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Congratulations you’re studying for REG (Yay!!!). In an effort to spread free CPA knowledge I’ll be releasing articles that will cover everything you need to know for the CPA exam.

Not too many people know this but the AICPA releases Uniform CPA Examination Section Blueprints which tell you everything that will be tested on the exam. I’ll use this as a checklist and will cover these subjects in detail. Not heavy on the jargon and straight to the point – here is everything you’ll need to pass the exam in an easy to understand way!

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Here are the learning outcomes for today’s lesson:

Circular 230

The IRS has rules on who can “practice” before the IRS. This basically means anyone who files documentation to the IRS or talks to the IRS must abide by these rules.

Who may practice before the IRS?

• Attorneys
• CPAs
• Enrolled Agents
• Enrolled Actuaries
• Enrolled Retirement Plan Agents

Comply With IRS Request

If the IRS asks for information, you probably should send it to them. There are some cases where it’s “privileged” information but for the most part you should comply with IRS request.

You Don’t Have to Tell the IRS Everything

If your client made a mistake that needs correcting you don’t have to be a tattle tale. You simply communicate the issue with your client but you don’t have any obligation to tell the IRS that they messed up.

Due Diligence…. DUH!!

Due diligence is key! Make sure you dot your eyes and cross your Ts

Be Timely

Be timely with the IRS. If the IRS request information you should comply with their deadlines.

Avoid Troublemakers

Don’t work with people who are disbarred from practicing before the IRS.

Former IRS Agents

If an IRS agent quit they shouldn’t work for someone they audited (looks a little sketchy)

Notaries

You can’t notarize your own documentation to the IRS.

Rules on Fees

1. Don’t charge “unconscionable” fees
2. You can’t charge contingent fees. “I’ll charge you 10% of your tax refund,” or “the IRS is auditing you for $20,000. every dollar that I reduce I’ll take a 10% cut.” These are prohibited.

Return Your Client’s Records

If your client ask for their information back, you should probably give it back. Even if they don’t pay your invoices for preparing them, you should at a minimum give them the information that needs to be attached to their return.

Conflicts of Interest

1. You can’t represent a client if it means it would adversely impact another client (this is big for clients who are getting divorced).
2. Although there are ways around this:
   • you reasonably believe you can be neutral
   • the representation is not prohibited by law
   • and each party signs a waiver and you keep it for 36 months

Advertising/Soliciting

This is a no brainer… you can’t put out false advertising such as guaranteeing a refund.

Negotiating Checks

You shouldn’t deposit client’s refunds into your bank account. 

Best Practices

1. Communicate with your client
2. Establish the facts, for any tax position you take with a client (we’re taking this deduction because…)
3. Advise your client on tax positions you’re taking
4. Act fairly
5. Put procedures in place to comply with best practices

Signing Tax Returns

1. Don’t advise clients to do illegal things – “deduct all your personal expenses… I won’t tell anyone.”
2. Tell your client the ramifications of a tax position – “If you get audited this may be disallowed.”
3. You can rely on good faith information your client gives you. If a client tells you they paid $10,000 in real estate taxes and it’s consistent with underlying information then you can take their word.

Competence

Be competent. Seriously, do your due diligence and be reasonable. If your client wants to write off all their personal expenses then inform them this is not advisable under IRS regulations.

Sanctions

The IRS will punish practitioners who do bad things. These penalties can be as high as 150% of gross income derived from stated services. For example, if you charged a client $1,000 to do their tax return and you were fraudulent then the IRS could charge you $1,500 in penalties and disbar you from practicing.

Conclusion

This is all pretty straightforward so just know the basic facts. Don’t memorize this too much and just use common sense. If it sounds illegal it probably is illegal. If a reasonable person said, “this is not ok” then it’s probably not ok. Oh by the way, this is where I got this information from (click here). Until next time.