IRS Tax Professionals 2 — Questions and Answers
Question 1: A CPA who is not enrolled to practice before the IRS wants to represent a client in an audit. Under Circular 230, which of the following is permitted?
- Represent the client in all audit proceedings without restriction
- Represent the client only before the IRS Examination Division where the CPA prepared the return (Correct answer)
- Represent the client in Tax Court proceedings only
- Represent the client in Collections but not Examination
Correct answer: Represent the client only before the IRS Examination Division where the CPA prepared the return
CPAs may represent clients before any IRS division or office, including Examination, Collections, and Appeals, as they are practitioners under Circular 230.
Question 2: Under Circular 230, a practitioner who has a conflict of interest may still represent multiple clients if:
- The conflict is minor and the practitioner believes they can provide competent representation
- All affected clients give informed written consent and the representation is not prohibited by law (Correct answer)
- The IRS approves the representation in advance
- The clients sign a mutual waiver of confidentiality
Correct answer: All affected clients give informed written consent and the representation is not prohibited by law
Circular 230 §10.29 allows representation despite conflicts if all affected clients give informed written consent and the law does not prohibit it.
Question 3: Which IRS form must an enrolled agent file to renew their enrollment status?
- Form 8821
- Form 2848
- Form 8554 (Correct answer)
- Form 23
Correct answer: Form 8554
Form 8554 is the Application for Renewal of Enrollment to Practice Before the Internal Revenue Service used by enrolled agents.
Question 4: A tax preparer signs a return as a paid preparer but deliberately understates a client's tax liability to generate a larger refund. Under IRC §6694, the preparer faces a penalty if the understatement is due to:
- Reasonable cause and good faith
- An unreasonable position or willful/reckless conduct (Correct answer)
- A clerical error discovered after filing
- The client's failure to disclose all income
Correct answer: An unreasonable position or willful/reckless conduct
IRC §6694 imposes penalties on preparers for understatements due to unreasonable positions (§6694(a)) or willful/reckless conduct (§6694(b)).
Question 5: Under the Affordable Care Act, what is the penalty for an employer with 50 or more full-time equivalent employees who fails to offer minimum essential coverage?
- Employer Shared Responsibility Payment under IRC §4980H (Correct answer)
- FICA penalty under IRC §3121
- Excise tax under IRC §4971
- Accuracy-related penalty under IRC §6662
Correct answer: Employer Shared Responsibility Payment under IRC §4980H
The Employer Shared Responsibility Payment under IRC §4980H applies to applicable large employers who fail to offer adequate minimum essential coverage.
Question 6: A practitioner discloses confidential client information to a third party without consent. Under Circular 230, this is permissible only when:
- The practitioner believes disclosure is in the client's best interest
- Required by law or the client provides written consent (Correct answer)
- The IRS requests the information in writing
- The information is already publicly available
Correct answer: Required by law or the client provides written consent
Circular 230 §10.20 requires practitioners to keep client information confidential unless disclosure is required by law or authorized by the client.
Question 7: Which of the following best describes the 'best practices' standard under Circular 230 §10.33?
- A mandatory set of rules with specific penalties for violations
- Aspirational guidelines encouraging high-quality, ethical tax practice (Correct answer)
- Rules that apply only to enrolled agents and not CPAs or attorneys
- A set of standards enforceable only in Tax Court proceedings
Correct answer: Aspirational guidelines encouraging high-quality, ethical tax practice
Circular 230 §10.33 outlines best practices as aspirational guidelines for tax professionals, not mandatory rules with direct penalties.
IRS Tax Professionals 2
A CPA who is not enrolled to practice before the IRS wants to represent a client in an audit.
Under Circular 230, which of the following is permitted?