CTC Ethics, Standards & IRS Representation 3 — Questions and Answers
Question 1: Which IRS notice initiates the formal Appeals process after an examination and gives the taxpayer 30 days to respond?
- CP2000 Notice
- 30-Day Letter (Letter 525) (Correct answer)
- 90-Day Letter (Statutory Notice of Deficiency)
- Letter 3219
Correct answer: 30-Day Letter (Letter 525)
The 30-Day Letter (Letter 525) follows an examination and gives the taxpayer 30 days to request a conference with IRS Appeals before a statutory notice is issued.
Question 2: Under Circular 230, which conduct subjects a practitioner to immediate suspension without a prior disciplinary hearing?
- Filing a return with a frivolous position
- Charging an excessive fee for representation
- Being convicted of a felony involving dishonesty or breach of trust (Correct answer)
- Failing to respond to a client inquiry within 45 days
Correct answer: Being convicted of a felony involving dishonesty or breach of trust
Circular 230 §10.82 authorizes expedited suspension for practitioners convicted of crimes involving dishonesty, breach of trust, or certain tax offenses without a full prior hearing.
Question 3: A taxpayer and the IRS reach a closing agreement under IRC §7121. What is the legal effect of this agreement?
- It is advisory only and either party may reopen the matter within two years
- It is final and conclusive, binding on both the taxpayer and the government (Correct answer)
- It closes the matter for the taxpayer but the IRS retains the right to reopen for fraud
- It must be approved by the Tax Court to be enforceable
Correct answer: It is final and conclusive, binding on both the taxpayer and the government
A closing agreement under IRC §7121 is final and conclusive for the tax years covered and cannot be reopened except upon a showing of fraud, malfeasance, or misrepresentation.
Question 4: Which of the following statements about IRS installment agreements is CORRECT?
- Interest and penalties stop accruing once an installment agreement is approved
- The IRS must accept any installment agreement requested by an individual taxpayer
- A taxpayer can request an installment agreement using Form 9465 (Correct answer)
- Installment agreements are available only for balances under $10,000
Correct answer: A taxpayer can request an installment agreement using Form 9465
Form 9465, Installment Agreement Request, is the standard form individuals use to request a payment plan for tax debts with the IRS.
Question 5: When representing a client before the IRS, a CTC receives a subpoena for client documents. Under what circumstances may attorney-client privilege apply?
- Attorney-client privilege applies to all enrolled agents in the same way as attorneys
- Tax advice privilege under IRC §7525 protects federally authorized tax practitioners in non-criminal matters (Correct answer)
- No privilege exists for tax practitioners other than licensed attorneys
- The privilege applies only if the CTC is supervised by an attorney
Correct answer: Tax advice privilege under IRC §7525 protects federally authorized tax practitioners in non-criminal matters
IRC §7525 extends a limited privilege (similar to attorney-client privilege) to federally authorized tax practitioners for tax advice in non-criminal proceedings.
Question 6: A client asks a CTC to sign a return that includes a position the CTC believes lacks substantial authority and is not disclosed. The CTC should:
- Sign the return because the client assumes all legal responsibility
- Refuse to sign and advise the client of the need for substantial authority or proper disclosure (Correct answer)
- Sign only if the client provides written indemnification
- Request a Private Letter Ruling before signing
Correct answer: Refuse to sign and advise the client of the need for substantial authority or proper disclosure
Circular 230 §10.34 prohibits a practitioner from signing a return with an undisclosed position lacking substantial authority, regardless of the client's instruction.
Question 7: What is the primary difference between an Offer in Compromise (OIC) based on 'doubt as to collectibility' and one based on 'doubt as to liability'?
- Doubt as to liability requires submission of Form 656-L; doubt as to collectibility uses Form 656 (Correct answer)
- Doubt as to collectibility disputes the tax owed; doubt as to liability disputes the ability to pay
- Both types use the same form and review process
- Doubt as to liability is not recognized by the IRS as a valid OIC basis
Correct answer: Doubt as to liability requires submission of Form 656-L; doubt as to collectibility uses Form 656
Form 656-L is specifically for doubt as to liability OICs, while the standard Form 656 is used for doubt as to collectibility and effective tax administration.
CTC Ethics, Standards & IRS Representation 3
Which IRS notice initiates the formal Appeals process after an examination and gives the taxpayer 30 days to respond?