6/11/2019 Regulation

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REGULATION
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Ethics, Professional and Legal Responsibilities » REG
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ETHICS AND RESPONSIBILITY IN TAX PRACTICE 
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 TAX RETURN PREPARER 
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A tax return preparer is any person who prepares for compensation, or who employs one or more persons to 
 LECTURES prepare for compensation, all or a substantial portion of any return of tax or any claim for refund of tax under
the Internal Revenue Code (Code). 
 REVIEW
A signing tax return preparer is the individual tax return preparer who has the primary responsibility for the 
 NOTES overall substantive accuracy of the preparation of such return or claim for refund.

A nonsigning tax return preparer is any tax return preparer who is not a signing tax return preparer but who
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prepares all or a substantial portion of a return or claim for refund.

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A person shall not be a tax return preparer merely because such person—

 SIGN-OUT furnishes typing, reproducing, or other mechanical assistance,

prepares a return or claim for refund of the employer (or of an o cer or employee of the employer) by
whom he is regularly and continuously employed,

prepares as a duciary a return or claim for refund for any person, or

prepares a claim for refund for a taxpayer in response to any notice of de ciency issued to such taxpayer or
in response to any waiver of restriction after the commencement of an audit of such taxpayer or another
taxpayer if a determination in such audit of such other taxpayer directly or indirectly a ects the tax liability of
such taxpayer.

 PRACTICE BEFORE THE IRS

This material relates to Practice before the IRS as explained in IRS Circular 230 and Publication 947.

DEFINITION OF PRACTICE BEFORE THE IRS

Practice before the IRS concerns all matters connected with a presentation to the IRS relating to a taxpayer’s rights,
privileges, or liabilities under laws or regulations administered by the IRS. Such presentations include but are not
limited to the following:

Preparing documents (this does NOT include preparing a tax return)

Filing documents

Corresponding and communicating with the IRS

Representing a taxpayer at conferences, hearings, or meetings with the IRS

Rendering written advice with respect to any entity, transaction, plan, or arrangement, or other plan or
arrangement having a potential for tax avoidance or evasion

Certain tasks, which anyone may perform, do not constitute practice before the IRS. These tasks include
appearing as a witness for a taxpayer before the IRS, or furnishing information at the request of the IRS.
Preparing a tax return is not practice before the IRS.

WHO MAY PRACTICE

L Any of the following individuals may practice before the IRS, with the assumption that they are not currently under
suspension or disbarred:

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6/11/2019 Regulation
Attorneys. Any attorney who is a member in good standing of the bar of the highest court of any state, 3
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possession, territory, commonwealth, or the District of Columbia

CPA REG  Certi ed public accountants (CPAs). Any CPA who is duly quali ed to practice as a CPA in any state, 
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Enrolled agents. Any enrolled agent in active status
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Enrolled retirement plan agents. Any enrolled retirement plan agent in active status 
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Enrolled actuaries. Any individual enrolled as an actuary by the Joint Board for the Enrollment of Actuaries 
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IRS Annual Filing Season Program (AFSP). A non-credentialed preparer that has a record of completion for 3
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the IRS Annual Filing Season Program has limited representation rights. Representation is limited to
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examinations of the taxable period covered by the tax return he prepared and signed.
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 REVIEW
DIRECTOR OF THE OFFICE OF PROFESSIONAL RESPONSIBILITY 
 NOTES
The duties of the Director of the O ce of Professional Responsibility (OPR) include the following:

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Acting on applications for enrollment to practice before the IRS

 SHOP Inquiries on matters under the Director’s jurisdiction

 SIGN-OUT Institutes’ disciplinary proceedings related to practitioners

IRS RETURN PREPARER OFFICE

The IRS Return Preparer O ce (RPO) is responsible for implementing the new requirements and oversight of the
IRS return preparer program. It will work in partnership with the O ce of Professional Responsibility, which is
responsible for the enforcement of Circular 230 conduct issues.

 CIRCULAR 230: REGULATIONS GOVERNING PRACTICE BEFORE THE IRS

Circular 230 is the common name of the Code of Federal Regulations, Title 31, Subtitle A, Part 10. Circular 230
applies to Attorneys, CPAs, Enrolled Agents and other persons representing taxpayers before the Internal Revenue
Service. The key elements of Circular 230 are:

Knowledge of Omission. If a tax practitioner knows that a client has not complied with rules and regulations
or has made an error or omission, they must advise the client of the consequences of non-compliance.

Diligence as to Accuracy. A tax practitioner must exercise due diligence with respect to:

1. His or her own work,

2. Information prepared by the client, and

3. Work of other people.

A tax preparer may be subject to a penalty for an inaccurate tax return. This accuracy-related penalty
applies to any portion of an understatement due to either negligence or substantial tax
understatements.

Contingent Fees. This is a fee based on whether or not the IRS accepts a submission or the client
subsequently wins in litigation. Contingent fees are often used in connection with tax avoidance schemes. A
tax practitioner cannot charge a contingent fee for the preparation of the original tax return or advice given
on preparing an original return. If the return is to be amended the practitioner can charge a contingent fee,
but only if there is likely to be a substantive review by the IRS. Contingent fees may also be charged for
judicial proceedings.

Return of Records. A practitioner must promptly return all records the client may need to ful ll Federal tax
obligations. The practitioner may keep copies of these documents, but the originals must be returned.

Advertisements. A practitioner may not participate in any advertisement or other material that makes a
L false, fraudulent or coercive statement or claim.

Solicitation of Employment. A practitioner may not solicit anyone for employment in matters related to the
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IRS if, by doing so, they violate Federal or State Law.

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6/11/2019 Regulation
Standards for Advice on Tax Return Positions. A practitioner may not endorse a return if he or she 3
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believes that a position taken on the return does not have a realistic possibility of being sustained unless it
is non-frivolous and is adequately disclosed. The practitioner must advise the client of the possibility of being
CPA REG  ned and the level of such penalties plus the opportunity of avoiding such penalties if any. 
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Sanctions. The Secretary of the Treasury may censure, suspend, or disbar any practitioner who is proved to 
be incompetent, disreputable, fails to comply with regulations, acts with intent to defraud or mislead, or
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threatens a client.
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 POTENTIAL PREPARER PENALTIES 
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UNDERSTATEMENT OF LIABILITY SECTION 6694 
 LECTURES

Circular 230 Section 10.34 outlines standards with respect to tax returns and documents, a davits and other 
 REVIEW papers. A practitioner must not sign a tax return or claim for refund that the practitioner knows or reasonably
should know contains an unreasonable position. Preparer penalties under Section 6694 apply to the following 
 NOTES circumstances:

Unreasonable positions. A penalty of $1,000 or 50% of preparer’s fee, whichever is greater.

1. A position lacking substantial authority is unreasonable if the preparer knew (or should have known) of
 SHOP the position, and

 SIGN-OUT A. For undisclosed positions. The position does not have substantial authority.

B. For disclosed positions. The position does not have a reasonable basis.

C. For tax shelters. There was not a reasonable belief that the position would more likely than not
be sustained on its merits.

2. If a return preparer understates tax liability on a return, the IRS will not impose a penalty if the preparer
shows that there is a reasonable cause and the tax return preparer acted in good faith.

Willful or reckless conduct. A penalty of $5,000 or 75% of preparer’s fee, whichever is greater.

1. Willful or reckless conduct is conduct by the tax return preparer that is a willful attempt in any manner
to understate the liability for tax on the return or claim or a reckless or intentional disregard of rules or
regulations.

2. The amount of any penalty payable for willful misconduct is reduced by any penalty for an
unreasonable position.

FAILURES UNDER SECTION 6695

Any tax return preparer who fails to take certain actions may be assessed other penalties with respect to the
preparation of tax returns for other persons. In the case of any failure relating to a return or claim for refund led
in 2019, the penalty amounts under §6695 are:

A penalty of $50 for each occurrence up to a maximum of $26,000/year unless it is shown that such failure is
due to reasonable cause and not willful neglect:

1. Failure to furnish a copy of the return to the taxpayer. The tax preparer must furnish a completed
copy of the return or claim for refund to the taxpayer no later than the time it is presented for the
taxpayer’s signature.

2. Failure to sign the return. The tax preparer must sign a tax return or claim for refund if the tax
preparer has primary responsibility for the overall substantive accuracy of the preparation of the tax
return or claim for refund.

3. Failure to furnish identifying number. A tax return preparer must obtain and exclusively use a PTIN,
rather than a social security number (SSN), as the identifying number to be included with the tax return
preparer’s signature on a tax return or claim for refund.

4. Failure to retain copy or list. A tax return preparer must keep a copy of the tax return, or retain, on a
list, the name and taxpayer identi cation number of the taxpayer for whom the return was prepared.
L The records must be available for inspection for the 3-year period following the close of the return
period during which the return or claim for refund was presented for signature to the taxpayer. A
CLOSE MENU “return period” is the 12-month period beginning on July 1 of each
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6/11/2019 Regulation
5. Failure to le correct information returns. Each person who employs (or engages) one or more 3
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income tax return preparers to prepare any return of tax is responsible for retaining a record of the
name, taxpayer identi cation number, and principal place of work during the return period of each
CPA REG  income tax return preparer employed (or engaged) by the person at any time during that period. The 
CHANGE COURSE record must be available for inspection upon request by the district director for the 3-year period
following the close of the return period. 
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Negotiation of a check. Any tax return preparer who endorses or otherwise negotiates (directly or through
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an agent) a refund check (including an electronic version of a check) issued to the taxpayer, shall pay a
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penalty of $520 with respect to each check. The penalty does not vary based on how much compensation the
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preparer receives from the taxpayer, the amount of the refund check, or the direct deposit. The penalty
 BOOK applies to a tax return preparer who directs the IRS to deposit a taxpayer's refund into a bank account in the 3
preparer's name or into a bank account under the preparer's control. The preparer may not endorse or 
 LECTURES negotiate a check for a taxpayer even though the preparer was designated as the taxpayer's representative
on a Form 2848, Power of Attorney. A tax return preparer may deposit a refund check into the taxpayer’s 
 REVIEW account.
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Failure to be diligent in determining eligibility for certain tax bene ts. Any return preparer who fails to
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comply with due diligence requirements imposed to determine eligibility for, or the amount of, the credit
allowable shall pay a penalty of $520 for each failure under §6695(g). Those who prepare Earned Income Tax
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Credit (EITC) claims must not only ask all the questions required on Form 8867, Paid Preparer's Due
Diligence Checklist, but must also ask additional questions when information seems incorrect, inconsistent
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or incomplete. In addition, the preparer must verify identity, prepare an EIC computational checklist (Form
8867 or equivalent), and meet a recordkeeping requirement.
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The 6695(g) penalty is now expanded to cover the Child Tax Credit and American Opportunity Credit, in
addition to the Earned Income Credit. For tax years that begin in 2018, it will also cover the diligence
requirements to determine eligibility to le as head of household. A separate penalty applies with respect to
each credit claimed on a return or claim for refund for which the due diligence requirements are not satis ed.
The $520 penalty applies to each failure.

To meet the due diligence requirements, a tax preparer must retain records for three years from the latest of the
following dates:

The due date of the tax return (not including extensions).

The date the return was led (for a signing tax return preparer electronically ling the return).

The date the return was presented to the taxpayer for signature (for a signing tax return preparer not
electronically ling the return).

The date a nonsigning tax return preparer submits the part of the return he is responsible for to the signing
tax return preparer.

 SAFEGUARDING TAXPAYER INFORMATION

A taxpayer must provide written consent before a tax return preparer uses the taxpayer’s tax return
information. Additionally, a tax return preparer may not request a taxpayer’s consent to use tax return
information for purposes of solicitation after the tax return preparer provides a completed tax return to the
taxpayer for signature.

Internal Revenue Code Section 7216 is a criminal provision enacted by the U.S. Congress in 1971 that prohibits
preparers of tax returns from knowingly or recklessly disclosing or using tax return information. A convicted
preparer may be ned not more than $1,000 or imprisoned not more than one year or both, for each violation.

Internal Revenue Code Section 6713 imposes a civil penalty of $250 on any person who is engaged in the
business of preparing, or providing services in connection with the preparation of returns of tax, or any person
who for compensation prepares a return for another person, and who:

Discloses any information furnished for, or in connection with, the preparation of any such return, or

Uses any such information for any purpose other than to prepare, or assist in preparing any such return.

Imposition of the penalty under Internal Revenue Code Section 6713 does not require that the disclosure be
L knowing or reckless as it does under Internal Revenue Code Section 7216. Generally, unless otherwise speci ed, a
written consent is e ective for a period of one year from the date the taxpayer signs the consent. Disclosing tax
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6/11/2019 Regulation
return information to another tax preparer within the United States that is assisting in the preparation of the 3
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return generally does not require the consent of the taxpayer.

CPA REG  
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The tax preparer has 30 days to pay the penalty upon receipt of a demand for payment from the IRS. The preparer
 DASHBOARD may elect to pay at least 15% of the amount of the penalty and le a claim for refund. If the claim for refund is
denied (or six months have passed), the preparer has 30 more days to begin a proceeding in the appropriate U.S.
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 STUDY district court for the determination of liability.
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