Part 3 — Representation, Practices and Procedures
Part 3 tests the rules that govern an enrolled agent's professional life: the ethical duties of Treasury Circular 230, how a person becomes and remains an enrolled agent, the authorizations that let a practitioner act for a client, and the procedural machinery of examinations, appeals, collection, statutes of limitations, and penalties. Unlike Parts 1 and 2, this material is largely rule-of-law rather than dollar-figure driven, so it rewards precise memory of section numbers, deadlines, and the distinctions between similar-sounding forms and procedures. This chapter cites the controlling authority — a Circular 230 section (§10.xx) or an Internal Revenue Code section — wherever it clarifies the rule, because the exam frequently tests those exact provisions.
Circular 230: Practice Before the IRS and Practitioner Duties
Treasury Circular 230 (31 C.F.R. Part 10) governs practice before the IRS and identifies who may practice and how they must behave. Under §10.3, attorneys, certified public accountants, enrolled agents, enrolled actuaries, and enrolled retirement plan agents may practice, but only enrolled agents, attorneys, and CPAs hold unlimited representation rights — the ability to represent any taxpayer on any matter before any IRS office. Enrolled actuaries and enrolled retirement plan agents have limited rights confined to their specialties, and an Annual Filing Season Program participant has limited rights to represent clients whose returns they prepared. The core duties fall under Subpart B. Section 10.20 requires a practitioner to promptly submit records or information lawfully requested by the IRS unless the practitioner believes in good faith and on reasonable grounds that the material is privileged. Section 10.21 requires a practitioner who knows a client has not complied with the law, or has made an error or omission on a return, to promptly advise the client of the noncompliance and its consequences — the practitioner advises, but the decision to correct rests with the client. Section 10.22 requires due diligence in preparing and filing returns and in any representation, including diligence as to the accuracy of oral and written representations to the IRS and to clients. Section 10.23 forbids a practitioner from unreasonably delaying the prompt disposition of any matter before the IRS. Section 10.34 sets the standards for return positions: a practitioner may not sign a return or advise a position that lacks a reasonable basis, is an unreasonable position under §6694, or is a willful attempt to understate liability, and must inform the client of penalties reasonably likely to apply and of any opportunity to avoid them by disclosure; §10.34(d) lets the practitioner rely in good faith on client-furnished information without verifying it, but not when it appears incorrect, inconsistent, or incomplete.
Circular 230: Conflicts, Fees, Advertising, and Written Advice
Several Subpart B sections regulate the business side of practice. Section 10.29 addresses conflicts of interest: a conflict exists when representing one client is directly adverse to another, or when there is a significant risk that representation will be materially limited by the practitioner's responsibilities to another client, a former client, a third person, or the practitioner's own interest. Even when a conflict exists, the practitioner may represent the client only if the practitioner reasonably believes they can provide competent and diligent representation, the representation is not prohibited by law, and each affected client gives informed written consent — which the practitioner must retain for at least 36 months. Section 10.27 restricts fees: a practitioner may not charge an unconscionable fee and generally may not charge a contingent fee for preparing an original return; contingent fees are permitted only in narrow situations, such as representing a client in connection with an IRS examination of, or challenge to, an original return, or a claim for refund of penalties or interest. Section 10.30 governs solicitation and advertising, prohibiting false, fraudulent, or coercive marketing and requiring a practitioner who publishes a fee schedule to honor those fees for a reasonable period. Section 10.28 requires a practitioner, at a client's request, to promptly return the client's records necessary to comply with tax obligations — even in a fee dispute — though the practitioner may retain copies and, where state law permits, may keep the practitioner's own work product pending payment. Section 10.31 bars a practitioner who prepares returns from endorsing or negotiating a client's refund check. Section 10.37 sets standards for written tax advice, requiring the practitioner to base advice on reasonable factual and legal assumptions, consider all relevant facts the practitioner knows or should know, and not rely on the unreasonable likelihood that a return will not be audited; §10.36 makes a practitioner with principal authority over a firm's tax practice responsible for taking reasonable steps to ensure the firm has adequate compliance procedures. Section 10.33 describes aspirational 'best practices,' and §10.35 requires competence — the knowledge, skill, thoroughness, and preparation appropriate to the matter.
Circular 230: Sanctions and Disciplinary Proceedings
The Office of Professional Responsibility (OPR) enforces Circular 230 and has exclusive responsibility for practitioner discipline; its authority reaches conduct that violates the regulations, and, under §10.51, a broad list of 'disreputable conduct' — including conviction of a crime involving dishonesty, giving false or misleading information to the IRS, willfully failing to file one's own returns, misappropriating client funds, and knowingly giving a false opinion. Section 10.52 authorizes sanctions for willfully violating any Circular 230 provision or, for the §10.35 competence and §10.37 written-advice rules, for reckless or grossly incompetent conduct. The sanctions the IRS may impose (§10.50) are censure (a public reprimand), suspension for a fixed period, disbarment, and a monetary penalty; a monetary penalty may be imposed on the individual practitioner, and also on the practitioner's firm if the firm knew or should have known of the conduct, up to the gross income derived from the conduct. In a proceeding to censure, suspend, or disbar, the case is heard by an Administrative Law Judge, and the government generally must prove its case by a preponderance of the evidence — but by clear and convincing evidence when disbarment or suspension is sought. Section 10.82 permits an expedited suspension against a practitioner who, for example, has lost a professional license for cause or has been convicted of certain crimes. A practitioner who is suspended or disbarred may not practice before the IRS during that period, and a disbarred practitioner may petition for reinstatement only after five years and must show that reinstatement would not be contrary to the public interest. Sections 10.25 and 10.26 add situational limits — restricting former government employees from representing parties in matters they were involved with while in government, and barring a practitioner who is also a notary public from notarizing documents in a proceeding in which they are the representative.
Becoming and Staying an Enrolled Agent: Enrollment, CE, and PTIN
There are two paths to becoming an enrolled agent: passing all three parts of the Special Enrollment Examination and applying for enrollment (Form 23), or qualifying through former IRS employment that provided the requisite technical experience applying and interpreting the tax code. Every applicant must pass a suitability check, including a review of personal tax compliance. Once enrolled, an EA must renew on a staggered three-year cycle determined by the last digit of the agent's Social Security number, filing Form 8554 to renew. Continuing education is the linchpin of renewal: an EA must complete 72 hours of continuing education over the three-year enrollment cycle, averaging at least 16 hours per year, and within that total must complete a minimum of 2 hours of ethics or professional conduct each year. An EA who fails to file a timely renewal or to complete the required CE may have their enrollment placed in inactive status and cannot practice until it is restored. Enrollment and its discipline are administered by the IRS through the Office of Professional Responsibility. Separately from maintaining enrollment, any person who prepares federal tax returns for compensation — including an EA who prepares returns — must obtain and annually renew a Preparer Tax Identification Number (PTIN) and must sign the returns they prepare and furnish that PTIN. A specified tax return preparer who reasonably expects to file 11 or more covered returns in a year is subject to the e-file mandate and generally must file electronically. Keeping these two systems straight — enrollment/CE to hold the EA credential and represent taxpayers, and PTIN/signature to prepare returns for pay — is a frequent exam distinction.
Powers of Attorney and Authorizations: Forms 2848 and 8821
The two authorizations an enrolled agent works with most are Form 2848 and Form 8821, and the exam repeatedly tests their difference. Form 2848, Power of Attorney and Declaration of Representative, authorizes a named, eligible representative to represent the taxpayer before the IRS, receive confidential information, and act on the taxpayer's behalf — for example, to argue positions, agree to adjustments, sign certain documents, and receive notices. A valid Form 2848 must identify the taxpayer, the representative, and the specific matters (type of tax and form) and the years or periods covered; a general or open-ended grant is not accepted. The representative signing Form 2848 must be eligible to practice (an EA, attorney, CPA, or other §10.3 practitioner) and must sign the Declaration of Representative. Form 8821, Tax Information Authorization, by contrast, only permits the named appointee to receive and inspect the taxpayer's confidential tax information — it confers no authority to represent, advocate, or sign anything. A holder of only a Form 8821 may pull transcripts and receive notices but cannot speak for the taxpayer in an examination. The IRS records both authorizations on the Centralized Authorization File (CAF) and assigns a CAF number. A representative may have IRS notices sent to them, but even a valid Form 2848 does not let the representative do certain personal acts, such as endorsing or cashing the taxpayer's refund check or substituting another representative unless authorized. To revoke a prior power of attorney without naming a new representative, the taxpayer writes 'REVOKE' across a copy of the earlier Form 2848 and sends it to the IRS (a new Form 2848 for the same matters otherwise supersedes the old one). Distinct from both is the 'Third Party Designee' checkbox on Form 1040, which lets the IRS discuss only that specific return with the designee for a limited time — a far narrower authorization than either form.
Examinations and Taxpayer Rights
Returns are selected for examination in several ways — computer scoring that flags returns statistically likely to contain errors, document-matching of information returns (W-2s and 1099s) against the return, related-party examinations, and random compliance studies. Examinations come in escalating intensity: a correspondence examination, conducted entirely by mail, is the most common and least intrusive; an office examination requires the taxpayer to bring records to an IRS office; and a field examination, the most thorough, takes place at the taxpayer's home, business, or representative's office and is typically reserved for more complex returns. Taxpayers have statutory rights during the process. Under IRC §7521, a taxpayer may make an audio recording of an in-person interview with advance notice, and an interview generally must be suspended if the taxpayer clearly states a wish to consult a representative; the IRS also cannot require a taxpayer to attend in person if a qualified representative appears with a valid power of attorney. Under IRC §7491, the burden of proof may shift to the IRS in a court proceeding if the taxpayer introduces credible evidence, has complied with substantiation and recordkeeping requirements, and has cooperated with reasonable IRS requests. The repetitive-audit rule offers relief where the IRS examined the same items in either of the two preceding years and proposed no change. At the conclusion of an unagreed examination, the IRS issues an examination report and a 30-day letter proposing adjustments and explaining the taxpayer's right to appeal, which sets up the appeals and litigation choices covered next.
Appeals and Litigation
A taxpayer who disagrees with proposed adjustments may take the dispute to the IRS Independent Office of Appeals, whose mission is to resolve controversies without litigation on a basis that is fair and impartial to both the government and the taxpayer, weighing the hazards of litigation. To obtain an Appeals conference in response to a 30-day letter, a taxpayer generally files a written protest, though a small-case request suffices when the disputed amount for the period does not exceed the statutory small-case threshold. If Appeals cannot resolve the matter — or the taxpayer bypasses Appeals — the IRS issues a statutory notice of deficiency (the '90-day letter') under IRC §6212. This notice is the taxpayer's ticket to the United States Tax Court: under IRC §6213, once the notice is mailed the IRS generally may not assess or collect the deficiency for 90 days, and if the taxpayer petitions the Tax Court within that period, assessment is barred until the court decides. The Tax Court is the only forum in which a taxpayer can litigate before paying the tax. A taxpayer whose deficiency for a year does not exceed a statutory limit may elect the Tax Court's simplified small tax case ('S case') procedures, which are less formal but yield a decision that cannot be appealed. Alternatively, a taxpayer may pay the tax, file a claim for refund, and — if the claim is denied — sue for a refund in a United States District Court or the Court of Federal Claims, forums that require full payment first but allow a jury (District Court) or specialized claims jurisdiction. Choosing the forum is a strategic decision an enrolled agent helps frame, balancing the pay-first requirement, the availability of a jury, and the governing appellate precedent.
Collection: Liens, Levies, Installment Agreements, and Offers in Compromise
Once a tax is assessed and the taxpayer fails to pay after notice and demand, the collection machinery begins. A federal tax lien arises automatically under IRC §6321 and attaches to all of the taxpayer's property; the government perfects its priority against other creditors by filing a Notice of Federal Tax Lien under §6323 in the public record. A levy, by contrast, is the actual seizure of property — wages, bank accounts, receivables — to satisfy the debt, so a lien is a claim while a levy is a taking. Before most levies, IRC §6330 requires the IRS to send a Final Notice of Intent to Levy giving the taxpayer 30 days to request a Collection Due Process (CDP) hearing; §6320 gives a parallel CDP right after the filing of a lien notice. Requesting a CDP hearing within the 30-day window (rather than an 'equivalent hearing' later) preserves the taxpayer's right to judicial review in the Tax Court and generally suspends levy action and the collection statute during the hearing. At a CDP hearing the taxpayer may raise collection alternatives, spousal defenses, and, in limited circumstances, the underlying liability, but cannot use it to relitigate a liability already subject to a notice of deficiency. Collection alternatives are central to representation practice. An installment agreement under IRC §6159 lets a taxpayer pay the liability over time in monthly amounts. An offer in compromise under IRC §7122 lets the IRS settle for less than the full amount on one of three grounds: doubt as to collectibility (the taxpayer cannot pay the full amount, measured by reasonable collection potential — net realizable equity in assets plus future income), doubt as to liability (genuine dispute about whether the tax is owed), or effective tax administration (collection would create economic hardship or be unfair despite the tax being owed and collectible). A lump-sum cash offer requires a partial payment with the application. When a taxpayer cannot pay anything without financial hardship, the IRS may place the account in currently-not-collectible status, pausing active collection while the underlying liability and the collection statute continue. Innocent spouse relief under IRC §6015 may relieve a requesting spouse from joint and several liability on a jointly filed return in defined circumstances.
Statutes of Limitations: Assessment, Collection, and Refund
Three limitation periods structure every controversy, and the exam expects the numbers cold. The general assessment statute under IRC §6501 gives the IRS three years from the later of the return's due date or its actual filing to assess additional tax. The period extends to six years when the taxpayer omits gross income exceeding 25% of the gross income stated on the return (a substantial omission). There is no statute of limitations at all — assessment may occur at any time — when no return is filed, when a false or fraudulent return is filed with intent to evade tax, or when the taxpayer willfully attempts to defeat the tax. Once a tax is assessed, IRC §6502 generally gives the IRS ten years to collect it; that 10-year collection period can be suspended or extended by events such as a pending offer in compromise, a CDP hearing, bankruptcy (with a statutory add-back), or the taxpayer's absence from the country. On the taxpayer's side, IRC §6511 requires a claim for credit or refund to be filed within the later of three years from the date the return was filed or two years from the date the tax was paid; even a timely claim is limited by the 'lookback' rule of §6511(b), which caps the refund to tax paid within the applicable three- or two-year window before the claim. Two mechanical rules round out the topic: under the 'timely mailing is timely filing' rule of IRC §7502, a return or claim postmarked on or before the due date is treated as filed on the mailing date, and an amended individual return claiming a refund is filed on Form 1040-X. Mastering which clock applies — and when it never starts (fraud, no return) or is tolled — lets an enrolled agent tell a client whether the door to assessment, collection, or refund is still open.
Penalties and Taxpayer Rights
The penalty regime divides into taxpayer penalties and preparer penalties. Among taxpayer penalties, the failure-to-file penalty under IRC §6651(a)(1) is 5% of the unpaid tax per month (or part of a month), up to 25%, while the failure-to-pay penalty under §6651(a)(2) is 0.5% per month up to 25%; when both apply in the same month the failure-to-file penalty is reduced by the failure-to-pay penalty, and a return filed more than 60 days late carries a statutory minimum penalty. The accuracy-related penalty of IRC §6662 is 20% of the underpayment attributable to negligence, disregard of rules, or a substantial understatement of income tax — for an individual, a substantial understatement generally means the understatement exceeds the greater of 10% of the correct tax or $5,000. The §6662 penalty does not apply to a portion of an underpayment for which the taxpayer had reasonable cause and acted in good faith, or (for many positions) adequate disclosure and a reasonable basis. The civil fraud penalty of IRC §6663 is far harsher — 75% of the underpayment attributable to fraud. IRC §6654 imposes the individual estimated-tax underpayment penalty, and §6601 charges interest on underpayments from the due date until paid. Preparer penalties parallel these. IRC §6694(a) penalizes a preparer for an understatement due to an unreasonable position — generally one lacking substantial authority (or, if disclosed, a reasonable basis) — and §6694(b) imposes a larger penalty for an understatement due to willful or reckless conduct. IRC §6695 covers a checklist of procedural failures: failing to sign the return (§6695(b)), failing to furnish a PTIN, failing to provide a copy to the taxpayer, failing to keep records, and — importantly — the §6695(g) due-diligence penalty for failing to meet the knowledge and documentation requirements when claiming the EITC, CTC, education credits, or head-of-household status; §6695(f) penalizes a preparer who negotiates a client's refund check. Sections 6700 and 6701 penalize promoters of abusive tax shelters and those who aid in understating another's liability, and §6713 and §7216 penalize the unauthorized disclosure or use of taxpayer information. Underlying all of this is the Taxpayer Bill of Rights, adopted by the IRS and codified in IRC §7803(a) — ten fundamental rights including the right to be informed, to quality service, to challenge the IRS's position and be heard, to appeal, to finality, to privacy and confidentiality, to retain representation, and to a fair and just tax system — supported by the Taxpayer Advocate Service, an independent organization within the IRS that helps taxpayers experiencing hardship or unresolved problems.
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