Ethics and Practice Procedures Flashcards

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?

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

Circular 230, Section 10.22, mandates that practitioners exercise due diligence. This includes not ignoring the implications of information furnished by the client. If information appears incorrect, incomplete, or inconsistent, the practitioner must make reasonable inquiries.

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

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

Circular 230, Section 10.27, generally prohibits contingent fees but provides specific exceptions. One key exception is for services rendered in connection with an IRS examination of, or challenge to, an original tax return.

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?

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

Circular 230, Section 10.28, states that a practitioner must, at the request of a client, promptly return any and all records of the client. The existence of a fee dispute does not relieve the practitioner of this responsibility for client-provided documents.

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?

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.

Circular 230, Section 10.29, addresses conflicts of interest. A practitioner may represent clients with conflicting interests if (1) they reasonably believe they can provide competent and diligent representation to each client, (2) the representation is not prohibited by law, and (3) each affected client waives the conflict and gives informed consent, confirmed in writing.

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

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

Circular 230, Section 10.30, prohibits any form of public communication containing a false, fraudulent, or misleading statement or claim. Claiming that former IRS employment provides an unfair advantage or guarantees a better outcome is considered misleading.

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?

Answer: Suspension or disbarment from practice before the IRS.

Circular 230, Section 10.50, grants the Secretary of the Treasury the authority to censure, suspend, or disbar any practitioner from practice before the IRS for violating its provisions. Monetary penalties payable to the Treasury may also be imposed.