Part 3: Representation, Practices and Procedures
Part 3 tests practice before the IRS: the rules of Circular 230, practitioner ethics and penalties, powers of attorney, examinations and appeals, collection, and recordkeeping. This chapter reviews the standards that govern an enrolled agent's professional conduct.
Circular 230 and Practice Before the IRS
Treasury Circular 230 sets the rules governing practice before the IRS by enrolled agents, attorneys, CPAs, and others. Practitioners must exercise due diligence, may not charge unconscionable or, in most cases, contingent fees, must promptly submit records requested by the IRS, and must promptly advise a client of any error or omission on a return. Enrolled agents have unlimited representation rights, meaning they can represent any taxpayer on any tax matter before any IRS office.
Powers of Attorney and Authorizations
Form 2848, Power of Attorney and Declaration of Representative, authorizes a practitioner to represent a taxpayer and to receive confidential tax information and act on the taxpayer's behalf. Form 8821, Tax Information Authorization, allows a person only to receive and inspect confidential information, not to represent the taxpayer. A power of attorney must specify the matters and years covered, and a practitioner may not disclose taxpayer information without proper authorization.
Examinations, Appeals, and Collection
If the IRS examines a return and proposes changes, the taxpayer may agree or appeal. The IRS Independent Office of Appeals offers an impartial review, and a taxpayer who disagrees with a statutory notice of deficiency may petition the U.S. Tax Court without first paying the tax. In collection, the IRS can use liens and levies, but taxpayers have rights, including installment agreements, offers in compromise, and collection due process hearings.
Preparer Duties and Penalties
Paid preparers must sign returns, furnish a Preparer Tax Identification Number (PTIN), and keep required records. Penalties apply for understatements due to unreasonable positions, willful or reckless conduct, failure to exercise due diligence on certain credits, and disclosure or use of taxpayer information without consent. An enrolled agent must maintain competence, avoid conflicts of interest without informed consent, and complete required continuing education to retain enrollment.