Chapter 1

Regular full-time employees are allowed to represent certain organizations before the IRS without being a Circular 230 practitioner. Name the organizations that can be represented by full-time employees, and cite where you found that authority in Circular 230.

CPAs serve is a support capacity in tax litigation. ​Page 6

Under Circular 230 - §10.22, the term "due diligence" is defined along with the requirements so that tax preparers fully understand its importance. True Or False

False

Under Circular 230 - §10.37, the term "written tax advice" is defined along with the requirements so that tax preparers fully understand its importance. True Or False

False

Under ACIPA SSTS #1, a member should have a good faith belief that a taken tax position meets the standards of a 1 out of 10 chance of being sustained on its merits if challenged. True Or False

False. 1 out of 3 chance.

The basis for Circular 230 is to define exactly who can prepare tax returns. True O False

False. It defines who is allowed to practice before the IRS

Tax compliance is the process of arranging one's financial affairs to minimize any applicable tax liability. True Or False

False. Tax planning

The AICPA has produced a series of eight Statements on Standards for Tax Services, which contain advisory guidelines for members who prepare financial statements. True Or False

False. There are 7.

Under Circular 230, tax practitioners are required to use due diligence in preparing tax returns which notes that a tax practitioner should use unreasonable effort to comply with the tax laws. True Or False

False. They must use reasonable effort.

The avoidance of taxation is illegal and immoral. True Or False

False. You are only required to pay the minimum of amount of taxes due.

EAs are subject to continuing education (CE) requirements. Briefly describe the CE requirements and give the reference to where the details can be found in Circular 230.

In an open tax planning situation, the transaction is not yet complete; therefore, the tax practitioner maintains some degree of control over the potential tax liability, and the transaction may be modified to achieve a more favorable tax treatment. In a closed transaction however, all of the pertinent actions have been completed, and tax planning activities may be limited to the presentation of the situation to the government in the most legally advantageous manner possible. Page 6

CPAs must follow the rules of Circular 230. In addition, CPAs in tax practice are subject to two other sets of ethical rules. Give the name and the issuer of both these sets of rules.

In the United States, the tax system is an outgrowth of the following five disciplines: law, accounting, economics, political science, and sociology. The environment for the tax system is provided by the principles of economics, sociology, and political science, while the legal and accounting fields are responsible for the system's interpretation and application. Each of these disciplines affects this country's tax system in a unique way. Economists address such issues as how proposed tax legislation will affect the rate of inflation or economic growth. Measurement of the social equity of a tax and determining whether a tax system discriminates against certain taxpayers are issues that are examined by sociologists and political scientists. Finally, attorneys are responsible for the interpretation of the taxation statutes, and accountants ensure that these same statutes are applied consistently. ​Page 4

The rules that govern practice before the IRS are found in Circular 230. Discuss what entails practice before the IRS and state which section of Circular 230 contains the definition.

Most of the tax compliance work is performed by commercial tax preparers, enrolled agents (EAs), attorneys, and certified public accountants (CPAs). Noncomplex individual, partnership, and corporate tax returns often are completed by commercial tax preparers. The preparation of more complex returns usually is performed by EAs, attorneys, and CPAs. The latter groups also provide tax planning services and represent their clients before the IRS. An EA is one who is admitted to practice before the IRS by passing a special IRS-administered examination, or who has worked for the IRS for five years and is issued a permit to represent clients before the IRS. CPAs and attorneys are not required to take this examination and are automatically admitted to practice before the IRS if they are in good standing with the appropriate professional licensing board. ​Page 5 and Circular 230

The term "practice before the IRS" includes the representation of clients in the U.S. Tax Court for cases being handled under the "small tax case procedure." True or false? Explain your answer. (IRS adapted)

Tax compliance consists of gathering pertinent information, evaluating and classifying that information, and filing any necessary tax returns. Compliance also includes other functions necessary to satisfy governmental requirements, such as representing a client during an Internal Revenue Service (IRS) audit. ​Page 5

Leigh, who is not a Circular 230 practitioner, is employed by Rose, a CPA. One of Rose's clients has been notified that the IRS has selected his or her 2018 income tax return for audit. Rose had prepared the return and signed it as preparer. Rose has been called out of town on a family emergency and would like for Leigh to represent the client. Leigh cannot represent the client even if she has Rose's written authority to do so and has the client's power of attorney. True or false? Explain your answer. (IRS adapted)

Tax litigation is the process of settling a dispute with the IRS in a court of law. Typically, a tax attorney handles tax litigation that progresses beyond the final IRS appeal. Page 6

There are two ways to become an EA. Briefly explain what they are and give the subpart and section refer-ences in Circular 230 where the details of becoming an EA are found

Tax planning is the process of arranging one's financial affairs to minimize any tax liability. Much of modern tax practice centers around this process, and the resulting outcome is tax avoidance. There is nothing illegal or immoral in the avoidance of taxation as long as the taxpayer remains within legal bounds. In contrast, tax evasion constitutes the illegal nonpayment of a tax and cannot be condoned. Activities of this sort clearly violate existing legal constraints and fall outside of the domain of the professional tax practitioner. ​Page 6

Jane's mother resides in a nursing home and cannot travel. There is a problem with the mother's prior-year tax return, and the IRS needs to discuss the matter with her at the local IRS office. Is it possible for Jane to handle this matter without having to hire professional tax representation? Reference your answer to the appropriate part of Circular 230

Tax research consists of the resolution of unanswered taxation questions. The tax research process includes the following: 1. Identification of pertinent issues; 2. Specification of proper authorities; 3. Evaluation of the propriety of authorities; and, 4. Application of authorities to a specific situation. Page 6

In order for them to have limited practice rights, the IRS requires noncredentialed tax return preparers to participate in the IRS Annual Filing Season Program. What does participation require, and why do you think the IRS has made this change?

The other major categories of tax practice in addition to tax research are as follows: • Tax compliance • Tax planning • Tax litigation ​Page 5

Tax planning

The process of arranging one's financial affairs to minimize any applicable tax liability.

Circular 230 allows an individual to represent (without compensation) an immediate family member before the IRS. True Or False

True

Document and communicate are two important aspects of tax research. True Or False

True

The tax practitioner maintains some degree of control over the attendant tax liability in an "open" transaction situation. True Or False

True

Under AICPA SSTS #2, a member does not have to answer every question on a tax return before he or she can sign the return. True Or False

True

Under AICPA SSTS #5, a member is allowed to depart from a position previously concluded in an administrative proceeding or court decision. True Or False

True

In the preparation of a tax return, a CPA may ordinarily rely, without verification, upon information provided by a client. True Or False

True. SSTS #3 and Circular 230

The tax system

derived from law, accounting, economics, political science, and sociology

Taxation

is the process of collecting revenue from citizens to finance government activities

The practice of taxation is

the process of applying the tax laws, rules, regulations, and judicial rulings to specific transactions in order to determine the tax consequences to the taxpayer involved.