IRS Ethics and Practice Procedures 3 — Questions and Answers
Question 1: A practitioner who receives a subpoena for client records during a grand jury investigation should first:
- Immediately produce all records to comply with the subpoena
- Consult with the client and consider asserting applicable privileges (Correct answer)
- Destroy any potentially incriminating documents
- Notify the IRS Office of Professional Responsibility
Correct answer: Consult with the client and consider asserting applicable privileges
The practitioner must consult with the client and evaluate applicable privileges (e.g., attorney-client or Kovel arrangement) before producing records.
Question 2: Under Circular 230, a practitioner must keep copies of written advice for how long after the date the advice is rendered?
- 1 year
- 3 years (Correct answer)
- 5 years
- 7 years
Correct answer: 3 years
Circular 230 §10.37 requires practitioners to retain copies of written advice and the documents on which it is based for at least three years.
Question 3: Which of the following would constitute 'disreputable conduct' under Circular 230 §10.51?
- Filing a return one day late due to a postal error
- Willfully assisting a client in evading federal tax (Correct answer)
- Charging a higher fee than the client expected
- Declining to represent a client whose case is too complex
Correct answer: Willfully assisting a client in evading federal tax
Willfully assisting, counseling, or encouraging tax evasion is explicitly listed as disreputable conduct under Circular 230 §10.51(a)(4).
Question 4: A practitioner may NOT use the title 'enrolled agent' in an advertisement unless:
- The practitioner also holds a CPA license
- The practitioner is currently enrolled to practice before the IRS (Correct answer)
- The advertisement is approved by the OPR in advance
- The practitioner has at least five years of IRS experience
Correct answer: The practitioner is currently enrolled to practice before the IRS
Only practitioners who are currently enrolled to practice before the IRS may use the 'enrolled agent' designation; using it after enrollment lapses is prohibited.
Question 5: Under best practices outlined in Circular 230 §10.33, a practitioner should communicate with the client regarding:
- Only the final tax liability owed
- The terms and scope of the engagement, relevant facts, and applicable law (Correct answer)
- Matters outside the scope of the engagement if they may increase fees
- Only issues where the practitioner disagrees with IRS positions
Correct answer: The terms and scope of the engagement, relevant facts, and applicable law
Best practices require clear communication about the scope of the engagement, relevant facts, and applicable law so the client can make informed decisions.
Question 6: A practitioner who knowingly gives false or misleading information to the IRS in connection with a tax matter is subject to:
- A civil penalty only, up to $1,000
- Disciplinary action under Circular 230 and possible criminal prosecution (Correct answer)
- Suspension from practice for no more than 30 days
- A mandatory ethics continuing education requirement
Correct answer: Disciplinary action under Circular 230 and possible criminal prosecution
Providing false or misleading information to the IRS violates Circular 230 §10.51 and may also constitute a criminal offense under 18 U.S.C. §1001.
Question 7: When must a practitioner provide a written disclosure for a 'covered opinion' under Circular 230?
- Only when the opinion is provided to a publicly traded company
- When the written advice concerns a listed transaction or a principal purpose transaction (Correct answer)
- Whenever the practitioner charges more than $500 for tax advice
- Only when the IRS specifically requests a written opinion
Correct answer: When the written advice concerns a listed transaction or a principal purpose transaction
Circular 230 §10.37 requires specific disclosures when written advice addresses listed transactions or tax avoidance transactions where tax benefits are a principal purpose.
IRS Ethics and Practice Procedures 3
A practitioner who receives a subpoena for client records during a grand jury investigation should first: