduciariesFiduciaries – do not need POA (File Form 56) – do not need POA (File Form 56) More Than One RepMore Than One Rep – Unless designated, IRS – Unless designated, IRS

will send communication to 1will send communication to 1stst name, latest date name, latest date Questions 17 and 18Questions 17 and 18

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3D Changes in a Power of 3D Changes in a Power of AttorneyAttorney

Update POAUpdate POA – Write IRS where POA was filed, – Write IRS where POA was filed, or simply file a new POAor simply file a new POA

Revoking POA (and not Issuing New)Revoking POA (and not Issuing New) – Either: – Either: Send copy of 2848 to original IRS office & service Send copy of 2848 to original IRS office & service

center, write REVOKE top center, sign, or center, write REVOKE top center, sign, or File revocation statement to same place, signFile revocation statement to same place, sign

New POANew POA – Revokes prior POA (but has no – Revokes prior POA (but has no effect on tax information authorization)effect on tax information authorization)

Inadequate Info on POAInadequate Info on POA – Amend with new – Amend with new Question 19 and Question 20Question 19 and Question 20

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Topic 4Topic 4

Tax Information Tax Information Authorizations Authorizations

(TIAs) and Central (TIAs) and Central Authorization Files Authorization Files

(CAFs)(CAFs)

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4A Enrollment – Tax Information 4A Enrollment – Tax Information AuthorizationsAuthorizations

Form 8821Form 8821 – Required for TIA (not a POA) – Required for TIA (not a POA) TIA DisclosureTIA Disclosure – Does NOT have to be to – Does NOT have to be to

an authorized or enrolled representativean authorized or enrolled representative TIA FormTIA Form – NO effect on TP rep. or POA – NO effect on TP rep. or POA TIA InfoTIA Info – Added to CAF for distribution – Added to CAF for distribution Required InfoRequired Info – Generally same as POA – Generally same as POA Question 21 and Question 22Question 21 and Question 22

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4B Central Authorization Files4B Central Authorization Files

CAFCAF – Automated file containing info on TP reps – Automated file containing info on TP reps authorized as POA or TIA (3 maximum)authorized as POA or TIA (3 maximum)

Use by IRSUse by IRS – Determine if rep may receive – Determine if rep may receive confidential information or other notices (for a confidential information or other notices (for a specific time period only)specific time period only)

CAF CAF – Does NOT authorize a person to practice – Does NOT authorize a person to practice before IRSbefore IRS

Durable Power of AttorneyDurable Power of Attorney – Must also have a – Must also have a Form 2848 to insure entry in CAFForm 2848 to insure entry in CAF


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Topic 5Topic 5

Administrative Administrative Proceedings for Proceedings for

Complaints Against Complaints Against Enrolled AgentsEnrolled Agents

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5A – Enrollment – Disreputable 5A – Enrollment – Disreputable ConductConduct

Disciplinary ActionDisciplinary Action – for disreputable conduct – for disreputable conduct Disreputable ConductDisreputable Conduct – Includes criminal – Includes criminal

offense, false info, unlawful soliciting, failure to offense, false info, unlawful soliciting, failure to file or pay tax, bribe IRS, embezzle, disbarred, file or pay tax, bribe IRS, embezzle, disbarred, aided suspended practitioner, false opinion, aided suspended practitioner, false opinion, contemptuous conduct with IRScontemptuous conduct with IRS

EnrolleeEnrollee – Has obligation to inform IRS of – Has obligation to inform IRS of Circular 230 violation, unless request violates Circular 230 violation, unless request violates confidentiality or is of doubtful validityconfidentiality or is of doubtful validity


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5B Complaints Against Enrolled 5B Complaints Against Enrolled AgentsAgents

IRS or OthersIRS or Others – File complaint to the Director of – File complaint to the Director of the Office of Professional Responsibility (OPR)the Office of Professional Responsibility (OPR)

DPDP – Either reprimand or institute proceedings – Either reprimand or institute proceedings ComplaintComplaint – Describes (mail or personally) an – Describes (mail or personally) an

allegation, enrollee response within 15 days allegation, enrollee response within 15 days PractitionerPractitioner – Responds in writing to each – Responds in writing to each specific complaint (default if not), may appear in specific complaint (default if not), may appear in person or with rep (does person or with rep (does not not have to be enrolled)have to be enrolled)

OPROPR – Maintains roster of disbarred or – Maintains roster of disbarred or suspended practitioners and appraiserssuspended practitioners and appraisers


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5C Enrollment – Hearing on 5C Enrollment – Hearing on Suspension or DisbarmentSuspension or Disbarment

Adm. Law JudgeAdm. Law Judge – default if TP not there – default if TP not there Each PartyEach Party – Submits proposed findings & concl – Submits proposed findings & concl ALJ DecisionALJ Decision – disbar/suspend/reprimand or – disbar/suspend/reprimand or

dismissal; findings/conclusions filed with Director, dismissal; findings/conclusions filed with Director, OPR; notice to IRS personnel OPR; notice to IRS personnel

AppealsAppeals- W/I 30 days by either party to Treasury, - W/I 30 days by either party to Treasury, other party has 30 days to reply, final decision by other party has 30 days to reply, final decision by Sec. of TreasurySec. of Treasury

Disbarred Disbarred – Apply with OPR only after 5 years; – Apply with OPR only after 5 years; may prep returns during 5 yrs, but not represent may prep returns during 5 yrs, but not represent

Questions 29, 30, 31 and 32Questions 29, 30, 31 and 32

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5D Assistance From 5D Assistance From Disbarred/Suspended PersonsDisbarred/Suspended Persons

Assistance From D/SAssistance From D/S Person– not allowed Person– not allowed (knowingly), either directly or indirectly(knowingly), either directly or indirectly

EAEA – May not accept employment from a – May not accept employment from a D/S personD/S person

Former Gov’t EmployeeFormer Gov’t Employee – EA may not – EA may not accept assistance if this person violates accept assistance if this person violates Circular 230 rules on separation from Circular 230 rules on separation from service (e.g., old cases)service (e.g., old cases)


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Topic 6Topic 6

Electronic Filing – Electronic Filing – Special Issues Special Issues

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6A Electronic Filing (EF) – 6A Electronic Filing (EF) – Business Filing Business Filing

EFEF – Required if partners > 100– Required if partners > 100 Form 941Form 941 –EF or Phone (Telefile Tax Rec) –EF or Phone (Telefile Tax Rec) EFTPSEFTPS – Payments may be direct, – Payments may be direct,

financial institutions, or same dayfinancial institutions, or same day Form 9979Form 9979 – Bus. enroll., PIN # rec’d. – Bus. enroll., PIN # rec’d. Form 8633Form 8633 – EF Application, EFIN # rec’d. – EF Application, EFIN # rec’d. Question 34Question 34

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6B Electronic Filing (EF) – 6B Electronic Filing (EF) – Paying TaxPaying Tax

Authorized IRS e-file ProviderAuthorized IRS e-file Provider – Electronic – Electronic Return Originator (ERO), Intermediate Service Return Originator (ERO), Intermediate Service Provider (ISP), transmitter, software developer, Provider (ISP), transmitter, software developer, or reporting agentor reporting agent

RegistrationRegistration- By principal or resp. individual- By principal or resp. individual Removal From EFRemoval From EF – no efile for 2 years (60 day) – no efile for 2 years (60 day) 30 Days to Appeal30 Days to Appeal – For denied applicants (2 – For denied applicants (2ndnd)) Pay TaxPay Tax – Direct debit, Credit card, check, – Direct debit, Credit card, check,

installment agreement requestinstallment agreement request

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6C Electronic Filing – Signature 6C Electronic Filing – Signature ResponsibilitiesResponsibilities

E-file Providers (except software)E-file Providers (except software) – Tax – Tax preparers subject to all rulespreparers subject to all rules

Nonstandard Form CodeNonstandard Form Code – entered for – entered for altered W-2’saltered W-2’s

TP SignatureTP Signature – Form 8453 or file Form – Form 8453 or file Form 8879 for electronic PIN signature (TP may 8879 for electronic PIN signature (TP may self select with date of birth and AGI info)self select with date of birth and AGI info)

Paper DocumentsPaper Documents – Attach to 8453 (W-2) – Attach to 8453 (W-2)

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6D Electronic Filing – Sanctions6D Electronic Filing – Sanctions

EROERO – Provides paper copy & 8453 to TP, mail – Provides paper copy & 8453 to TP, mail 8453 within 3 days, retains copies until end of yr, 8453 within 3 days, retains copies until end of yr, informs TP direct deposit not rescindedinforms TP direct deposit not rescinded

Violations of E-file RulesViolations of E-file Rules – Warning/sanction – Warning/sanction (sanctions effective 30 days after warning)(sanctions effective 30 days after warning)

Levels of SanctionsLevels of Sanctions – – One One (little impact, letter or (little impact, letter or warning), warning), Two Two (adverse impact, restrict or (adverse impact, restrict or suspend) or suspend) or Three Three (significantly adverse, sus-(significantly adverse, sus-pend current year plus 2 years, then expulsion)pend current year plus 2 years, then expulsion)


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6E Electronic Filing – Special 6E Electronic Filing – Special Returns Returns

Returns Ineligible for E-fileReturns Ineligible for E-file – Prior years, – Prior years, fiscal years, amended, M/S in community-fiscal years, amended, M/S in community-property states, nonprocessible forms, property states, nonprocessible forms, certain TINs (900-999), rare/unusualcertain TINs (900-999), rare/unusual

Returns With Substitute W-2, W2-G, or Returns With Substitute W-2, W2-G, or Form 1099-RForm 1099-R – Cannot be transmitted until – Cannot be transmitted until February 15February 15thth


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6F Electronic Filing – Rejected 6F Electronic Filing – Rejected ReturnsReturns

Completed Form 8453Completed Form 8453 – Must generally be – Must generally be submitted within 24 hrs. of accepted EFsubmitted within 24 hrs. of accepted EF

If EF rejectedIf EF rejected – Notify TP within 24 hours – Notify TP within 24 hours with the reject codes (if < $50 income or < with the reject codes (if < $50 income or < $14 difference, no signatures necessary)$14 difference, no signatures necessary)

ChangesChanges – Normally corrected & transmit; – Normally corrected & transmit; new Form 8453 only if substantive changenew Form 8453 only if substantive change


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6G Electronic Filing – 6G Electronic Filing – AdvertisingAdvertising

General Adv. RestrictionsGeneral Adv. Restrictions – Most apply to EF – Most apply to EF alsoalso

Broadcast CommercialsBroadcast Commercials – Keep copy until end of – Keep copy until end of year following the last broadcastyear following the last broadcast

E-File Promotional KitE-File Promotional Kit – Furnished by IRS, may – Furnished by IRS, may be incorporated into adsbe incorporated into ads

SloganSlogan – “Authorized IRS e-file Provider” – “Authorized IRS e-file Provider” If Cooperative ProjectIf Cooperative Project – List all parties – List all parties Question 38 Question 38

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6H Electronic Filing – Refund 6H Electronic Filing – Refund Anticipation LoansAnticipation Loans

RALsRALs – Loan to TP from lender based on antici- – Loan to TP from lender based on antici-pated refund: IRS not involved in any manner pated refund: IRS not involved in any manner

EROERO – Must explain (int. bearing), include all – Must explain (int. bearing), include all RAL indicators on return, may disclose financial RAL indicators on return, may disclose financial information only with TP written consentinformation only with TP written consent

ERO & Lending InstitutionERO & Lending Institution – May not be related – May not be related FeesFees – ERO may charge flat fee to assist, – ERO may charge flat fee to assist,

identical for all, no sharing fees w/ lender (other identical for all, no sharing fees w/ lender (other than flat fees lenders charge clients for RALs)than flat fees lenders charge clients for RALs)


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6I Electronic Filing – Fee 6I Electronic Filing – Fee StructureStructure

ERO FeesERO Fees – May not base fees on % of – May not base fees on % of refund or on amounts on return refund or on amounts on return

Direct DepositDirect Deposit – No separate fee for this – No separate fee for this RefundsRefunds – May not be direct deposited to – May not be direct deposited to

credit card accountscredit card accounts ERO CautionERO Caution – Advise TP that some – Advise TP that some

financial institutions do not permit deposit financial institutions do not permit deposit of joint refunds into individual accountsof joint refunds into individual accounts


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Topic 7Topic 7

IRS Audits and IRS Audits and Notices of Notices of DeficiencyDeficiency

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7A IRS Audits – Transfers to 7A IRS Audits – Transfers to Another DistrictAnother District

General Audit RuleGeneral Audit Rule – Audit performed in – Audit performed in taxpayer’s districttaxpayer’s district

ExceptionException – If return can be examined – If return can be examined more quickly and conveniently in another more quickly and conveniently in another district (e.g., location of TP’s books and district (e.g., location of TP’s books and records), then transfer is allowedrecords), then transfer is allowed


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7B IRS Audits – Repetitive 7B IRS Audits – Repetitive AuditsAudits

Repetitive AuditsRepetitive Audits – When TP examined for – When TP examined for the same items in either of two previous the same items in either of two previous years and no change in liabilityyears and no change in liability

TPTP – May contact IRS to request that the – May contact IRS to request that the exam be discontinuedexam be discontinued

TCMP ReturnsTCMP Returns – Not covered by this rule - – Not covered by this rule -Taxpayer Compliance Measurement Prog.Taxpayer Compliance Measurement Prog.

IRSIRS – Always has the right to reopen exam – Always has the right to reopen exam Question 42Question 42

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7C IRS Audits – Recordings and 7C IRS Audits – Recordings and Taxpayer RightsTaxpayer Rights

RecordingsRecordings – 10-day advance notice to other – 10-day advance notice to other party, provide own equipmentparty, provide own equipment

TPTP – May represent self, or may bring enrolled – May represent self, or may bring enrolled practitioner or nonenrolled return preparerpractitioner or nonenrolled return preparer

IRSIRS – Provide Pub. 1 (Rights) to TP before audit – Provide Pub. 1 (Rights) to TP before audit Info From 3Info From 3rdrd Parties Parties – IRS must give prior notice – IRS must give prior notice

to TP unless criminal case, in jeopardy, possible to TP unless criminal case, in jeopardy, possible reprisal, or TP consentreprisal, or TP consent

Taxpayer Assistance Order to TPTaxpayer Assistance Order to TP – May be – May be issued from TP Advocate Office, if sign. hardshipissued from TP Advocate Office, if sign. hardship


3939

7D IRS Audits – Interest Charges7D IRS Audits – Interest Charges

InterestInterest – Due on deficiency & penalties from – Due on deficiency & penalties from due date of return until notice issueddue date of return until notice issued

No Add’l InterestNo Add’l Interest – If paid w/i 10 days after – If paid w/i 10 days after receipt of notice (21 days if < $100,000)receipt of notice (21 days if < $100,000)

TP DepositTP Deposit – Stops interest on that amount only – Stops interest on that amount only Amounts Sent by TPAmounts Sent by TP – Treated as – Treated as payment payment

against deficiency unless written notice to treat against deficiency unless written notice to treat as a bond (as a bond (depositdeposit); if “payment” sent the full ); if “payment” sent the full deficiency, no notice mailed (and NO Tax Court)deficiency, no notice mailed (and NO Tax Court)

IRS AbatementIRS Abatement – For errors, delays, etc., TP – For errors, delays, etc., TP must file Form 843 (global netting rule available)must file Form 843 (global netting rule available)


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7E Statutory Notice of Deficiency 7E Statutory Notice of Deficiency – Basic Procedures– Basic Procedures

30-Day Letter & Proposed notice of deficiency30-Day Letter & Proposed notice of deficiency - - with offer of conference on proposed audit adj.with offer of conference on proposed audit adj.

Requirements for AppealRequirements for Appeal – If deficiency is: – If deficiency is: > $2,500> $2,500 – Need only letter explaining reason – Need only letter explaining reason <= $2,500<= $2,500 – No letter/protest needed; notification only – No letter/protest needed; notification only > $25,000> $25,000 – Formal written protest required – Formal written protest required

90-Day Letter and Statutory Notice90-Day Letter and Statutory Notice – To TP if no – To TP if no response to 30-day or no settlement—90 days response to 30-day or no settlement—90 days to pay or file to Tax Court (issued w/i 3 yrs due)to pay or file to Tax Court (issued w/i 3 yrs due)

If Paid After Notice Rec’dIf Paid After Notice Rec’d – Tax Court still option – Tax Court still option Question 45Question 45

4141

7F Statutory Notices of 7F Statutory Notices of Deficiency and Court OptionsDeficiency and Court Options

Tax CourtTax Court – Only option TP does not have to – Only option TP does not have to pay first (but TP must file petition within 90 days pay first (but TP must file petition within 90 days afterafter receiving the Statutory notice) receiving the Statutory notice)

District Court or Court of ClaimsDistrict Court or Court of Claims – TP must pay – TP must pay first and file claim for refund (TP may ask that first and file claim for refund (TP may ask that claim be claim be immediately rejectedimmediately rejected))

Once Claim Is Denied (or if no IRS Action in 6 Once Claim Is Denied (or if no IRS Action in 6 months)months) – Suit may be filed in U.S. District Court – Suit may be filed in U.S. District Court or Claims Court no later than or Claims Court no later than 22 years after IRS years after IRS notice of rejectionnotice of rejection


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Topic 8Topic 8

IRS Appeals IRS Appeals Procedures and Procedures and Court OptionsCourt Options

4343

8A IRS Appeals Procedures and 8A IRS Appeals Procedures and Written Protest RequestsWritten Protest Requests

Appeals ConferenceAppeals Conference – If TP responds within 30- – If TP responds within 30-days days

ProtestProtest – Required if case > $25,000 (or has – Required if case > $25,000 (or has p’ship or S Corp.); need sworn statement w/ p’ship or S Corp.); need sworn statement w/ signature (TP or rep)signature (TP or rep)

If Case > $2,500 <= $25,000If Case > $2,500 <= $25,000 – May be – May be designated “small case”, requires letter with designated “small case”, requires letter with reasons for position (otherwise, protest req.); if < reasons for position (otherwise, protest req.); if < $2,500, notification only$2,500, notification only

TPTP – May represent self, use rep, or preparer – May represent self, use rep, or preparer Question 48 and Question 49 Question 48 and Question 49

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8B IRS Appeals Procedures – 8B IRS Appeals Procedures – Waivers and Burden of ProofWaivers and Burden of Proof

IRS AppealsIRS Appeals – Not necessary for court – Not necessary for court Notice of DeficiencyNotice of Deficiency – May not appeal on – May not appeal on

religious, political, conscientious groundsreligious, political, conscientious grounds TPTP – May request to waive 30-day period, and – May request to waive 30-day period, and

ask that claim be rejected (save time)ask that claim be rejected (save time) Burden of ProofBurden of Proof – TP may ask Court to shift to – TP may ask Court to shift to

IRS on any factual issue if “credible evidence” IRS on any factual issue if “credible evidence” offered (records, cooperative, and net worth < offered (records, cooperative, and net worth < $7 million if corp, p’ship, or trust)$7 million if corp, p’ship, or trust)


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8C U.S. Tax Court – Small Case 8C U.S. Tax Court – Small Case Procedure Procedure

If Deficiency < $50,000If Deficiency < $50,000 – Taxpayer may – Taxpayer may ask for TC Small Case Division ($60 fee)ask for TC Small Case Division ($60 fee)

Small CaseSmall Case – Legal rep not required, – Legal rep not required, evidence rules relaxed, judge is usually an evidence rules relaxed, judge is usually an experienced lawyerexperienced lawyer

No AppealNo Appeal – If TP loses the case – If TP loses the case Figure 1Figure 1 Question 52Question 52

4646

8D U.S. Tax Court – Basic 8D U.S. Tax Court – Basic ProcedureProcedure

TCTC – 19 judges, appointed to 15-yr. terms – 19 judges, appointed to 15-yr. terms CharacteristicsCharacteristics – Do not have to pay first, no – Do not have to pay first, no

jury, appeals to TP’s U.S. Circuit; case heard by jury, appeals to TP’s U.S. Circuit; case heard by Associate Judge, refers to Chief Judge, who Associate Judge, refers to Chief Judge, who may submit to all 19 judges (en banc) for reviewmay submit to all 19 judges (en banc) for review

Once Case is DocketedOnce Case is Docketed – TP must have a – TP must have a lawyer or someone who passed TC exam (no lawyer or someone who passed TC exam (no power of attorney needed); EA does not qualifypower of attorney needed); EA does not qualify

Employment Tax CasesEmployment Tax Cases – TC hears only – TC hears only status status cases (employee or IC), various requirementscases (employee or IC), various requirements


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8E U.S. Tax Court Decisions8E U.S. Tax Court Decisions

TC Chief JudgeTC Chief Judge – Labels each decision as either – Labels each decision as either Regular DecisionRegular Decision (law point, pub. by Gov’t.) (law point, pub. by Gov’t.) Memorandum DecisionMemorandum Decision (facts, not published) (facts, not published)

Board of Tax Appeals (BTA)Board of Tax Appeals (BTA) – Pre-42 TC – Pre-42 TC AcquiescenceAcquiescence – IRS – IRS maymay announce it will abide announce it will abide

by a unfavorable court decision (Rev. Rul.)by a unfavorable court decision (Rev. Rul.) NonacquiescenceNonacquiescence – IRS – IRS maymay announce it will announce it will

continue to contest unfavorable dec. (Rev. Rul.)continue to contest unfavorable dec. (Rev. Rul.) Acq/Nonacq PolicyAcq/Nonacq Policy – Now applies to all courts – Now applies to all courts Question 54Question 54

4848

8F U.S. District Court and U.S. 8F U.S. District Court and U.S. Court of Federal ClaimsCourt of Federal Claims

All CourtsAll Courts – Either party may appeal, stare – Either party may appeal, stare decisis rule, dicta issued (explanatory fact), may decisis rule, dicta issued (explanatory fact), may overturn Regulations, and TP has 2 years to file overturn Regulations, and TP has 2 years to file suit in DC or FC suit in DC or FC

DCDC – 13 federal circuits, 94 districts; pay first, – 13 federal circuits, 94 districts; pay first, court hears all types of cases, jury trial for facts court hears all types of cases, jury trial for facts (not law), appeal to appropriate Circuit(not law), appeal to appropriate Circuit

FCFC – National court, 16 judges, hears all types of – National court, 16 judges, hears all types of claims, appeal to CA for Fed. Circuit, no juryclaims, appeal to CA for Fed. Circuit, no jury


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8G U.S. Courts of Appeal and the 8G U.S. Courts of Appeal and the U.S. Supreme CourtU.S. Supreme Court

Circuit Courts of AppealCircuit Courts of Appeal – 13 circuits (12 – 13 circuits (12 geographical, plus CA for Federal Circuit); 3 geographical, plus CA for Federal Circuit); 3 judges will either affirm, reverse or remand; not judges will either affirm, reverse or remand; not required to follow other circuits; appeal to U.S. required to follow other circuits; appeal to U.S. Supreme CourtSupreme Court

U.S. Supreme CourtU.S. Supreme Court – 9 judges appointed for – 9 judges appointed for life, 4 judges req. for granting certiori, few tax life, 4 judges req. for granting certiori, few tax cases (circuits conflict, or novel tax issue)cases (circuits conflict, or novel tax issue)

DictaDicta – Statements of fact (not precedent) – Statements of fact (not precedent) Figure 2Figure 2 Question 57 and Question 58Question 57 and Question 58

5050

Topic 9Topic 9

Tax Preparers – Tax Preparers – Definition and Definition and

Possible PenaltiesPossible Penalties

5151

9A Income Tax Preparer – 9A Income Tax Preparer – DefinitionDefinition

ITPITP – Anyone who prepares or hires one to – Anyone who prepares or hires one to prepare for compensation an prepare for compensation an income income tax return, tax return, substantial part or return, or refund claimsubstantial part or return, or refund claim

IncludesIncludes – Employer, employee, S/E person, but – Employer, employee, S/E person, but normally normally notnot a fiduciary a fiduciary

““Substantial Portion”Substantial Portion” – Does not include amt. < – Does not include amt. < $2,000 or <$100,000 and < 20% GI$2,000 or <$100,000 and < 20% GI

Signer of ReturnSigner of Return – Not automatically ITP – Not automatically ITP Question 59Question 59

5252

9B Identifying Preparers9B Identifying Preparers

Employer of Person Preparing ReturnEmployer of Person Preparing Return – Is – Is automaticallyautomatically an income tax preparer an income tax preparer

EmployeeEmployee – Is – Is not not an ITP for purposes of an ITP for purposes of preparer penaltiespreparer penalties

ITP & Supervisory AdvisorITP & Supervisory Advisor – May be – May be subject to preparer penalties (below)subject to preparer penalties (below)

Questions 60 and Question 61Questions 60 and Question 61

5353

9C Preparer Penalties – Sec. 9C Preparer Penalties – Sec. 6694(a) Understatement of Tax6694(a) Understatement of Tax

$250 Penalty$250 Penalty – Per occurrence for any tax – Per occurrence for any tax understatement due to understatement due to unrealistic position (e.g., unrealistic position (e.g., not having substantial authoritative support)not having substantial authoritative support)

““Unrealistic Position”Unrealistic Position” – Not having realistic – Not having realistic probability (1 in 3) of being sustained (Note – will probability (1 in 3) of being sustained (Note – will be “more likely than not” standard in 2008)be “more likely than not” standard in 2008)

Waiver of PenaltyWaiver of Penalty – If position is “not frivolous” – If position is “not frivolous” (<5%) & fully disclosed on return(<5%) & fully disclosed on return

Figure 4Figure 4 Question 62 and Question 63Question 62 and Question 63

5454

9D Preparer Penalties – Sec. 9D Preparer Penalties – Sec. 6694(b) Willful Understatement6694(b) Willful Understatement

$1,000 Penalty$1,000 Penalty – For reckless disregard of rules, – For reckless disregard of rules, willful understatement of taxwillful understatement of tax

RequiredRequired – Intentional disregard of TP’s facts & – Intentional disregard of TP’s facts & information, burden on preparerinformation, burden on preparer

Imposition of PenaltyImposition of Penalty – On actual preparer and – On actual preparer and not employer, no statute of limitationsnot employer, no statute of limitations

Both PenaltiesBoth Penalties – Unrealistic position and – Unrealistic position and intentional disregard may apply at same time; intentional disregard may apply at same time; willful understatement penalty reduced by any willful understatement penalty reduced by any unrealistic position penaltyunrealistic position penalty

Questions 64 and 65Questions 64 and 65

5555

9E Tax Preparer Penalties – Sec. 9E Tax Preparer Penalties – Sec. 6694 Payments by Preparers6694 Payments by Preparers

PreparerPreparer – May appeal 6694 assessments – May appeal 6694 assessments Appeals ProcedureAppeals Procedure – Pay at least 15% of – Pay at least 15% of

assessment within 30 days of notice and assessment within 30 days of notice and file a claim for refundfile a claim for refund

If Preparer Wins AppealIf Preparer Wins Appeal – Penalty will be – Penalty will be abated and refundedabated and refunded


5656

9F Tax Preparer Penalties – 9F Tax Preparer Penalties – Unauthorized DisclosuresUnauthorized Disclosures

Civil PenaltyCivil Penalty - $250 per use ($10,000 maximum) - $250 per use ($10,000 maximum) Criminal PenaltyCriminal Penalty – Reckless disclosure, – Reckless disclosure,

misdemeanor (up to 1 yr. prison, $1,000); misdemeanor (up to 1 yr. prison, $1,000); preparer def’inition much broader (e.g., clerk)preparer def’inition much broader (e.g., clerk)

Not Subject to PenaltyNot Subject to Penalty – Code-required , client – Code-required , client permission, or court-ordered (not just subpoena)permission, or court-ordered (not just subpoena)

Client DeathClient Death – Share info only with legal – Share info only with legal fiduciary of the estatefiduciary of the estate


5757

9G Tax Preparer Penalties – 9G Tax Preparer Penalties – Earned Income CreditEarned Income Credit

Due DiligenceDue Diligence – In determining eligibility – In determining eligibility $100 Penalty$100 Penalty – Each failure to exercise – Each failure to exercise

due diligence with E/I credit compliancedue diligence with E/I credit compliance PenaltyPenalty – Can be in addition to willfulness – Can be in addition to willfulness

or unreasonable position penaltiesor unreasonable position penalties RecordsRecords – Preparer must retain eligibility – Preparer must retain eligibility

checklist, worksheet, info on TP providing checklist, worksheet, info on TP providing information; retain for each client using cr.information; retain for each client using cr.


5858

9H Tax Preparers – Who Must 9H Tax Preparers – Who Must Sign the Return Sign the Return

Primary Tax Return PreparerPrimary Tax Return Preparer – Must sign; no facsimile, – Must sign; no facsimile, one individual treated as preparer (one with one individual treated as preparer (one with primary primary responsibilityresponsibility for overall accuracy, not math); a reviewing for overall accuracy, not math); a reviewing supervisor may sign (if OK w/ TP)supervisor may sign (if OK w/ TP)

Signing PreparerSigning Preparer - may represent TP at IRS if not EA - may represent TP at IRS if not EA SubstituteSubstitute – Sign if original preparer not available, if – Sign if original preparer not available, if

thorough review of information & tax formsthorough review of information & tax forms SigningSigning – Preparer must sign before giving return to TP, – Preparer must sign before giving return to TP,

copy OK if signed by TP, sign Form 8453 if electronic (or copy OK if signed by TP, sign Form 8453 if electronic (or include signed copy)include signed copy)

Question 69, 70 and 71Question 69, 70 and 71

5959

9I Tax Preparers – Penalty for 9I Tax Preparers – Penalty for Failure to Sign a ReturnFailure to Sign a Return

PreparerPreparer – Must sign return and provide a – Must sign return and provide a copy to the taxpayercopy to the taxpayer

$50 Penalty$50 Penalty – For failure to sign a return – For failure to sign a return or claim as required by Regulationsor claim as required by Regulations

$25,000$25,000 – Maximum total fine in one year – Maximum total fine in one year

6060

9J Tax Preparer Penalties – 9J Tax Preparer Penalties – Failure to Furnish Copies to TPFailure to Furnish Copies to TP Completed CopyCompleted Copy – Must be furnished to – Must be furnished to

TP TP no laterno later than when presented to TP for than when presented to TP for signaturesignature

PenaltyPenalty - $50 per failure, $25,000 max. yr. - $50 per failure, $25,000 max. yr. Reasonable CauseReasonable Cause – May escape penalty – May escape penalty Question 72Question 72

6161

9K Preparer Penalties – Failure 9K Preparer Penalties – Failure to Retain Copies or Recordsto Retain Copies or Records

Copy of ReturnCopy of Return – Must be retained – Must be retained Alternative ListAlternative List – Preparer may instead – Preparer may instead

retain a list (for retain a list (for 33 yrs) of name, ID number, yrs) of name, ID number, and type of return for each person’s returnand type of return for each person’s return

PenaltyPenalty - $50 per failure, $25,000 max. per - $50 per failure, $25,000 max. per yearyear

Reasonable CauseReasonable Cause – May escape penalty – May escape penalty Question 73 and Question 74Question 73 and Question 74

6262

9L Tax Preparer – Failure to 9L Tax Preparer – Failure to Retain Employment RecordsRetain Employment Records

RequiredRequired – Retain a list of all persons employed – Retain a list of all persons employed by TP to prepare returns/claims by TP to prepare returns/claims

RetentionRetention – Keep for 3 yrs after next 7/1 – Keep for 3 yrs after next 7/1 Info Req.Info Req. – Name, ID #, Place of work – Name, ID #, Place of work PenaltyPenalty - $50 per failure, $25,000 maximum yr. - $50 per failure, $25,000 maximum yr. Reasonable CauseReasonable Cause – May escape penalty – May escape penalty Each PreparerEach Preparer – Must furnish their ID # and – Must furnish their ID # and

employer ID # on each return prepared employer ID # on each return prepared ($50/$25,000 fine for noncompliance)($50/$25,000 fine for noncompliance)


6363

9M Basics - Preparer Penalty for 9M Basics - Preparer Penalty for Endorsing/Negotiating RefundsEndorsing/Negotiating Refunds Power of AttorneyPower of Attorney – May be used by TP to – May be used by TP to

authorize representative to authorize representative to receivereceive a tax refund a tax refund check on his or her behalfcheck on his or her behalf

PreparerPreparer – Can NEVER be authorized to – Can NEVER be authorized to endorse or otherwise cash a tax check endorse or otherwise cash a tax check

Circular 230Circular 230 – Clear prohibition for attorney, – Clear prohibition for attorney, CPA, EA, or enrolled actuaryCPA, EA, or enrolled actuary

$500 Penalty$500 Penalty – For each violation (does not – For each violation (does not apply to deposit of apply to deposit of full amountfull amount in TP’s account in TP’s account by a bank)by a bank)


6464

9N Penalty for Endorsing/ 9N Penalty for Endorsing/ Negotiating Refund – SpecialNegotiating Refund – Special

Tax PreparerTax Preparer – May – May receivereceive the check and the check and deposit deposit the full amount for the taxpayer, the full amount for the taxpayer, with a power of attorneywith a power of attorney

Check-Cashing BusinessCheck-Cashing Business – May be owned – May be owned by taxpayer if not related in any way to the by taxpayer if not related in any way to the tax preparation businesstax preparation business

Questions 77 and 78Questions 77 and 78

6565

Topic 10Topic 10

Tax Advice and Tax Advice and “Covered “Covered Opinions”Opinions”

6666

10A Covered Opinions Defined10A Covered Opinions Defined

Definition Definition – A covered opinion is written advice – A covered opinion is written advice from a practitioner concerning one or more from a practitioner concerning one or more federal tax issues arising from:federal tax issues arising from:

A tax avoidance transaction identified as a listed A tax avoidance transaction identified as a listed transaction in Reg. Sec. 1.6011-4transaction in Reg. Sec. 1.6011-4

Any plan or arrangement with the Any plan or arrangement with the principal principal purpose of tax avoidance or evasionpurpose of tax avoidance or evasion

Any plan or arrangement with the Any plan or arrangement with the significantsignificant purpose of tax avoidance or evasion (automatic purpose of tax avoidance or evasion (automatic for four types of opinions listed below)for four types of opinions listed below)

6767

10B Classifying Opinions With a 10B Classifying Opinions With a Tax Avoidance PurposeTax Avoidance Purpose

Four Opinions Automatically Presumed to Have Four Opinions Automatically Presumed to Have a Sign. Tax Avoid/Evasion Purposea Sign. Tax Avoid/Evasion Purpose:: RelianceReliance – Concludes with >50% success – Concludes with >50% success MarketingMarketing – Someone else will promote/mkt.– Someone else will promote/mkt. ConfidentialityConfidentiality – Practitioner imposes disclosure – Practitioner imposes disclosure

limitations on advicelimitations on advice Contractual ProtectionContractual Protection – Fee refund arrangement if – Fee refund arrangement if

advice is not successfuladvice is not successful

““LegendLegend” – Avoid penalty w/ disclaimer” – Avoid penalty w/ disclaimer Question 79 and Question 80Question 79 and Question 80

6868

10C Compliance & Disclosure 10C Compliance & Disclosure Req. for “Covered Opinions”Req. for “Covered Opinions”

Key DisclosuresKey Disclosures – (1) Identify relevant facts, (2) – (1) Identify relevant facts, (2) relate law to facts, (3) evaluate & discuss relate law to facts, (3) evaluate & discuss significant tax issues (significant tax issues (must ignore audit lottery)must ignore audit lottery), , and (4) overall conclusionand (4) overall conclusion

Tax Issue DiscussionTax Issue Discussion – Should also discuss & – Should also discuss & evaluate areas with negative conclusion and evaluate areas with negative conclusion and areas with no conclusionareas with no conclusion

Prominent DisclosuresProminent Disclosures – Required for special – Required for special fee arrangements, limited scope engagements, fee arrangements, limited scope engagements, and marketing purpose (if a marketing opinion)and marketing purpose (if a marketing opinion)

6969

10D Exceptions to the Covered 10D Exceptions to the Covered Opinion RulesOpinion Rules

Exceptions to the Covered Opinion RulesExceptions to the Covered Opinion Rules - - Written advice to be followed with subsequent adviceWritten advice to be followed with subsequent advice Advice on pension plans, bond issues, or SEC filingsAdvice on pension plans, bond issues, or SEC filings Advice after return is filed (usually amended)Advice after return is filed (usually amended) Advice from employee to employer on taxesAdvice from employee to employer on taxes Negative advice (issue not likely in TP favor)Negative advice (issue not likely in TP favor)

Other (Non-covered) AdviceOther (Non-covered) Advice – Should not rely on – Should not rely on clearly unreasonable factual or legal clearly unreasonable factual or legal assumptionsassumptions


7070

Questions?Questions?

As Time PermitsAs Time Permits

Contact:Contact:

John EverettJohn Everett

Professor of AccountingProfessor of Accounting

Virginia Commonwealth UniversityVirginia Commonwealth University

[email protected]@vcu.edu

Date post:	18-Jan-2016
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