IRS - Internal Revenue Service Certified Ethics and Practice Procedures Questions and Answers

Question 1

A tax preparer is completing a return for a new client who is a self-employed consultant.
The client provides a spreadsheet listing a high, round number for 'Business Promotion Expenses' but offers no receipts or specific details.
According to Treasury Department Circular 230, what is the practitioner's primary responsibility?

Accepted Answer

Make reasonable inquiries to determine if the client has documentation or a factual basis to support the deduction.

Answer

Advise the client to claim a lower, more reasonable amount to avoid scrutiny.

Answer

Refuse to prepare the return and report the client to the IRS for potential non-compliance.

Answer

Prepare the return as requested but have the client sign a liability waiver in case of an audit.

Question 2

Under which of the following circumstances is a practitioner governed by Circular 230 generally permitted to charge a contingent fee?

Accepted Answer

In connection with an IRS examination of an original tax return.

Answer

For preparing an original income tax return based on a percentage of the refund.

Answer

For advising a client on a tax position to be taken on an original return.

Answer

For any amended return, regardless of the reason it is being filed.

Question 3

A client terminates their relationship with an Enrolled Agent and requests the return of all their records. The client has an outstanding balance for the prior year's tax preparation services. The records consist of the client's original W-2s, 1099s, and brokerage statements that the client provided. What is the Enrolled Agent's ethical obligation under Circular 230?

Accepted Answer

The practitioner must promptly return the client-provided records, irrespective of the fee dispute.

Answer

The practitioner may retain all records until the outstanding fee is paid in full.

Answer

The practitioner only needs to provide copies of the records but can retain the originals.

Answer

The practitioner may withhold the records if permitted by state law, regardless of their nature.

Question 4

A practitioner is asked to represent a married couple who are divorcing. They have a dispute over the allocation of income and deductions from a jointly owned business that is under IRS examination. According to Circular 230, when may the practitioner represent both clients?

Accepted Answer

The practitioner may represent both if they reasonably believe they can provide competent and diligent representation and both clients provide informed consent, confirmed in writing.

Answer

The practitioner may never represent two parties with a direct conflict of interest.

Answer

The practitioner may represent both as long as they provide a verbal disclosure of the potential conflict to each party.

Answer

The practitioner may represent both only if the amount in dispute is below a certain threshold set by the IRS.

Question 5

Which of the following forms of advertising or solicitation by a tax practitioner would be a violation of the rules in Circular 230?

Accepted Answer

"As a former IRS agent, I have the inside knowledge to get you the best possible outcome."

Answer

"We offer a free 30-minute consultation for all new business clients."

Answer

"Our firm has specialized in partnership taxation for over 25 years."

Answer

"Fees for individual tax return preparation start at $300."

Question 6

An Enrolled Agent is found to have willfully violated the provisions of Circular 230. Which of the following is a potential sanction that the IRS Office of Professional Responsibility (OPR) may impose?

Accepted Answer

Suspension or disbarment from practice before the IRS.

Answer

Mandatory pro-bono tax preparation for five years.

Answer

A requirement to retake the Special Enrollment Examination.

Answer

A fine payable directly to any client harmed by the conduct.