EA: Part 3 EX2 taxpayer

1. Daniella is a tax professional who prepares hundreds of tax returns each year. As such, she is subject to the e-file mandate. She has a new client, Fernando, who refuses to e-file his tax return. What is the proper action for Daniella to take in this case? A. If her client refuses to e-file, Daniella must decline the engagement. B. She must refer Fernando to a different tax return preparer. C. She can prepare Fernando's return on paper and attach Form 8948. D. She should encourage Fernando to file electronically. If he refuses, Daniella does not need to sign the return as a paid preparer.

1. The answer is C. Daniella may still prepare the return. She should attach Form 8948, Preparer Explanation for Not Filing Electronically, to her client's paper return. Any tax preparer who files 11 or more Forms 1040 or Forms 1041 (combined) during a calendar year must use IRS e-file. However, clients themselves may choose not to e-file their returns. Fernando must mail the return himself and include a hand-signed and dated statement documenting his choice to file on paper.

10. Safeguarding of IRS e-file from fraud and abuse is the shared responsibility of: A. The IRS and the Police. B. The IRS and the FBI. C. The IRS and Authorized IRS e-file Providers. D. The Department of the U.S. Treasury and official tax software providers.

10. The answer is C. Safeguarding of IRS e-file from fraud and abuse is the shared responsibility of the IRS and Authorized IRS e-file Providers (see Publication 1345 for more information).

100. Conner is in charge of his firm's tax practice. He does not directly supervise all of the members of his firm. Can he be subject to discipline if one of the members of his firm violates Circular 230? A. Yes. B. No. He would not be subject to discipline for any other members of his firm, whether he supervised them or not. C. No. He would be subject to discipline only for members of his firm whom he supervised. D. Circular 230 does not address this issue.

100. The answer is A. Since Conner has principal authority for overseeing the firm's tax practice, he must take reasonable steps to ensure that adequate procedures are in place and are followed to comply with Circular 230. Under section 10.36, Conner could be subject to discipline if the violation is a result of willfulness, recklessness, or gross incompetence, and is part of a practice or pattern of failure to comply. Steps to demonstrate compliance with the oversight requirements of section 10.36 may include: Circular 230 training for all members of the department. o Requirements that other preparers' work is reviewed. Periodic monitoring of compliance. o Written quality control procedures.

11. Trent decided to represent himself in an IRS audit. When he arrived at the IRS office, he became agitated during the initial examination interview and requested to speak to a representative. Which of the following statements is correct? A. The taxpayer may leave the examination and finish the audit through correspondence. B. An IRS interview must be suspended when the taxpayer clearly requests the right to consult with a representative. C. If the taxpayer chooses to suspend the interview, he must return in person with his representative. D. The IRS is not required to cease an examination when the taxpayer requests a representative.

11. The answer is B. Trent's IRS interview must be suspended when he clearly requests to consult with a representative. Throughout the examination process, a taxpayer can act on his own behalf or have someone represent him. The taxpayer is not required to be present if the representative is a federally authorized practitioner (generally, an enrolled agent, CPA, or attorney). The taxpayer is also not required to be present if the representative is one of the other qualified individuals listed in Circular 230, such as a family member, an employee representing an employer or an unenrolled preparer who is authorized to represent the taxpayer (with more limited rights than enrolled representatives) because he has prepared the return under examination and has completed all of the Annual Filing Season Program requirements.

12. Due to recent changes in the law, the IRS can't issue refunds for 2019 tax returns before February 15, 2020, if those returns claim which of the following credits? A. The Retirement Savings Contributions Credit. B. The Credit for Excess Social Security and RRTA Tax Withheld. C. The Earned Income Tax Credit (EITC). D. The Premium Tax Credit (PTC).

12. C. Due to changes in the law; the IRS cannot issue refunds before February 15, for returns that claim the Earned Income Tax Credit (EITC) and/or the Additional Child Tax Credit (ACTC). This delay applies to the entire refund, not just the portion associated with these credits. The delay applies to all methods of tax filing, whether the taxpayer uses a return preparer, or prepares the tax return themselves. Taxpayers who file their returns after February 15 will not be impacted. Refunds based only on over withholding or any other tax credits will not be held.

13. Which of the following taxpayer numbers is valid for claiming the Earned Income Tax Credit? A. Social Security number. B. Adoption taxpayer identification number. C. Individual tax identification number. D. Employer Identification Number.

13. The answer is A. To claim the Earned Income Tax Credit, the taxpayer (and spouse, if filing a joint return) must have a valid Social Security number. The SSN must also be valid for employment purposes. Any qualifying child listed on Schedule EIC also must have a valid SSN (unless the child was born and died in the same year).

14. The IRS has the authority to issue a summons in all of the following instances except: A. To prepare a substitute return when a taxpayer has not filed one. B. To determine the liability of a taxpayer. C. To collect any internal revenue tax liability. D. To require a taxpayer to create a tax return when he has not filed one.

14. The answer is D. A summons cannot require a taxpayer or a witness to prepare or create documents, including tax returns. A summons also cannot be issued solely to harass a taxpayer or to pressure him into settling a dispute. The IRS has broad legal authority to issue a summons when a taxpayer or other witness refuses to comply with requests for IRS records or other information. IRC section 7602 authorizes the IRS to issue summonses for the following purposes: To ascertain the correctness of any return, To prepare a return where none has been made, To determine the liability of a person for internal revenue tax, To determine the liability at law or in equity of a transferee or fiduciary of a person in respect to any internal revenue tax, To collect any internal revenue tax liability, or To inquire into any civil or criminal offense connected with the administration or enforcement of the internal revenue law. A summons should require only that the witness appear on a given date to provide testimony or produce existing books, paper, and records that "may be relevant or material".

15. Which of the following can be used to verify a taxpayer's Social Security number and correct name spelling? A. Driver's license. B. Passport. C. Social Security card. D. Birth certificate.

15. The answer is C. Only valid SSA documents such as Social Security cards should be used to confirm the validity of a taxpayer's Social Security number and name spelling. A driver's license or passport should not be used in lieu of SSA records.

16. Clarence is an enrolled agent. His new client, Betty, wants to know if their discussions during normal tax preparation are privileged. What type of information or activities would not be privileged? A. Communications pertaining to tax advice. B. The preparation of Betty's income tax return. C. Non-criminal tax matters before the IRS. D. Non-criminal tax proceedings in federal court actions.

16. The answer is B. IRC section 7525 grants a limited confidentiality privilege to enrolled practitioners. This confidentially privilege does not extend to the mere preparation of income tax returns. Therefore, any of Clarence's discussions surrounding the preparation of a tax return are not privileged. The privilege under section 7525 may only be asserted in non-criminal tax matters before the IRS and non-criminal tax proceedings in federal court actions. Only a licensed attorney would have privilege in criminal tax proceedings.

17. In which of the following situations is an IRS power of attorney required? A. Allowing the IRS to discuss return information with a third-party designee. B. Allowing a tax matters partner to perform acts for the partnership. C. Allowing the IRS to discuss return information with a fiduciary. D. Allowing the tax practitioner to receive, but not cash, taxpayer refund checks.

17. D. Receipt of taxpayer refund checks is allowed, but the tax practitioner must have a power of attorney to do so. A practitioner may never cash (or endorse) a taxpayer refund check. A power of attorney is not required in some situations when dealing with the IRS. The following situations do not require a power of attorney: Providing information to the IRS. Disclosure of tax return information based on authorization through Form 8821. Allowing the IRS to discuss return information with a third-party designee. Allowing the IRS to discuss return information with a fiduciary. o Representing a taxpayer through a nonwritten (oral) consent.

18. ITINs automatically expire after years of nonuse. A. One B. Two C. Three D. Five

18. The answer is C. An Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the Internal Revenue Service. Due to new procedures, ITINs will automatically expire after three years of nonuse.

19. The IRS may accept an offer in compromise based on three grounds. Which of the following is a valid basis for submitting an offer in compromise to the IRS? A. Doubt as to collectability. B. Effective tax administration. C. Doubt as to liability. D. Undue hardship.

19. The answer is D. The IRS may accept an offer in compromise based on three grounds: (a) doubt as to collectability, (b) effective tax administration, or (c) doubt as to liability.

2. Calhoun owes $3,900 in federal income tax, but cannot pay the taxes due. He could like to apply for an installment agreement in order to pay over time. In which scenario would the IRS waive the user fees for Calhoun's installment agreement request? A. Calhoun is a full-time student. B. Calhoun's income is below 250% of the applicable federal poverty level. C. Calhoun's income is below 400% of the applicable federal poverty level. D. Calhoun is currently unemployed and receiving only unemployment compensation.

2. The answer is B. Taxpayers are generally charged a one-time fee to set up an installment agreement with the IRS. User fees may be reduced or waived entirely for low-income taxpayers. The IRS would waive the user fees for Calhoun's installment agreement request if Calhoun's income is: at or below 250% of the applicable federal poverty level.

20. Asher is a tax return preparer who accepts electronic signatures. He has a client who lives in a different state. How is Asher required to authenticate the identity of the taxpayer? A. The taxpayer must mail or fax a copy of his Social Security card to Asher for review. B. The taxpayer must mail or fax a copy of his driver's license, with a picture ID, to Asher for review. C. Asher must verify that the name, Social Security number, address, date of birth, and other personal information provided by the taxpayer are consistent with information obtained through record checks with applicable agencies or institutions, or through credit bureaus or similar databases. D. No special verification procedures are required.

20. The answer is C. For remote interactions, Asher must verify that the name, Social Security number, address, date of birth, and other personal information provided by the taxpayer are consistent with information obtained through record checks with applicable agencies or institutions, or through credit bureaus or similar databases. In an effort to cut down on identity theft, the IRS has instituted new measures for tax preparers who accept electronic signatures to authenticate the identity of taxpayers. The procedures vary depending on whether the tax preparer's interaction with the taxpayer is in person or remote. For in-person interactions, the preparer must inspect a valid government-issued picture ID, compare the picture to the applicant, and record the name, Social Security number, address, and date of birth, unless the preparer has identified the same client in the past using these procedures while originating the client's tax return. A credit check or other identity verification is optional.

21. A practitioner must submit records or information requested by the IRS unless the practitioner believes that the records are A. Confidential. B. Protected. C. Privileged. D. Destroyed or missing.

21. The answer is C. A practitioner must submit records or information requested by the IRS unless the practitioner believes that the records or information are privileged.

22. What practice rights do all enrolled agents have? A. Unlimited practice rights before the IRS. B. Unlimited practice rights before the IRS and the U.S. Tax Court. C. Limited practice rights before the IRS. D. Unlimited practice rights before the U.S. Treasury Department.

22. The answer is A. Enrolled agents, like attorneys and certified public accountants (CPAs), have unlimited practice rights before the IRS. This means they are unrestricted as to which taxpayers they can represent, what types of tax matters they can handle, and the IRS offices they can practice before. They do not have rights before the U.S. Tax Court (unless having passed a special exam and meeting other U.S. Tax Court requirements) or other U.S. courts.

23. Which is the highest degree of tax authority for all taxpayers? A. Treasury Department Regulations. B. Revenue Rulings. C. Private Letter Ruling. D. The Internal Revenue Code.

23. D. The primary tax authority is the Internal Revenue Code (IRC), which is enforced by the Internal Revenue Service (IRS). The second highest authority next to the Internal Revenue Code is Treasury Department Regulations. Treasury Department Regulations have the full force and effect of the law. The next highest authority would be Revenue Rulings, which are issued by the IRS' National Office. Revenue Rulings are public administrative rulings by the Internal Revenue Service (IRS) that apply the law to particular factual situations. A Revenue Ruling does not have the force of law, but it can be relied upon as precedent by all taxpayers. A private letter ruling, or PLR, is a written statement issued to a taxpayer that interprets and applies tax laws only to the taxpayer's represented set of facts. A private letter ruling binds only the IRS and the requesting taxpayer. Thus, a private ruling may not be cited or relied upon for precedent. However, a private letter ruling (PLR) can provide interpretation and application of law and regulation with respect to a taxpayer and are often used as a source of guidance.

24. Which type of practitioner fee is prohibited by Publication 1345, Handbook for Authorized IRS e file Providers? A. Charging a fee for direct deposit. B. Fixed fees for bookkeeping services. C. Hourly fee rates for tax consulting. D. Charging a fee for e-filing a return.

24. The answer is A. A practitioner may not charge a separate fee for direct deposit. Charging a flat fee for e-filing is allowed. However, some individual states, such as New York, mandate e filing of all tax returns, and do not permit practitioners to charge separate fees for e filing.

25. Erin files jointly with her husband, who has delinquent student loans. Their tax refund check is applied against his past-due student loans. Erin would like to claim her portion of their tax refund, so she files for relief. A. Innocent spouse. B. Equitable relief. C. Injured spouse. D. Separation of liability.

25. The answer is C. Erin may qualify for injured spouse relief by filing to receive her share of the refund that was applied toward her husband's debt. Injured spouse relief may also apply when a spouse has past-due income tax, child support, or other obligations that are applied toward a tax refund. Note: An injured spouse is not to be confused with an innocent spouse, 'which is a different legal situation. If certain conditions are met, an innocent spouse may apply for relief from additional tax if a spouse or former spouse failed to report income or claimed improper deductions on a jointly filed tax return.

26. A tax preparer must complete the paid preparer section of the tax return in which of the following scenarios? A. An employee preparer who completes employment tax returns for his employer. B. An enrolled agent who prepares her own tax return. C. A CPA who prepares a return for her brother and charges him only a nominal fee. D. An enrolled agent who prepares his father's return for free.

26. The answer is C. Any individual who is paid a fee to prepare a return must sign it and fill out the preparer area of the return. This is true even when the paying client is a family member. An employee working for an employer may not have to sign the return if the employer has the ultimate liability for the return's accuracy.

27. What is a reportable transaction? A. A transaction of a type that the IRS has determined as having the potential for abusive tax avoidance or evasion. B. A court decision to which the IRS has officially non-acquiesced. C. Another name for a private letter ruling. D. A transaction of a type that the IRS has determined will benefit the public interest.

27. The answer is A. A "reportable transaction" is a transaction of a type that the IRS has determined as having the potential for abusive tax avoidance or evasion. Reportable transactions must be reported on Form 8886, Reportable Transaction Disclosure Statement.

28. Under Circular 230, in which of the following cases may the IRS suspend a certified public accountant from practice before the IRS? A. If a CPA moves outside the U.S. and attempts to represent overseas taxpayers. B. If a CPA is suspended from practice by a state board of accountancy for a matter unrelated to taxation. C. If a CPA takes an aggressive position on a tax return. D. If a CPA hires unenrolled preparers to work in his office.

28. The answer is B. If a CPA is suspended from practice by a state board of accountancy, he may also be disbarred from practice before the IRS, regardless of whether the suspension was due to a nontax matter.

29. Which property does a federal tax lien attach to? A. All property and interests in property owned by the taxpayer, but only at the time it arises. B. All of the taxpayer's property or rights to property. C. All of the taxpayer's property, as well as property owned by the taxpayer's spouse, if applicable. D. All of the taxpayer's tangible property.

29. B. A federal tax lien attaches to all of the taxpayer's property or rights to property. This includes all property, both tangible and intangible property, such as copyrights and patents. The federal tax lien gives the IRS a legal claim to all of the taxpayer's property for the amount of the tax liability. The federal tax lien arises when the tax liability has been assessed, a demand is made for its payment, and the taxpayer does not pay it (IRS Publication 1468).

3. In which of the following situations must a tax return preparer obtain client consent to disclose or receive sensitive tax return information? A. The preparer receives a grand jury subpoena requesting client records. B. The preparer reports a possible crime to authorities involving one of his clients. C. For purposes of peer reviews. D. None of the above disclosures requires permission from a client.

3. The answer is D. Generally, confidential taxpayer information can only be disclosed upon a taxpayer's written authorization. However, a tax return preparer is not required to obtain disclosure consent from a client if the disclosure is made for any of the following reasons: A court order or subpoena issued by any court of record whether at the federal, state, or local level. The required information must be clearly identified in the document (subpoena or court order) in order for a preparer to disclose information. An administrative order, demand, summons, or subpoena issued by any federal agency (such as the IRS), state agency, or commission charged under the laws of the state with licensing, registration, or regulation of tax return preparers. To report a crime to proper authorities. Even if the preparer is mistaken and no crime has occurred, he will not be subject to sanctions if he makes the disclosure in good faith. For purposes of peer reviews. Finally, a preparer may disclose private client information to his attorney, or to an employee of the IRS, in connection with an IRS investigation of the preparer.

30. As part of the application to become an authorized IRS e-services provider, which of the following categories of tax professionals is required to be fingerprinted? A. Enrolled agents and unenrolled tax return preparers. B. All e-services applicants must be fingerprinted by the IRS. C. Unenrolled tax return preparers. D. Only CPAs and tax attorneys must be fingerprinted because they are licensed by the state, not the federal government.

30. The answer is C. When applying to become an authorized IRS e-services provider, an individual who is certified or licensed (such as an attorney, CPA, or enrolled agent) must enter current professional status information. All other individuals, including unenrolled tax return preparers, must be fingerprinted as part of the application process.

31. In serving a complaint against a practitioner, the Office of Professional Responsibility may use all of the methods listed below except: A. Private delivery service. B. E-mail. C. First class mail. D. In person.

31. The answer is B. A formal complaint against a practitioner may be served in the following ways: certified mail; first-class mail, if previously returned undelivered by certified mail; private delivery service; in person; or by leaving the complaint at the office of the practitioner. Electronic delivery, such as e-mail, is not a valid means of serving a complaint.

32. In a previous year, Beverly filed an Innocent Spouse claim that was denied. She now has new additional information that may help her case; can she file a second claim? A. No, Beverly cannot file a second Innocent Spouse Claim after an IRS denial. B. Yes, Beverly can file a second claim, but the claim must be filed with the U.S. Tax Court. C. Yes, Beverly can file a second claim. The second claim must be filed with the Taxpayer Advocate Office. D. Yes, Beverly can file a second claim, provide the new additional information and it will be reconsidered by the IRS. However, she cannot appeal to the U.S. Tax Court.

32. The answer is D. Beverly may file a second claim. If a taxpayer's Innocent Spouse Claim was previously denied and now the taxpayer has new additional information, she can file a second claim, provide the new additional information and it will be reconsidered by the IRS. However, she will not have the right to appeal to the U.S. Tax Court rights on this second reconsideration.

33. The statute of limitations on assessment increases to six years if there is an omission of more than of the gross income stated on the return. A. 15% B. 25% D. 75%

33. The answer is B. In most cases, tax returns are audited for up to three years after filing. However, the IRS may audit for up to six years if there is substantial unreported income. An understatement of more than 25% of the gross income listed on the return is considered a "substantial understatement." There is no statute of limitations for a fraudulent return.

34. How long is an IRS power of attorney authorization valid? A. Until the taxpayer's retirement. B. For three years. C. Until the close of the taxable year for which it was filed. D. Until revoked.

34. The answer is D. An IRS power of attorney is valid until revoked. It may be revoked by the taxpayer or withdrawn by the representative, or it may be superseded by the filing of a new power of attorney for the same tax and tax period. An IRS power of attorney also terminates automatically upon the taxpayer's death.

35. Under Internal Revenue Code 56695, a tax preparer who violates tax preparer due diligence requirements for the EITC, AOTC, CTC (or determination of Head of Household filing status) faces what penalty for tax year 2019? A. $250 penalty for each failure. B. $530 fine for each failure. C. $750 fine for each failure. D. $1,000 fine for each failure and imprisonment up to one year.

35. The answer is B. A tax preparer who violates due diligence requirements faces a $530 penalty for each violation in 2019. This penalty is now adjusted for inflation each year.

36. Which of the following tax preparation fees would not be permitted under Circular 230? A. A written schedule of hourly fees. B. A flat fee for an initial consultation with a client. C. Unconscionable fees for audit representation services. D. A contingent fee based on an IRS examination of an original tax return.

36. The answer is C. A practitioner is not allowed to charge an "unconscionable fee" for his services. Circular 230 prohibits a practitioner from charging an unconscionable fee in the preparation of a tax return or other engagement. "Unconscionable fees" are not defined in Circular 230. The other choices are acceptable fee practices.

37. Which of the following is an example of an individual filing a frivolous tax return? A. A taxpayer who incorrectly claims the Earned Income Tax Credit when he is not eligible for it because he did not read the instructions carefully enough. B. A taxpayer who files a tax return and strikes out the jurat. C. A preparer who files a delinquent tax return because the taxpayer refused to file. D. A fiduciary who files an incorrect tax return and later amends it.

37. B. When an individual strikes out the jurat on a return, it becomes a frivolous return. The jurat is an affidavit in which the taxpayer and/or preparer attests to the truth of the information contained in the return and attached return information. The jurat is signed under penalty of perjury.

38. Which one of the following tax preparers is required to e-file his clients' returns? A. A paid preparer who anticipates filing 11 or more Forms 1120. B. A paid preparer who anticipates filing 11 or more Forms 1040. C. A paid preparer who anticipates filing 11 or more Forms 1065. D. All of the preparers listed above are subject to the e-file mandate.

38. The answer is B. Preparers who anticipate filing 11 or more Forms 1040 and Forms 1041 (fiduciary returns) during the year must use IRS e-file. The requirement also applies to tax preparation businesses, which must compute the number of returns prepared by their members in the aggregate. Business tax returns, such as Form 1120 or Form 1065, are not subject to the current e-file mandate (although some large corporate and partnership returns are subject to separate self-reporting electronic filing requirements). The electronic filing mandate also does not apply to payroll tax returns (Form 941, etc.).

39. Rachel passed all three parts of the EA exam. When is she considered "officially enrolled"? A. When the IRS issues her enrollment card. B. When she submits Form 23, and the form is processed by the IRS. C. When she goes through an IRS suitability check. D. When she passes the final Special Enrollment Exam.

39. The answer is A. Rachel will be an enrolled agent when she is issued her enrollment card. An enrolled agent becomes official on the date the Return Preparer Office issues their enrollment card. Form 23 is only the application for enrollment. An applicant must undergo a background check prior to enrollment. It can take up to 60 days or more for the IRS to process an application.

4. Joey received an examination notice in 2019. During the examination of Joey's Form 1040, the IRS examiner found numerous errors resulting in additional tax. One of the adjustments was a large amount of unreported income discovered in a concealed bank account. Some deductions were supported with altered or defaced documents. Joey also gave false statements throughout the examination. All of the acts of the taxpayer, when seen as a whole, most likely indicate: A. Negligence. B. Fraud. C. Noncompliance. D. A tax protester argument.

4. The answer is B. All the acts of the taxpayer, when seen as a whole, indicate fraud. Fraud, as distinguished from negligence, is always intentional. One of the elements of fraud is the intent to evade tax. The existence of several "badges of fraud" will usually indicate fraud, rather than negligence.

40. In a prior year, Griffin's wife fraudulently sold his separate property but did not report the capital gain from the sale on their jointly-filed tax return. Griffin eventually files for divorce from his wife. Their joint return is later audited by the IRS, and the IRS determines that there was a substantial understatement of tax. What type of spousal relief may Griffin qualify for, in order to request relief from an understatement of tax on the jointly-filed return? A. Economic hardship. B. Separate liability relief. C. Injured spouse relief. D. Equitable relief.

40. The answer is D. Griffin may qualify for equitable relief. Unlike "innocent spouse" relief or "separation of liability" relief, if a taxpayer qualifies for equitable relief, the taxpayer can get relief from an understatement of tax or an underpayment of tax. "Equitable relief' is only available if the taxpayer meets all of the following conditions: o He or she does not qualify for innocent spouse relief or the separation of liability election. o The IRS determines that it is unfair to hold the taxpayer liable for the understatement of tax taking into account all the facts and circumstances.

41. Suzanne is an enrolled agent who is interviewing a new client who wants to claim the American Opportunity Tax Credit. The taxpayer has no proof that he was a student during the year, and other information the client offers seems incorrect to Suzanne. Under her due diligence requirements, what should she do? A. Refuse to accept the engagement. B. Report the client to the IRS fraud hotline. C. Take note of the woman's inconsistent answers and go ahead and submit the claim anyway. D. Ask additional questions if the information furnished seems incorrect or incomplete.

41. D. Suzanne must ask her client additional questions if the information furnished seems incorrect or incomplete. Under tax preparer due diligence requirements, a preparer must not know (or have reason to know) that the information used to determine eligibility for the AOTC, the EITC, or the CTC is incorrect.

42. Which of the following actions is not considered "disreputable conduct" by the IRS? A. Willfully failing to e-file returns electronically if they fall under the e-filing mandate. B. Failing to include a valid PTIN on tax returns. C. Performance as a notary by a practitioner. D. Willfully failing to file a tax return.

42. The answer is C. Performance as a notary is not considered disreputable conduct. A practitioner may perform duties as a notary public. However, a practitioner who is a notary public and is engaged in a matter before the IRS (or who has a material interest in the matter) cannot engage in any notary activities related to that matter. All of the other acts listed are considered disreputable conduct. The definition of "disreputable conduct" includes: Willfully failing to e-file returns electronically if they fall under the e-filing mandate, and Failing to include a valid PTIN on tax returns.

43. Judith, an enrolled agent, prepares William's income tax return. William gives Judith power of attorney, including the authorization to receive his federal income tax refund check. Accordingly, the IRS sends William's $1,000 refund check to Judith's office. William is very slow in paying his bills and owes Judith $500 for tax services. Judith should: A. Use William's check as collateral for a loan to tide her over until William pays her. B. Refuse to give William the check until he pays her the $500. C. Get William's written authorization to endorse the check, cash the check, and reduce the amount William owes her. D. Turn the check directly over to William.

43. The answer is D. Judith must turn the check directly over to William. A tax preparer must not endorse or otherwise cash any refund check issued to the taxpayer. A preparer cannot withhold a taxpayer's refund check because of a fee dispute. However, a preparer is not required to file a client's tax return without first obtaining payment.

44. What information should a tax preparer review to deter the possibility of identity theft? A. Photo identification. B. Form W-2. C. Last year's tax return. D. Utility statement.

44. The answer is A. A tax practitioner should review a taxpayer's identification in order to help deter identity theft. Acceptable identification includes: a U.S. driver's license, passport, or other government-issued identification (this question is modified from the official IRS VITA training guide).

45. Dottie is a CP A. She is taking an aggressive position on a tax return, which requires disclosure. Which form is used to disclose a position on a tax return? A. Form 8275. B. Form 8823. C. Form 656. D. Form 1040k

45. The answer is A. Dottie must attach Form 8275, Disclosure Statement, to disclose a tax position on a tax return. Taxpayers and tax preparers may use this form to disclose items or positions on a tax return in order to avoid certain penalties.

46. A preparer is required to provide a copy of the tax return to a client. Which of the following is NOT required? A. The preparer must provide a complete copy of the tax return to the taxpayer. B. The tax return must be provided on paper. C. The tax return must be provided along with a copy of the preparer's enrollment card. D. None of the above is correct.

46. The answer is B. A paper copy is not required. The preparer must provide a complete copy of the return to the taxpayer. Preparers may provide this copy using any media, including electronic, that is acceptable to both the taxpayer and the preparer. The client's copy must include the preparer's PTIN.

47. What is a private letter ruling? A. A private letter ruling becomes public once Tax Court litigation begins. B. A private letter issued by the IRS Office of Appeals. C. A communication from the Internal Revenue Service in response to a taxpayer's written request for guidance on a particular tax issue. D. A response from Congress to the IRS to clarify Congressional action on a specific tax issue.

47. The answer is C. A private letter ruling (PLR) is a written communication from the Internal Revenue Service in response to a taxpayer's written request for guidance on a particular tax issue. PLRs become public record once issued, but all of the taxpayer's personal information is removed. Private Letter Rulings are not free. The minimum cost of a Private Letter Ruling is $10,000. A PLR is specific to a particular taxpayer's situation and may not be an acceptable authority for any other taxpayer, however, PLRs are a source of valuable information for tax professionals and taxpayers alike.

48. Circular 230 states a practitioner may not willfully, recklessly, or through gross incompetence sign a tax return or claim for refund that the practitioner knows, or reasonably should have known, contains a position that: A. Understates the liability for tax. B. Is reckless or has intentional disregard of rules or regulations. C. Lacks a reasonable basis. D. All of the above.

48. D. Circular 230 states that a practitioner may not willfully sign a tax return or claim for refund that the practitioner knows (or reasonably should know) contains a position that: Lacks a reasonable basis; • Is an unreasonable position, or; o Is a willful attempt by the practitioner to understate the liability for tax, or reckless or intentional disregard of rules or regulations.

49. What is the dollar limit for a taxpayer to be eligible to elect the U.S. Tax Court small case procedures? A. $15,000 B. $25,000 c. $50,000 D. $100,000

49. The answer is C. The U.S. Tax Court has a simplified procedure for taxpayers whose amount in dispute, including applicable penalties, is $50,000 or less (per tax year). If the amount of the dispute is $50,000 or less, taxpayers may choose to use the Tax Court small tax case procedure. Trials in small tax cases are less formal. However, decisions entered pursuant to small tax case procedures are not appealable. Note: Do not confuse the U.S. Tax Court's "Small Case Procedure" with the IRS' "Small Case Request." They are not the same thing. A "Small Case Request" is a procedure within the IRS appeals division, (not with the U.S. Tax Court)- A taxpayer who is going through the IRS appeals process may submit a Small Case Request if the entire amount of additional tax and penalty proposed for each tax year is $25,000 or less.

5. The IRS's e-file rules prohibit a tax preparer from: A. Filing using a client's last pay stub for wage information, if he has not yet received his Form W-2. B. Specifying that the IRS direct deposit a client's tax refund to the client's checking account. C. Charging a separate fee to e-file. D. All of the above.

5. The answer is A. Under IRS e-file rules, a tax preparer is not allowed to electronically file a client's tax return using a pay stub only. The preparer must wait until the client has a Form W-2 (there are exceptions for taxpayers who require a substitute Form W-2, Form 4852, Substitute for Form W-2, Wage and Tax Statement) such as when an employer goes out of business and the forms are never issued, but these instances are rare. A substitute W-2 form should only be used when all other avenues are exhausted, and the taxpayer cannot reasonably obtain a Form W-2 from the employer).

50. Which of the following is not a type of Treasury regulation? A. Legislative regulation. B. Interpretive regulation. C. Congressional regulation. D. Procedural regulation.

50. The answer is C. There are three types of Treasury regulations: legislative, interpretive, and procedural. There is no such thing as a "Congressional regulation" issued by the Treasury Department.

51. Amanda is an enrolled agent, and she prepares approximately 300 returns for compensation during the year. She is a U.S. citizen. Which of the following numbers is required in order for her to prepare tax returns for compensation? A. An EFIN and a PTIN. B. only a PTIN. C. A PTIN and an EIN. D. An EFIN and an EIN.

51. The answer is A. Amanda is required to have both a PTIN and an EFIN. Each tax preparer needs to have her own PTIN, which is issued to individuals. An electronic filing identification number (EFIN) is a number issued by the IRS to individuals or firms that have been approved as authorized IRS e-file providers. All preparers in a firm may be covered by a single EFIN. Note: Specified tax return preparers without social security numbers who are foreign, persons living and working abroad are exempt from the requirement to e-file if they are not members of a firm that is eligible to e-file„ In this scenario; a foreign preparer would be exempt from the e file mandate, but would still be required to have a PTIN.

52. Stacy is an enrolled agent with two clients who are both parties in the potential sale of a business. The sale is not prohibited by law. Stacy believes she can provide competent and diligent representation to each client. Which statement best describes the action Stacy must take to fulfill the requirements of Circular 230 before representing both clients? A. Since she has already researched the situation and determined she is competent to handle the matter; Stacy is not required to take further action. B. Stacy must obtain either oral or written permission from both clients, stating they have been made aware of the potential for conflict of interest. C. Stacy must meet with both clients at the same time to inform them of the potential for conflict of interest. D. Stacy must inform each client of the potential for conflict of interest and then obtain written waivers of the conflict from both clients.

52. The answer is D. Stacy must inform each client of the potential for conflict of interest and then obtain written waivers of the conflict from both clients. Circular 230 requires a practitioner to notify each client of the conflict and have each client provide informed consent, confirmed in writing. The consent must be signed no later than 30 days after the conflict is known by the practitioner and it must be retained for 36 months. When a conflict of interest exists, a practitioner must reasonably believe that she will be able to provide competent and diligent representation to each client.

53. Josiah is an enrolled agent. His new client, Henrietta, asks Josiah to prepare her 2019 tax return. He requests her prior year returns, and discovers that Henrietta has failed to file tax returns for the prior three years. Henrietta only wants Josiah to prepare the current year return. What is Josiah required to do in this scenario? A. He must decline the engagement. B. He must decline the engagement and report Henrietta to the IRS for tax fraud. C. He must advise Henrietta that she did not comply with Federal tax law, and the consequences for not filing the returns. D. He must report Henrietta to the Office of Professional Responsibility.

53. C. Josiah must promptly advise his client of the consequences of any noncompliance, error, or omission. He is not required to notify the IRS of the noncompliance.

54. Taxpayers must sign their returns: A. Under penalty of perjury. B. With a physical signature. C. Before the return has been prepared. D. Under IRS approval.

54. The answer is A. Taxpayers must sign their returns under penalty of perjury. This means that the taxpayer must make a declaration that the return is true, correct, and complete to the best of the knowledge and belief of the taxpayer.

55. A Third-Party Designee has the right to do which of the following tasks? A. Sign a binding agreement for the taxpayer. B. Respond to IRS notices about math errors, offsets, and return preparation. C. Represent the taxpayer before the IRS. D. Receive refund checks.

55. The answer is B. A third-party designee may respond to IRS notices about math errors, offsets, and return preparation. The taxpayer completes the Third-Party Designee Authorization directly on the tax return, entering the designee's name and phone number and a self-selected five-digit PIN, which the designee will have to confirm when requesting information from the IRS. A third-party designee may: o Exchange information concerning the return with the IRS, o Call the IRS for information about the processing of the return or the status of refund or payments; and o Respond to certain IRS notices about math errors, offsets, and return preparation. The taxpayer cannot use the third-party designee to authorize a practitioner to receive a tax refund check, bind the taxpayer to any IRS contract or agreement (including additional tax liability), or otherwise represent the taxpayer before the IRS.

56. Who is allowed to determine the time and place for an audit of a taxpayer? A. The IRS. B. The taxpayer. C. The taxpayer's representative and the IRS have an equal say in the determination of the time and location of an audit. D. The IRS, the taxpayer, and the taxpayer's representative have an equal say in determining the time and location of an audit.

56. The answer is A. IRS examiners are instructed to work out times, dates, and locations that are convenient for the taxpayer. A taxpayer may request a change of venue as a matter of convenience (for example, if the taxpayer moved from California to New Jersey and his tax preparer is still living in California). However, the IRS has the right to make all final decisions regarding the timing and location of an audit.

57. What is the purpose of a Centralized Authorization File (CAF) number? A. It is an IRS file designed to prevent the theft of taxpayer identification numbers. B. It is an IRS file containing the PTINs of all paid tax preparers. C. It is an IRS file containing information from Forms 2848 only. D. It is an IRS file containing authorization information from both Forms 2848 and Forms 8821.

57. The answer is D. The centralized authorization file (CAF) is the IRS' computer database that contains information regarding the authorizations that taxpayers have given representatives for their accounts. When either a Form 2848, Power of Attorney or Declaration of Representation, or Form 8821, Tax Information Authorization, is submitted to the IRS, it is processed for inclusion in the CAF, and a CAF number is assigned to the tax practitioner or another authorized individual.

58. Isabel is an enrolled agent, and Javier is her client. Isabel did a review of Javier's past tax returns and noticed that Javier missed a big deduction on his 2016 tax return that was filed on time on March 10, 2017. Javier wants to amend his 2016 return because the amendment will result in a refund. All of Javier's 2016 tax payments were wage withholding. What is the deadline for Javier to amend his return and obtain a refund? A. December 31, 2019. B. April 15, 2020. C. March 10, 2020. D. April 15, 2021.

58. The answer is B. If Javier amends his 2016 return on or before April 15, 2020, it will be within the three-year statute of limitations, and the return will be accepted. But if his amended 2016 return is submitted after April 15, 2020, it will generally fall outside the three-year period, and he will not receive a refund. There are extended statute periods for certain scenarios (such as combat zone exceptions and exceptions for worthless securities).

59. Renata is an enrolled agent. A client wants to use direct deposit. Which of the following statements about direct deposit is incorrect? A. Renata must accept any direct deposit election to any eligible financial institution designated by the client. B. The client may designate refunds for direct deposit to up to three qualified accounts. C. A taxpayer should not request a deposit of his refund to an account that is not in his name. D. The taxpayer may designate refunds for direct deposit to credit card accounts.

59. The answer is D. Renata's client cannot designate his direct deposit to a credit card account. Taxpayers often elect the direct deposit option because it is the fastest way of receiving refunds. Providers must accept a direct deposit election to any eligible financial institution designated by the taxpayer. The taxpayer may designate refunds to savings, checking, share draft, prepaid debit card, or consumer asset accounts (for example, IRA or money market accounts).

6. A Statutory Notice of Deficiency is also known as a 90-day letter because: A. The taxpayer has 90 days from the date of the letter to request a Collection Appeals hearing. B. The taxpayer has 90 days from the date of the letter to file a formal protest with TIGT A. C. The taxpayer has 90 days from the date of the letter to file a protest with the IRS Office of Appeals. D. The taxpayer has 90 days from the date of the letter to file a petition with the United States Tax Court.

6. The answer is D. A Statutory Notice of Deficiency is also known as a 90 -day letter because the taxpayer generally has 90 days from the date of the letter to file a petition with the United States Tax Court. The deadline increases to 150 days if the notice is addressed to a taxpayer who is outside the country.

60. A taxpayer would like assistance from the Taxpayer Advocate Service. All of the following are considerations in determining whether a request will be granted EXCEPT: A. The taxpayer will suffer irreparable harm or long-term adverse impact if relief is not granted. B. The taxpayer is facing a significant and unexpected tax liability. C. The taxpayer is experiencing economic harm or is about to suffer economic harm. D. The taxpayer is facing an immediate threat of adverse action.

60. The answer is B. A large and unexpected tax liability is not a sufficient reason to receive help from the Taxpayer Advocate Service (TAS). The TAS is a free and confidential service within the IRS whose goal is to help taxpayers resolve problems with other IRS divisions. Situations where the TAS may offer assistance include the following: The taxpayer will suffer significant costs if relief is not granted. The taxpayer has experienced a delay of more than 30 days to resolve a tax issue. The taxpayer did not receive a response or resolution to his problem or inquiry by the date promised. A system or procedure has either failed to operate as intended, or failed to resolve the taxpayer's problem or dispute within the IRS, or The manner in which the tax laws are being administered raises considerations of equity, or it has impaired or will impair the taxpayer's rights.

61. A "remote transaction" for electronic signature is one in which the taxpayer is electronically signing the signature authorization form and the ERO is not physically present with the taxpayer. For remote transactions, the ERO must record which of the following information? A. The taxpayer's SSN and driver's license number. B. The taxpayer's name, address, and a copy of his or her birth certificate. C. The taxpayer's name, social security number, address and date of birth. D. The taxpayer's name, social security number, address and driver's license number.

61. The answer is C. A "remote transaction" for electronic signature is one in which the taxpayer is electronically signing the signature authorization form and the ERO is not physically present with the taxpayer. For remote transactions, the ERO must record the taxpayer's name, social security number, address and date of birth.

62. An electronically filed return is not considered "filed" until: A. The electronic portion of the return has been submitted to the transmitter. B. The electronic portion of the return has been rejected by the IRS. C. The electronic portion of the return has been submitted to the IRS. D. The electronic portion of the return has been acknowledged by the IRS.

62. The answer is D. An electronically filed return is not considered "filed" until the electronic portion of the return has been acknowledged by the IRS. The date of the electronic postmark is considered the date of filing.

63. Natalie became an enrolled agent several years ago. For renewal purposes, what is the minimum number of hours of continuing education (CE) she must take each year? A. She is required to take a minimum of 16 hours per year, two of which must be on ethics. B. She is required to take a minimum of 18 hours per year, four of which must be on ethics. C. She is required to take a minimum of 24 hours per year, two of which must be on ethics. D. She is required to take a minimum of 15 hours per year, two of which must be on ethics.

63. The answer is A. Natalie is required to take a minimum of 16 hours per year, two of which must be on ethics. In addition to this annual minimum requirement, enrolled agents must obtain 72 hours of continuing education every three years. For renewal purposes, the annual CPE requirements only apply for the years during which someone was an enrolled agent. Note: An EA who receives initial enrollment during an enrollment cycle must complete two CE hours for each month enrolled during the enrollment cycle. Enrollment for-any part of a month is considered enrollment for the entire month. In addition, an EA who receives their initial enrollment during an enrollment cycle must complete two CE hours Of ethics or professional conduct for each year enrolled during the enrollment cycle.

64. A rejected electronic individual income tax return can be corrected and retransmitted without new signatures if changes do not differ from the amounts on the original electronic return by more than: A. $50 of total income or AGI. B. $100 of total income or AGI. C. $500 of tax due or AGI. D. A rejected e-file return cannot be retransmitted without new signatures.

64. A. Rejected electronic individual income tax return data can be corrected and retransmitted without new signatures or authorizations if changes do not differ from the amounts of "total income", or "AGI", on the original electronic return by more than $50, or from the amounts of "total tax", "federal income tax withheld", "refund" or "amount you owe" by more than $14. However, the preparer must give the taxpayer a copy of the corrected tax return.

65. Before a tax preparer is formally assessed a penalty under IRC section 6694, how many days does he have to file an appeal before the penalty is assessed? A. 10 days. B. 30 days. C. 45 days. D. The penalty is assessed immediately and must be appealed retroactively.

65. The answer is B. If an IRS examiner determines a section 6694 penalty applies: A detailed report is prepared. The preparer is provided with a copy. The preparer then has 30 days to request an appeal before the penalty is assessed.

66. Which of the following can constitute a reasonable basis for a position taken on a tax return? A. IRS publications. B. IRS tax forms and instructions. C. Congressional committee reports. D. Internal Revenue Manual.

66. The answer is C. Under regulations pertaining to IRC section 6662, sources of "substantial authority" of federal tax law include the following: provisions of the Internal Revenue Code, temporary and final regulations, court cases, administrative pronouncements, tax treaties, and Congressional intent as reflected in official congressional committee reports. This list was later expanded to include proposed regulations, private letter rulings, technical advice memoranda, IRS information or press releases, notices, and any other similar documents published by the IRS in the Internal Revenue Bulletin. The information in IRS publications is drawn from the Internal Revenue Code, Treasury regulations, and other primary sources of authority, but IRS publications themselves are not considered to have substantial authority. The same is true for IRS tax forms and instructions. The Internal Revenue Manual is essentially a policy and operations manual for IRS employees. It is an official compilation of policies, delegated authorities, procedures, instructions, and guidelines relating to the organization, functions, administration, and operations of the IRS, but it does not itself have substantial authority.

67. Callum has a 25-year-old daughter named Genie. Callum has an accounting degree, but he is not an enrolled practitioner. Genie's tax return was chosen for examination by the IRS. Genie is not claimed as a dependent on Callum's tax return, and Callum is not an enrolled agent, attorney, or CP A. Which of the following statements is correct? A. Callum may not represent his daughter before the IRS because Genie is no longer a minor and Callum is not enrolled to practice before the IRS. B. Callum may represent his daughter before the IRS if Genie signs a Form 2848. C. Callum may not represent his daughter because she is not his dependent. D. Callum is not an enrolled preparer, so he may not represent an adult child because of privacy regulations and conflicts of interest.

67. The answer is B. Callum may represent his daughter before the IRS if Genie signs a Form 2848. A family member can represent members of her immediate family. Immediate family means a spouse, child, parent, grandparent, grandchild, brother, or sister of the individual. For the purposes of this rule, stepparents, stepchildren, stepbrothers, and stepsisters are also considered immediate family as well. Because of their special relationship, immediate family members can represent a taxpayer and practice before the IRS, provided they present satisfactory identification and proof of authority to do so. In this case, Callum would need a signed Form 2848 with Genie's signature.

68. An IRS power of attorney must contain all of the following information except: A. The type of tax involved. B. The name and address of the representative. C. The name and taxpayer identification number of the taxpayer. D. The specific date the tax return was filed, if delinquent.

68. The answer is D. The date of filing is not required. However, it is necessary to state the year or periods involved, such as "2015-2020 tax years." An IRS power of attorney must contain: o The type of tax and the tax years covered. o The name and address of the representative. o The name and taxpayer identification (number of the taxpayer). o The signatures of the representative and the taxpayer. The IRS will not accept a power of attorney if it does not contain all the information listed above.

69. All of the following are options for how a taxpayer may direct his tax refund except: A. Receive the refund as a paper check. B. Split the refund, with a portion applied to next year's estimated tax and the remainder received as direct deposit or a paper check. C. Use the refund to purchase municipal bonds. D. Use the refund (or part of it) to purchase U.S. Series I Savings Bonds.

69. The answer is C. A tax refund cannot be used to purchase municipal bonds directly (only U.S. Savings Bonds). Taxpayers have a number of options related to their tax refunds. They may: o Apply a refund to next year's estimated tax. Receive the refund as a direct deposit. o Receive the refund as a paper check. o Split the refund, with a portion applied to next year's estimated tax and the remainder received as direct deposit or a paper check. o Use the refund (or part of it) to purchase U.S. Series I Savings Bonds. Taxpayers can purchase up to $5,000 in bonds for themselves or others.

7. Under Circular 230, an employer of other tax preparers must: A. Furnish the IRS a record of all tax return preparers employed. B. Keep a record of all tax return preparers employed and make it available for IRS inspection upon request. C. Document each tax preparer's performance and keep a record that must be made available for IRS inspection upon request. D. All of the above.

7. The answer is B. An employer of other tax preparers must keep a record of those employed and make it available for IRS inspection upon request. The records must include the name, taxpayer identification number, and place of work for each tax return preparer employed. Records must be retained for at least three years following the close of the return period.

70. For which of the following does the U.S. Tax Court NOT have jurisdiction? A. Gift tax deficiencies. B. Income tax deficiencies. C. FBAR penalties. D. Innocent spouse relief.

70. The answer is C. The U.S. Tax Court lacks jurisdiction over FBAR penalty matters. The jurisdiction of the Tax Court includes: Income tax, estate tax, and gift tax. Worker classification. Innocent spouse claims. Liens and levies. Awards of administrative costs. Redetermination of interest. Modification of estate tax decisions. Litigation costs awards. Abatement of interest.

71. What penalty does a taxpayer who files a "frivolous" return potentially face? A. $1,000 B. $5,000 c. $10,000 D. $100,000

71. The answer is B. A taxpayer who files a tax return that is considered 'frivolous" faces a potential penalty of $5,000, in addition to any other penalty provided by law. This penalty may be doubled on a joint return. A taxpayer will be subject to this penalty if he files a tax return based simply on the desire to interfere with the administration of tax law. The penalty for making frivolous arguments before the U.S. Tax Court is even steeper at $25,000.

72. When the IRS rejects a return that an Electronic Return Originator (ERO) attempted to e-file for a taxpayer, the ERO must advise the taxpayer of the rejection and also provide the taxpayer with what additional information? A. IRS Customer Service phone number for assistance. B. Declaration Control Number. C. IRS code section. D. The reject code, accompanied by an explanation.

72. The answer is D. When the IRS rejects a return that an Electronic Return Originator (ERO) attempted to e-file for a taxpayer, the ERO must advise the taxpayer of the rejection and provide the taxpayer with the reject code (also called "business rules" or BR), accompanied by an explanation (see IRS Publication 1345, Handbook for Authorized IRS e file Providers).

73. Which of the following sanctions will the Office of Professional Responsibility not impose on a practitioner? A. Disbarment. B. Censure. C. Formal reprimand. D. Criminal penalties.

73. The answer is D. The OPR can issue a notice for judicial proceedings for censure, suspension, or disbarment. It can also send a letter of reprimand to a preparer. Criminal penalties may be imposed on a tax preparer for fraudulent activity, but the OPR refers criminal activity to the IRS's own criminal division or to the Department of Justice for potential prosecution.

74. If a practitioner uses radio, television, or other advertising, how long must a copy of the advertising be retained? A. The practitioner must keep a copy of the advertising for a minimum of 30 days after the last transmission or use. B. The practitioner must keep a copy of the advertising until the end of the calendar year following the last transmission or use. C. The practitioner must keep a copy of the advertising for at least 36 months following the last transmission or use. D. The practitioner is not required to keep a copy of the advertising.

74. C. The practitioner must retain a copy of the advertisement, as well as a list or other description of the firms, organizations, or individuals to whom the communication was sent for 36 months (three years) following the last transmission or use. He must provide a copy to the IRS upon request.

75. Penny has an installment agreement in place with the IRS. In March 2019, she gets into a bad car accident and misses a payment. The IRS sends her a notice 30 days later proposing to terminate her installment agreement. Which of the following statements is correct? A. Penny may appeal the termination of her installment agreement. B. Penny has no appeal rights once the installment agreement is in default. C. Penny may appeal the termination and the IRS will be prohibited from levying until 60 days after her appeal is completed. D. Penny may appeal the termination by filing a petition with the U.S. Tax Court within 30 days of receipt of the notice.

75. The answer is A. Penny may appeal the termination of her installment agreement. If she appeals within a 30-day period after the termination, the IRS will be prohibited from levying her assets until her appeal is completed.

76. Paul and Donatella are married but live separately. They choose to file jointly, but they want to split their refund between their respective checking accounts. How is this accomplished, if possible? A. They must complete Form 8888, Allocation of Refund (Including Savings Bond Purchases). B. Splitting a refund is not possible. C. This can only be accomplished if filing a paper return. D. They must file separate tax returns if they wish to split their refund.

76. The answer is A. In most cases, tax refunds can be split using direct deposit in up to three separate accounts (such as a checking account, savings account, mutual fund account, or credit union account), as long as the account is located in the United States. Deposits cannot be made into foreign bank accounts. The taxpayers must complete Form 8888, Allocation of Refund (Including Savings Bond Purchases).

77. Some unenrolled preparers are exempt from the Annual Filing Season course requirement because of their completion of other recognized state or national competency tests. Which of the following individuals would be required to complete the Annual Filing Season course in order to obtain an official Record of Completion? A. A tax preparer who passed the Registered Tax Return Preparer exam. B. Tax practitioners who have passed the Special Enrollment Exam Part I within the past two years. C. Volunteer Income Tax Assistance (VITA) volunteers. D. Accounting students registered at a recognized educational institution.

77. The answer is D. Accounting students would be required to take the AFTR course in order to obtain a Record of Completion. Some unenrolled preparers are exempt from the AFTR course requirement because of their completion of other recognized state or national competency tests. These exempt groups are still required to meet other program requirements, including the CPE requirements. Return preparers who can obtain a Record of Completion without taking the AFTR course are: Anyone who passed the (now retired) Registered Tax Return Preparer exam. State-based return preparer program participants currently with testing requirements: Return preparers who are active registrants of the Oregon Board of Tax Practitioners, California Tax Education Council, or Maryland State Board of Individual Tax Preparers. Tax practitioners who have passed the Special Enrollment Exam Part I within the past two years. VITA volunteers (quality reviewers and instructors with active PTINs). Other accredited tax-focused credential-holders: The Accreditation Council for Accountancy and Taxation's Accredited Business Accountant (ABA) and Accredited Tax Preparer (ATP) programs. Enrolled practitioners are also exempt (EAs, CPAs, and attorneys).

78. Under IRS regulations, which of the following does not constitute an "understatement of liability"? A. Taking a tax protester position on a return. B. Overstating the net amount creditable or refundable. C. Understating the net tax payable. D. Answers choices A and C are correct.

78. The answer is A. Tax protester positions are not the same as willful understatements of liability. If a preparer willfully understates a client's tax liability, he is subject to penalties. Under IRS regulations, "understatement of liability" means: Understating net tax payable. Overstating the net amount creditable or refundable.

79. Which of the following individuals is NOT under the jurisdiction of Circular 230? A. An unlicensed tax return preparer who files Form 2848 for a client he is representing in an examination. B. A licensed attorney that provides written tax advice, but does not prepare tax returns. C. An enrolled agent who does representation work for clients before the IRS but does not prepare tax returns. D. An employee of a tax preparation firm who collects receipts, organizes records, and gathers information for a practitioner.

79. The answer is D. An individual who provides only typing, reproduction or other mechanical assistance in the preparation of a return is not a tax return preparer and is not under the jurisdiction of Circular 230. Because she is not a paid preparer, she also would not be required to obtain a PTIN. The following are subject to Circular 230 jurisdiction, and thus to disciplinary oversight by the Office of Professional Responsibility: State licensed attorneys and CPAs who interact with federal tax administration at any level and capacity. Enrolled agents, enrolled retirement plan agents, and enrolled actuaries. Persons providing appraisals used in connection with tax matters (such as valuing estate and gift assets). Unlicensed individuals who represent taxpayers before the IRS examination division, IRS customer service, and Taxpayer Advocate Service in connection with returns they prepared and signed. Licensed and unlicensed individuals who give written advice that has the potential for tax avoidance or evasion. Any person submitting a power of attorney in connection with limited representation or special authorization to practice before the IRS in a specific matter before the agency.

8. A single financial account is limited to electronically deposited tax refunds per tax year. A. One B. Two C. Three D. No limit

8. The answer is C. A financial account or prepaid debit card can have a maximum of three refunds direct deposited into it per tax year. Any additional deposits for the year for which an electronic refund is requested will be converted to a paper refund check and mailed to the taxpayer. The IRS is limiting the number to try to prevent criminals from easily obtaining multiple refunds.

80. Which of the following actions is always prohibited by Circular 230? A. Charging contingent fees. B. Notarizing documents for the clients that the practitioner represents before the IRS. C. Representing two clients when there is a conflict of interest. D. Promoting a tax shelter to an existing client.

80. The answer is B. Under Circular 230, a practitioner may not notarize documents for the clients he represents before the IRS. If the practitioner is a notary public and is employed as counsel, attorney, or agent in a matter before the IRS or has a material interest in the matter, he cannot engage in any notary activities relative to that matter. A practitioner is allowed to charge contingent fees in certain cases, but never for preparation of an original return. A practitioner may represent clients with a conflict of interest as long as it is disclosed in writing to all affected parties and all parties agree in writing. A practitioner may discuss and recommend tax shelters to a client. Not all tax shelters are abusive tax shelters, but the disclosure and ethics rules regarding tax shelters and tax shelter opinions are very strict.

81. The IRS rejected a taxpayer's return when the taxpayer attempted to e-file the return. When resubmitting the rejected return as a paper return, the taxpayer must file the return no later than: A. The due date for filing the return. B. The due date for filing the return or 5 calendar days after the return was rejected. C. By the due date for filing the return or 10 calendar days after the return was rejected. D. By the due date for filing the return or 15 calendar days after the return was rejected.

81. The answer is B. When resubmitting a previously-rejected return as a paper return, the taxpayer must file the return (1) by the due date for filing the return or (2) 5 calendar days after the return was rejected. Individual tax returns have a "perfection period" of 5 days from the date of rejection, while most business returns have a "perfection period" of 10 days from the date of rejection.

82. Enrolled agents are allowed a limited confidentiality privilege with their clients. Confidential communications do not extend to: A. Noncriminal tax matters before the IRS. B. Noncriminal tax proceedings brought in court. C. Correspondence audits. D. Tax shelter opinions.

82. The answer is D. Communications about the promotion of a tax shelter are not covered by the confidentiality privilege under section 7525. A tax shelter is any plan where the significant purpose of the plan is for the evasion or avoidance of tax.

83. Luther is an enrolled agent who was subject to a disbarment proceeding. The administrative law judge upheld the OPR's decision to disbar him from practice. Does Luther have any appeal rights at this point? A. Within 60 days after the administrative law judge makes a decision on a disciplinary action, Luther may appeal the decision to the Return Preparer Office. B. Within 60 days after the administrative law judge makes a decision on a disciplinary action, Luther may appeal the decision to the Treasury Appellate Authority. C. Within 30 days after the administrative law judge makes a decision on a disciplinary action, Luther may appeal the decision to the Treasury Appellate Authority. D. No, Luther does not have any appeal rights after the administrative law judge makes his decision.

83. The answer is C. Luther may appeal the judge's decision to the Treasury Appellate Authority. The practitioner may appeal the decision to the Treasury Appellate Authority within 30 days after the decision. The IRS may also appeal the judge's decision, if a decision was reached in favor of the practitioner. In either case, the Treasury Appellate Authority will receive briefs and render what is known as the "Final Agency Decision". For the OPR, this decision is final, but the practitioner may contest the Final Agency Decision in U.S. district court. The judge will review the findings from the administrative law hearing but will only set aside the decision if it is considered arbitrary or capricious, contrary to law, or an abuse of discretion.

84. Sterling is an enrolled agent. A long-time client starts a new business in an industry with numerous specialized tax regulations and incentives. Sterling begins working on the client's tax return but finds he does not understand most of the elections and credits. Can Sterling prepare and sign this tax return? A. Yes. It is not unusual for a tax preparer to lack understanding in certain complex areas of tax law. B. Yes, but only if Sterling has another tax practitioner from his firm review the return before Sterling signs it. C. Yes, but only if Sterling accepts a reduced fee for the work from his client. D. No. Sterling cannot prepare or sign a tax return if he lacks sufficient competence.

84. The answer is D. Sterling cannot prepare or sign a tax return if he lacks sufficient competence. Competence requires the appropriate level of knowledge, skill, thoroughness, and preparation. Circular 230 states that competence can be achieved by consulting with experts in the relevant area or by studying the relevant law.

85. Kareem's tax return was chosen for examination. He did not agree with the examiner's findings and wishes to appeal the examiner's conclusion. What must he do if he wants to request an appeal? A. He has 30 days from the date of the examiner's decision letter to appeal. B. He can file a claim with the U.S. Tax Court within 30 days of the examiner's decision letter. C. He can submit an offer in compromise, requesting a review of the examiner's decision. D. He can request a collection due process hearing within 30 days of the examiner's decision.

85. The answer is A. Kareem can request an appeal by mailing in a formal written protest within the time limit specified in the examiner's decision letter. The time limit is generally 30 days from the date of the letter. If Kareem does not respond to the 30-day letter, or if he later does not reach an agreement with an Appeals Officer, the IRS will send him a 90-day letter, at which point Kareem would be able to file a petition with the U.S. Tax Court.

86. Under Circular 230, the definition of a "tax return" includes: A. A claim for a refund, an original return, and an amended return. B. An original return or an amended return. C. A claim for a refund, an original return, and an extension request. D. Only an original return.

86. The answer is A. Under Circular 230, the definition of a tax return includes the following: an original return, an amended return, and a claim for a refund.

87. Desiree owes $900 in income taxes for 2019. She doesn't have the funds to pay the entire amount all at once. She plans to file her tax return on time, but she would like to make monthly payments on the amount due. When does interest begin to accrue on the amount that she owes? A. She will not owe any interest because the amount that she owes is less than the safe harbor threshold of $1,000. B. Interest accrues on any unpaid tax from the due date of the return (not including extensions) until the date of payment in full. C. Interest accrues on any unpaid tax from the due date of the return (including extensions) until the date of payment in full. D. Interest begins to accrue on the amount due on the close of the tax year (December 31).

87. The answer is B. Generally, interest accrues on any unpaid tax from the due date of the return (not including extensions) until the date of payment in full. The interest rate is determined quarterly and is the federal short-term rate plus 3%. The IRS doesn't generally abate interest charges and they continue to accrue until all assessed tax, penalties, and interest are fully paid.

88. Can multiple preparers in one tax office share a single PTIN? A. Yes. B. Yes, but only at the same office location. C. Yes, but only if the principal preparer continues to sign the tax returns. D. No; each preparer must obtain his own PTIN.

88. The answer is D. A PTIN cannot be shared. A PTIN is an individual preparer's number, so each preparer must obtain his own PTIN.

89. Sophie receives a notice of deficiency in the mail with respect to individual income tax. She fails to respond to the letter within 90 days. What is Sophie's option if she wants to contest her tax deficiency? A. She can request an extension to the period of time for petitioning the U.S. Tax Court. B. She cannot contest her tax deficiency in the U.S. Tax Court. She must pay the entire amount owed and submit a claim for refund to the IRS. If denied, she can sue the IRS for a refund in a U.S. district court or Court of Federal Claims. C. She cannot contest her tax in the U.S. Tax Court. She must pay a portion of the amount owed and submit a claim for refund to the IRS. If denied, she can sue the IRS for a refund in a U.S. district court or Court of Federal Claims. D. She has no more appeal rights and owes the tax deficiency.

89. The answer is B. Since Sophie failed to respond to the 90-day-letter, Sophie cannot contest her tax deficiency in the U.S. Tax Court. She must pay the amount owed and sue the IRS for a refund in a U.S. district court or Court of Federal Claims. A Notice of Deficiency (90-day letter) must be issued before a taxpayer can go to the Tax Court. Once the notice is issued, a taxpayer has 90 days from the date of the notice to respond and file a petition with the court. If a taxpayer fails to respond to the notice, she must pay the tax deficiency first and then sue the IRS for a refund in a U.S. district court or Court of Federal Claims.

9. Which of the following is not a reason for the IRS to abate interest on a taxpayer's tax liability? A. Managerial act. B. Ministerial act. C. When the interest was incurred while the taxpayer was in a combat zone or federally declared disaster area. D. Reasonable cause.

9. The answer is D. Interest owed by a taxpayer will be abated or waived in the following instances: • When it is excessive, barred by statute, or erroneously or illegally assessed. o When it is assessed on an erroneous refund. e When it was incurred while the taxpayer was in a combat zone or in a declared disaster area. Further, the IRS will waive interest that is the result of certain errors or delays caused by an IRS employee, which are known as managerial acts and ministerial acts. However, (in contrast to abatement of penalties, which can be abated for reasonable cause), reasonable cause is not allowed as the basis for abatement of interest.

90. Karen is a full-time employee for Granite Construction, Inc. She is the company bookkeeper and prepares all the payroll tax returns as well as the W-2 forms for the employees. During the year, Granite Construction receives an IRS notice regarding a payroll tax issue. Karen is not an enrolled practitioner. Can Karen represent her employer before the IRS? A. No, Karen may not represent her employer before the IRS. B. Karen may respond to the notice, but a company officer must sign it. C. Karen may only respond to the notice if the company president makes her a bona-fide officer of the company. D. Karen may represent her employer before the IRS because she is a full-time employee of the business.

90. The answer is D. Karen may represent her employer before the IRS because she is a fulltime employee of the business. In Circular 230 a regular full-time employee of a business may represent her employer before the IRS without being an enrolled practitioner.

91. Dabir is a tax preparer working for a national tax franchise. He would like to become an electronic return originator (ERO), so he can start his own home-based tax practice and e-file his clients' returns. What is the first step he should take in this application process? A. Create an IRS e-Services account. B. Undergo a thorough background check of his tax compliance history. C. Apply for a PTIN. D. Apply for an electronic filing identification number (EFIN).

91. The answer is A. Dabir must first create an IRS e-Services account. He will need to supply personal information, including his Social Security number or other taxpayer identification number and his address where the IRS will mail confirmation of the account. This part of the application process can take up to 45 days. After the IRS approves his e-Services account, Dabir will undergo a thorough IRS suitability check that may include a review of his criminal background, credit history, and tax compliance history. Only then will he be accepted as an authorized IRS e-file provider, an umbrella term for anyone authorized to participate in e-file, from software developers to transmitters. Preparers who want to e-file for clients must first be approved as electronic return originators (ERO). The application to become an authorized e-file provider must also identify a firm's principals and at least one responsible official.

92. The Freedom of Information Act (FOIA) does not require the IRS to release all documents that are subject to FOIA requests. The IRS may withhold information: A. Due to budget cuts. B. Due to the statute of limitations for FOIA requests. C. If the requester fails to provide notarized identification along with the request. D. For an IRS record that falls under one of the FOIA's nine statutory exemptions, or by one of three exclusions under the Act.

92. The answer is D. The IRS may withhold an IRS record that falls under one of the FOIA's nine statutory exemptions, or one of three exclusions under the Act. The exemptions protect against the disclosure of information that would harm the following: national security, the privacy of individuals, the proprietary interests of business, the functioning of the government, and other important recognized interests.

93. Solomon is an enrolled agent. He mailed an advertisement announcing a flat rate of $100 for the preparation of a single tax return. Solomon later changes his mind and wants to increase the price. Solomon is bound by this advertised rate for a minimum of days after the last date on which the fee schedule was published. A. 20 days. B. 30 days. C. 45 days. D. 60 days.

93. The answer is B. A practitioner may publish and advertise a fee schedule. Solomon must adhere to the published fee schedule for at least 30 calendar days after it is published.

94. If the IRS declares a taxpayer to be in "currently not collectible" status, which of the following is true? A. The IRS will not require or expect the taxpayer to make payments toward the liability. B. Penalties and interest accruals will be suspended. C. The IRS is prohibited from filing a notice of federal tax lien. D. The collection statute of limitations is suspended.

94. The answer is A. "Currently-not-collectible" (or CNC) status means the IRS has determined that a taxpayer has no ability to pay his tax debts and that other options, such as an installment agreement or offer in compromise, are not feasible. While a taxpayer is in this status, all collection activities will be halted for at least one year, or until his income increases. Penalties and interest will continue to be added to the tax debt during this period.

95. Omar is an enrolled agent. His client, Fatima, has a large tax deficiency. Fatima tells Omar she has no intention of paying her tax liability, no matter what, even though she has more than enough financial resources to easily pay the tax deficiency in full. Knowing that his client is not compliant, Omar advises Fatima to submit a request for a Collection Due Process hearing in order to stop collection activity. Is Omar in violation of Circular 230? A. Yes, as the submission is only to delay tax administration. B. No, since gives Omar's client additional time to pay her tax liability. C. No, since Omar cannot control his client's actions and is simply giving advice regarding her legal options. D. There is insufficient information to make a determination.

95. The answer is A. Omar is in violation of section 10.23 of Circular 230, which states that a practitioner must not unreasonably delay the prompt disposition of any matter before the IRS. Omar's advice is an example of making a submission to delay or impede tax administration, because the IRS will not consider resolution of a collection action when a taxpayer is not in compliance.

96. Alexa owes $4,000 when she files her tax return. She is not able to pay the entire balance due by the due date of the return. What of the following is not an acceptable payment option? A. Alexa can submit a Form 9465, Installment Agreement Request. B. Alexa can apply for a full pay 120-day agreement online. C. Alexa can pay using her credit card. D. Alexa can contest her liability in the U.S. Tax Court.

96. The answer is D. Alexa cannot file a petition in the U.S. Tax Court to contest a valid tax liability. The Tax Court is a court of limited jurisdiction. The other choices are all valid payment methods for paying one's tax liability.

97. Which of the following persons may represent a taxpayer at an IRS Appeals conference? A. An unenrolled tax preparer who prepared the tax return in question. B. An enrolled agent. C. A friend of the taxpayer. D. A disbarred practitioner with a current PTIN.

97. The answer is B. Only a practitioner (generally, an enrolled agent, CPA, or tax attorney) with a signed power of attorney may represent a taxpayer at an IRS appeals conference. An unenrolled tax preparer may be a witness for a taxpayer at an appeals conference but may not serve as a representative for the taxpayer. An unenrolled tax preparer may represent a taxpayer before IRS revenue agents, but not before revenue officers or appeals officers. For returns prepared after December 31, 2015, only unenrolled return preparers participating in the Annual Filing Season Record of Completion (AFSP) program may represent a taxpayer, only with respect to returns prepared and signed by the preparer, and only in limited situations.

98. Which of the following professional designations is always required to obtain a PTIN? A. CPAs. B. Attorneys. C. Enrolled agents. D. Certified Financial Planners.

98. The answer is C. All Enrolled Agents are required to have a PTIN, even if they do not prepare any tax returns. Anyone who receives compensation for preparing all (or substantially all) of a federal tax return (or claim for refund), including attorneys and certified public accountants, is required to obtain a PTIN. CPAs and attorneys who do not prepare tax returns, such as a CPA who only does audit work or an attorney who only does criminal defense, do not need to obtain a PTIN. Certified Financial Planners are not required to obtain a PTIN if they do not prepare tax returns.

99. In the licensing of enrolled agents, an "enrollment cycle" refers to: A. The enrollment year preceding the effective date of renewal. B. The three successive enrollment years preceding the effective date of renewal. C. The year in which the enrolled agent receives his initial enrollment. D. The amount of continuing professional education required each year of enrollment.

99. The answer is B. The enrollment cycle refers to the three successive enrollment years preceding the effective date of renewal.