IRS Tax Professionals 3 — Questions and Answers
Question 1: An enrolled agent is suspended from practice before the IRS. During the suspension period, the EA may:
- Prepare tax returns but not represent clients
- Continue all prior activities since suspension only limits new clients
- Not engage in any practice before the IRS, including return preparation for compensation (Correct answer)
- Represent clients in Collections only
Correct answer: Not engage in any practice before the IRS, including return preparation for compensation
A suspended practitioner is disbarred from all practice before the IRS, which includes preparing returns for compensation under Circular 230.
Question 2: Under IRC §7216, a tax return preparer who knowingly or recklessly discloses tax return information without client consent may be subject to:
- Civil penalty of $500 per disclosure only
- Criminal penalties including fines up to $1,000 and up to one year imprisonment (Correct answer)
- Revocation of PTIN only
- Suspension from e-filing for two years
Correct answer: Criminal penalties including fines up to $1,000 and up to one year imprisonment
IRC §7216 makes unauthorized disclosure of tax return information a federal criminal offense punishable by fines up to $1,000 and/or up to one year imprisonment.
Question 3: A client asks their enrolled agent to delay sending a completed return to the IRS so the client can pay the balance due later. What should the EA do?
- Comply with the client's request as it is the client's decision when to file
- Advise the client that delaying filing may result in failure-to-file penalties and interest (Correct answer)
- File the return immediately without informing the client
- Request an automatic extension on the client's behalf without their knowledge
Correct answer: Advise the client that delaying filing may result in failure-to-file penalties and interest
The EA must advise the client of the potential failure-to-file penalties and interest that accrue from delaying filing past the due date.
Question 4: Which of the following is a valid basis for the IRS to initiate disciplinary proceedings against a practitioner under Circular 230?
- The practitioner charged a flat fee for services instead of an hourly rate
- The practitioner willfully failed to file their own federal tax returns (Correct answer)
- The practitioner represented a client in Tax Court without being an attorney
- The practitioner used e-file for a return instead of paper filing
Correct answer: The practitioner willfully failed to file their own federal tax returns
Willful failure to file one's own federal tax returns is grounds for disciplinary action against practitioners under Circular 230 §10.51.
Question 5: A tax professional discovers an error on a client's prior-year return after the client has already filed it. Under Circular 230, the practitioner's obligation is to:
- Immediately correct the error by filing an amended return without client approval
- Promptly advise the client of the error and the consequences of not correcting it (Correct answer)
- Report the error directly to the IRS on the client's behalf
- Withdraw from representation if the client refuses to correct the error
Correct answer: Promptly advise the client of the error and the consequences of not correcting it
Circular 230 §10.21 requires practitioners to promptly advise clients of errors and the consequences of failure to correct them, but the decision to amend belongs to the client.
Question 6: The IRS Office of Professional Responsibility (OPR) has jurisdiction over which of the following?
- Only enrolled agents
- All tax return preparers regardless of credential
- Attorneys, CPAs, enrolled agents, and enrolled retirement plan agents practicing before the IRS (Correct answer)
- Only practitioners who appear in Tax Court
Correct answer: Attorneys, CPAs, enrolled agents, and enrolled retirement plan agents practicing before the IRS
OPR enforces Circular 230 standards for all practitioners who practice before the IRS, including attorneys, CPAs, enrolled agents, and enrolled retirement plan agents.
Question 7: Under Circular 230, a practitioner may NOT charge a contingent fee for:
- Representation in a collection due process hearing
- Services rendered in connection with any matter before the IRS, with exceptions for refund claims
- Preparation of an original tax return (Correct answer)
- Representation in a penalty abatement request
Correct answer: Preparation of an original tax return
Circular 230 §10.27 generally prohibits contingent fees for preparing original returns; contingent fees are allowed in limited circumstances such as examination of returns already filed.
IRS Tax Professionals 3
An enrolled agent is suspended from practice before the IRS.
During the suspension period, the EA may: