2. ❖It defines “practice” and who may
practice before the IRS;
❖describes a tax professional’s duties and
obligations while practicing before the
IRS;
❖authorizes specific sanctions for
violations of the duties and obligations;
and
❖ describes the procedures that apply to
administrative proceedings for discipline.
General Scope of Circular 230
3. The Five Subparts of the Circular 230 are:
1. Rules relating to the authority to practice
before the Internal Revenue Service.
2. The duties and restrictions relating to
practice before the IRS.
3. Sanctions for violating the regulations.
4. Rules applicable to disciplinary
proceedings.
5. General provisions.
4. OFFICE OF
PROFESSIONAL
RESPONSIBILITY
The OPR supports the IRS’s strategy to
enhance enforcement of the tax law by
ensuring that tax professionals adhere to
tax practice standards and follow the
laws.
The OPR is the governing body
responsible for interpreting and applying
the regulations governing practice before
the IRS.
6. “Practice before Internal Revenue Service”
- is defined as all matters connected
with a presentation to the Internal
Revenue Service.
7. Such presentations include, but are not limited to:
❖Preparing documents;
❖Filing documents;
❖Corresponding and communicating with the IRS;
❖Rendering written advice with respect to any
entity, transaction, plan, or arrangement, or
another plan or arrangement having a potential
for tax avoidance or evasion; and
❖Representing a client at conferences, hearings,
and meetings.
“Practice before Internal Revenue Service”
8. Eligible Practitioners
Provided they are not currently disbarred or suspended,
the following practitioners may practice before the IRS:
❖ Attorneys
❖ Certified public accountants
❖ Enrolled agents
❖ Enrolled actuaries
❖ Enrolled retirement plan agents
❖ Registered tax return preparers
9. Review Question #1
1. The regulations found in Circular 230 can be
found in?
A) 162 of the Internal Revenue Code
B) Title 31 Code of Federal Regulations, Subtitle A, Part 10
C) IRS Publication 225
D) IRS Publication 334
10. Answer #1
1. The regulations found in Circular 230 can be
found in?
A) 162 of the Internal Revenue Code
B) Title 31 Code of Federal Regulations, Subtitle A, Part
10
C) IRS Publication 225
D) IRS Publication 334
11. 2. Which of the following is false regarding the Office of
Professional Responsibility (OPR)?
A) It is part of the Internal Revenue Service
B) The OPR has the power to administer and enforce the
regulations contained in Circular 230
C) The OPR has the power to discipline tax practitioners for
Circular 230 violations
D) None of these statements are false
Review Question #2
12. Answer #1
2. Which of the following is false regarding the Office of
Professional Responsibility (OPR)?
A) It is part of the Internal Revenue Service
B) The OPR has the power to administer and enforce the
regulations contained in Circular 230
C) The OPR has the power to discipline tax practitioners for
Circular 230 violations
D) None of these statements are false
14. Diligence as to accuracy
Section 10.22, “Diligence as to Accuracy,” is
one of the 19 sections contained within
Circular 230 Subpart B—“Duties and
Restrictions Relating to Practice Before the
Internal Revenue Service.”
15. Diligence as to accuracy
Although it is not required, it is highly
recommended to stay current with the
laws.
By completing AFSP, your name will be
placed in PTIN registry.
16. Circular 230 states the following regarding to
diligence as to accuracy in Section 10.22:
A. In general, a practitioner must exercise due
diligence
(1) In preparing or assisting the preparation of,
approving, and filing
• tax returns,
• documents,
• affidavits, and
• other papers relating to IRS matters;
Diligence as to accuracy
17. (2) In determining the correctness of oral
or written representations made by the
practitioner to:
the Department of the Treasury; and
clients with reference to any matter
administered by the Internal Revenue
Service.
Diligence as to accuracy
18. Circular 230 states the following regarding to diligence as to
accuracy in Section 10.22:
B. Reliance on others.
“Except as provided in §§ 10.34 and 10.37, a practitioner will be
presumed to have exercised due diligence for purposes of this
section if
the practitioner relies on the work product of another person
and
the practitioner used reasonable care in engaging,
supervising, training, and evaluating the person, taking proper
account of the nature of the relationship between the
practitioner and the person.”
Diligence as to accuracy
19. Tax practitioners are expected
to do his or her best to make
sure that they provide correct
information to both the IRS and
clients.
Diligence as to accuracy
20. For example, a practitioner who relied on
information provided to her by an enrolled
agent whom she knew to be in good
standing would be seen to have used
reasonable care.
However, if she relied on information
received by hearsay from her cousin’s
friend—a person with no known tax
credential or experience. She would not
follow diligence as to accuracy.
Diligence as to accuracy
21. Censured by consent for admitted violation of § 10.22(a)(1) (Revs.
2005 and 2008) (requiring practitioner to exercise due diligence in
preparing, and filing of, tax returns for the tax years 2006, 2007,
2008, and 2009)
Disqualified by consent for violations under 31 C.F.R. § 10.22(a)(1–3)
(2007) (failed to exercise due diligence in preparation of
documents, failed to exercise due diligence in determining the
correctness of written representation made to the Department of
Treasury, and failed to exercise due diligence in determining the
correctness of written representations made to clients with
reference to matters administered by the IRS).
Suspended by consent under 31 C.F.R. §§ 10.51(a)(6) and 10.22(a)(2).
Practitioner Title Sanction
CPA
Appraiser
Enrolled Agent
22. Review Question #1
1. Terrance is a Circular 230 tax practitioner who is
representing his client Mike during an audit of his last two
tax returns. The IRS revenue agent has noted that Mike's
Schedule C for his roofing business claims what seems to
be an excessive amount of deductions for expenses each
year. This could be caused by a few circumstances, but
which one of the following could represent a serious
violation of Terrance's due diligence requirements in
preparing the returns?
23. Review Question Choices
A. The expenses all appeared valid because George provided detailed
receipts and logbooks to support his claim.
B. In both years, Henry prepared the returns by hand and accidentally
transcribed some of the numbers incorrectly on to Schedule C.
C. Henry used the dollar amounts that George provided verbally for each
expense, even though there was no supporting evidence for any of them.
D. Henry prepared the returns using supporting material provided by
George that was actually false, but Henry had no reason to suspect or know
it was false.
24. Answer
A. The expenses all appeared valid because George provided detailed
receipts and logbooks to support his claim.
B. In both years, Henry prepared the returns by hand and accidentally
transcribed some of the numbers incorrectly on to Schedule C.
C. Henry used the dollar amounts that George provided verbally for each
expense, even though there was no supporting evidence for any of them.
D. Henry prepared the returns using supporting material provided by
George that was actually false, but Henry had no reason to suspect or know
it was false.
25. Review Question #2
2. Lois is an EA who is preparing a tax return that includes
Schedule C for a small craft-making business. The client has
gathered about a dozen receipts for the cost of repairs that
were made on his equipment during the year and that he
feels should be tax-deductible. He has added the amounts
together by hand and arrived at a total to tell Lois. What due
diligence requirements, if any, does Lois have in this case
before entering an amount for Repairs on Schedule C?
26. Review Question Choices
A. She should ensure that all of the receipts are both valid and
deductible, and then total them by calculator.
B. None. She can take the client's word for the total amount.
C. She should ask the client if he is confident that he added correctly.
D. She should use a calculator to add the receipts together in case the
client made a mistake.
27. A. She should ensure that all of the receipts are both valid and
deductible, and then total them by calculator.
B. None. She can take the client's word for the total amount.
C. She should ask the client if he is confident that he added correctly.
D. She should use a calculator to add the receipts together in case the
client made a mistake.
Answer
29. Section 10.51
Incompetence & Disreputable Conduct
.
The tax professional is responsible for
ensuring the timely filing and payment of
personal income tax returns and the tax
returns for any entity over which the tax
professional has, or shares, control.
The willful evasion of the assessment or
payment of tax also violates Circular 230
regulations (Treasury Circular 230,
§10.51(a)(6)).
30. Section 10.51
Incompetence & Disreputable Conduct
(A) Incompetence and disreputable conduct. Incompetence and
disreputable conduct for which a practitioner may be sanctioned
under § 10.50 includes, but is not limited to:
1. Conviction of any criminal offense under federal tax
laws.
2. Conviction of any criminal offense involving
dishonesty or breach of trust.
3. Conviction of any felony under federal or state law
for which the conduct involved
renders the practitioner unfit to practice before the
IRS.
31. Section 10.51
Incompetence & Disreputable Conduct
4. Giving false or misleading information or
participating in any way in the giving of false or
misleading information to the Department of the
Treasury or any officer or employee.
5. Solicitation of employment as prohibited under
section §10.30, the use of false or misleading
representations with intent to deceive a client or
prospective client to gain employment or insinuate
that the practitioner can obtain special
consideration with the IRS, or any officer or
employee.
32. Section 10.51
Incompetence & Disreputable Conduct
6. Willfully failing to make a federal tax
return in violation of the federal tax laws
or willfully evading or attempting to evade
any assessment or payment of any
federal tax.
7. Willfully assisting, counseling, and
encouraging a client or prospective client to
violate any federal tax law, or knowingly
counseling or suggesting to a client an illegal
plan to evade paying federal tax.
33. 8. Misappropriation of, or failure to remit properly or
promptly, funds received from a client for the
payment of taxes or other obligations due to the
United States.
9. Directly or indirectly attempting to influence or
offer or agree to attempt to influence the official
action of any officer or employee of the IRS using
threats, false accusations, duress, or coercion, or
any special inducement or promise of advantage or
by bestowing of any gift, favor, or item of value.
Section 10.51
Incompetence & Disreputable Conduct
34. 10. Disbarment or suspension from practice as an
attorney, certified public accountant, public
accountant, or actuary by any duly constituted
authority of any state, territory, or possession of the
United States, including a commonwealth or the
District of Columbia, any federal court of record, or
any federal agency, body, or board.
11. Knowingly aiding and abetting another person to
practice before the IRS during a suspension,
disbarment, or ineligibility of such other individuals.
Section 10.51
Incompetence & Disreputable Conduct
35. 12. Contemptuous conduct in connection with
practice before the IRS, including the use of
abusive language, making false accusations or
statements, knowing them to be false, or
circulating or publishing malicious or libelous
matter.
13. Giving a false opinion, knowingly recklessly or
through gross incompetence including an
opinion that is intentionally or recklessly
misleading or engaging in a pattern of providing
incompetent opinions on questions arising from
federal tax laws
Section 10.51
Incompetence & Disreputable Conduct
36. 14. Willfully failing to sign a tax return
prepared by the practitioner when the
practitioner’s signature is required by federal
tax laws unless the failure is due to
reasonable cause and not due to neglect.
15. Willfully disclosing or otherwise using a tax
return or tax return information in a manner
not authorized by the IRC, contrary to the
order of a court of competent jurisdiction or
contrary to the order of an administrative law
judge in a proceeding instituted under §10.60.
Section 10.51
Incompetence & Disreputable Conduct
37. 16. Willfully failing to file on magnetic or other electronic media
a tax return prepared by the practitioner when the practitioner is
required to do so by federal tax laws unless the failure is due to
reasonable cause and not due to neglect.
17. Willfully preparing all or substantially all, or signing, a tax
return or claim for refund when the practitioner does not
possess a current or otherwise valid PTIN or other prescribed
identifying number.
18. Willfully representing a taxpayer before an officer or
employee of the IRS unless the practitioner is authorized to do
so.
Section 10.51
Incompetence & Disreputable Conduct
39. Section 10.34 Standards with the respect to Tax
Returns. Documents, Affidavit and Other Paper
.
As stated in §10.34(b) regarding the submission of any
documents that may be requested by the IRS or OPR, the tax
professional cannot advise a client to submit any document to
the IRS that falls under one or both of the following two
categories:
❑Frivolous.
❑Contains or omits information in a
manner demonstrating an
intentional disregard of a rule or
regulation.
41. Due Diligence & The Earned Income
Tax Credit
.
From Circular 230, due diligence requirements extend to all parts
of the preparation of a tax return by a paid tax preparer. However,
there are some areas where tax practitioners need to be
particularly vigilant due to the complexity of the regulations and
the opportunity for fraudulent claims by a taxpayer.
This is particularly so in the case of the earned income tax credit
(EITC), where the IRS has recently passed new regulations that
increase the due diligence requirements of tax practitioners.
42. Due Diligence & The Earned Income
Tax Credit
IRS estimates that between 21% to 26% of EITC claims
are paid in error.
The IRS can assess a penalty against a paid preparer
who does not submit the form with returns or claims
for refund when required.
The penalty for a return or claim filed in 2021 is $540
per tax benefit claimed, and up to $2,160 per return.
The form must be submitted to the IRS electronically
or attached to each return mailed to the IRS.
43. .
The IRS reports that about 60% of EITC errors
fall into three key categories:
1. Claiming EIC for a child who does not meet
the qualifying child requirements.
2. Filing as single or head of household when
married.
3. Incorrectly reporting income or expenses.
Due Diligence & The Earned Income
Tax Credit
44. Requirement to Lodge form 8867 with Tax
Return
.
The due diligence regulations require a paid
preparer to complete Form 8867.
Paid Preparer's Due Diligence Checklist
The purpose of the form is to ensure that the
practitioner has considered all applicable eligibility
criteria for certain tax credits for each return
prepared, such as:
(1)The earned income tax credit (EITC),
(2)Child tax credit (CTC),
(3)Additional child tax credit (ACTC)
45. Due Diligence Requirements
.
There are four due diligence requirements for tax
practitioners who prepare EITC claims. Practitioners
must:
1. Meet the knowledge requirement by interviewing the
taxpayer, asking adequate questions,
contemporaneously documenting the questions and
the taxpayer’s responses on the return or in your notes.
46. .
2. Complete Form 8867 truthfully and accurately and
complete actions described on Form 8867 for any applicable
credit(s) claimed and HOH filing status if claimed.
3. Submit Form 8867 in the manner required.
4. Keep all five of the following records for 3 years from the
latest of the dates specified later.
Due Diligence Requirements
48. Consequence of Filing an Incorrect EITC Claim
.
PREPARER
➢A $545 penalty (per refundable credit) for
the tax year 2022 for each failure to comply
with EIC due diligence requirements for
returns filed.
➢The penalty is $1,000 or 50% of the
income derived by the tax preparer with the
respect to the return or claim for a refund
49. .
➢They can also face:
• Loss of their tax preparer designation.
• Suspension or expulsion from the IRS e-file
program.
• Other disciplinary action by the IRS Office
of Professional Responsibility (OPR).
• Injunctions barring the preparer from
preparing tax returns
Consequence of Filing an Incorrect EITC Claim
50. .
FIRM
➢IRS can also assess due diligence penalties
against an employer if an employee fails to
comply with the due diligence requirements.
(See Treasury Regulation section 1.6695-2
Consequence of Filing an Incorrect EITC Claim
51. .
FIRM
➢The firm failed to establish reasonable
and appropriate procedures to ensure
compliance with the due diligence
requirements; or
➢The firm establishes appropriate
compliance procedures but disregards those
procedures through willfulness, recklessness,
or gross indifference, including ignoring facts
that would lead a person of reasonable
prudence and competence to investigate or
figure out the employee was not complying.
Consequence of Filing an Incorrect EITC Claim
52. When Tony was reviewing the filing cabinet needs for his tax practice, he noted that he
is required to keep records relating to claims made on behalf of his clients for the
earned income tax credit. For how long must he keep these records for each client?
A. Until such time as the tax return is processed and the taxpayer's refund has been
paid
B. For three years from the later the due date of the return or the date the client signed
the return
C. For one year from the date the client signed the return
D. For seven years from the later the due date of the return or the date the client signed
the return
Review Question #1
53. When Tony was reviewing the filing cabinet needs for his tax practice, he noted that he
is required to keep records relating to claims made on behalf of his clients for the
earned income tax credit. For how long must he keep these records for each client?
A. Until such time as the tax return is processed and the taxpayer's refund has been
paid
B. For three years from the later the due date of the return or the date the client
signed the return
C. For one year from the date the client signed the return
D. For seven years from the later the due date of the return or the date the client signed
the return
Answer #1
54. Review Question #2
While Sam was preparing a tax return for a new client, the client
mentioned in passing that his two children were currently with his ex-
wife. Later in the interview, the client requested Pat to claim the
earned income tax credit for both children. Given that the residency
test must be met prior to an EITC claim, what actions should Pat take in
response to this request?
• She should simply accept the client's word and prepare the EITC claim.
• She should refuse to complete the tax return because the client is attempting to make a
fraudulent claim.
• She should ask the client a series of questions to find out who has custody of the children
and with whom they live. She should document both her questions and the client's answers.
• She should grant the client's request because he is claiming the children as dependents
55. While Sam was preparing a tax return for a new client, the client mentioned in passing that
his two children were currently with his ex-wife. Later in the interview, the client requested
Pat to claim the earned income tax credit for both children. Given that the residency test
must be met prior to an EITC claim, what actions should Pat take in response to this
request?
A. She should simply accept the client's word and prepare the EITC claim.
B. She should refuse to complete the tax return because the client is attempting to make a
fraudulent claim.
C. She should ask the client a series of questions to find out who has custody of the
children and with whom they live. She should document both her questions and the
client's answers.
D. She should grant the client's request because he is claiming the children as dependents
Answer #2
57. PREPARER’S FAILURE TO FURNISH IDENTIFYING
NUMBER
For each failure to comply with IRC 6109(a)(4) regarding furnishing an
identifying number (PTIN) on a return is $50 for each return.
The maximum penalty imposed will not exceed $27,000.
58. PREPARER’S
FAILURE TO
RETAIN A
COPY OF
TAX
RETURNS
The penalty is $50 for each failure to
comply with retaining a copy of a client’s
tax return.
The penalty imposed will not exceed
$25,000.
59. PREPARER’S FRAUD AND FALSE
STATEMENTS
Guilty of a felony, a fine of not more than
$100,000
$500,000 for corporations
No more than 3 years in prison
60. PREPARER’S FRAUDULENT RETURNS,
STATEMENTS, OR OTHER DOCUMENTS
If Guilty, a fine not exceeding $10,000 ($50,000 for
corporations)
1 year max in prison
Preparer’s disclosure or use of Client’s Tax Return
If guilty, a fine not exceeding $1,000 and no more
than 1 year in prison
