Transcript Slide 1

EA Exam Lite
Part 3
Representation, Practice
and Procedures
1
Topic 1
Practice Before the
IRS & Unenrolled
Preparers
2
1A Acts Constituting Practice
Before the IRS
 Circular 230 – Rules for enrollment and renewal
 Tax Returns - Include amended returns & claims
 Practice Before IRS – All matters related to
representations to IRS for clients
 Includes – Communicating with IRS, represent
at hearings (but not Tax Court), prepare and file
documents with IRS for client
 Does Not Include – Preparing tax return, or
furnishing information at request of IRS
 Question 1
3
1B Automatic Categories of
Representation Before IRS
 Circular 230 – Provides certain automatic
privileges to represent taxpayers
 Automatic Categories – Include:
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Attorneys in good standing
CPAs in good standing
Enrolled agents
Enrolled actuaries (only for areas of expertise)
 Question 2
4
1C Unenrolled Individuals Who
May Practice Before IRS
 Unenrolled Preparer – Not automatic;
 Only represent for tax return prepared
 Only appear before IRS Examination Division
 Duties Not Allowed – Sign claims, receive refund
checks, or sign consents, closing agreements,
or waivers of assessment
 Other Enrolled Individuals Qualifying – With ID,
can qualify: self-represent, family member,
officer, partner, alien, employee, trustee/
guardian, and others if IRS authorizes
 Question 3 and Question 4
5
1D Individuals Who May NOT
Practice Before IRS
 Ineligible Individuals – Include:
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Criminal offense convictions
Convictions for dishonesty/breach
Disbarred/ suspended individuals
Individuals denied application
Officers & employees of U.S., state, Congress
(if compensated)
 Question 5 and Question 6
6
Topic 2
Enrollment to
Practice and CPE
Requirements
7
2A Enrollment – Basic Privilege
 General Enrollment – Passing EA exam (duh!),
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or past IRS technical experience requirements
Director of Practice – May grant temporary
enrollment (may assist enrolled reps)
Denial of Application - 30 days to appeal – Treas
Automatic Enrollees – (CPA, Attorney, etc.) - File
written declaration with IRS, may represent
conflicting interests if all consent.
Representatives – Bound by Circular 230
Question 7 and Question 8
8
2B Enrollment Cycles and
Renewals
 Enrollment Cards – By Director of Practice
 Enrollment Period – 3-year cycles; each begins
April 1st (last begin 4/1/2005)
 Renewal Period – November 1st – January 31st
of last year of current period (last was 11/1/2004
– 1/31/05)
 Staggered Renewal Schedule – By last digit of
SS#, either 2007 (0-3), 2008 (4-6), or 2009 (7-9)
 Question 9 and Question 10
9
2C Enrollment CPE
Requirements
 Enrollee – Must certify CPE requirements are
met in each enrollment year (4/1 – 3/31), and
keep records for 3 years afterward
 Specific CPE Requirements:
 72 hours during each 3-year cycle
 16 hours minimum completed in each year (2 ethics)
 2 hours for each month if enroll during cycle
 Instructing/Preparing Courses – Up to 50% CPE
 Question 11 and Question 12
10
2D Failure to Comply With CPE
 Failure to Comply – Procedures are:
 Notice from Director of Practice
 60 days to respond,
 If no response, then placed into inactive
status for 3 years
 Question 13
11
Topic 3
Power of Attorney
Issues
12
3A – Scope of a Power of
Attorney
 Power of Attorney – Written authorization to act
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on someone else’s behalf for tax
Required – To represent taxpayer at conference
or file written response to IRS
Permissible – Represent TP; record interview;
sign waiver, consent, & closing agreements; and
receive but not endorse refund check
Taxpayer - receives documents, not represent.
Question 14 and Question 15
13
3B Powers of Attorney – Special
Restrictions
 Signing return – Not allowed unless
specifically authorized by taxpayer
 Other Limitations – Substitute another rep
only if allowed by PA, put in CAF, PA not
required for info disclosure (only Form
8821), and is not required for attorney in
Tax Court or by fiduciary,
 Taxpayer – May revoke the PA
 Question 16
14
3C Power of Attorney – Form
2848 Requirements
 Form 2848 (POA) – Requires ID, name, CAF #,
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type of tax, forms, years covered
Required Attestations – Qualified, aware of
Circular 230, not disbarred, represents TP
Signatures on 2848 – Individuals (just sign), joint
(sign only for TP rep), corp (officer), association
(officer), p’ship (all)
Fiduciaries – do not need POA (File Form 56)
More Than One Rep – Unless designated, IRS
will send communication to 1st name, latest date
Questions 17 and 18
15
3D Changes in a Power of
Attorney
 Update POA – Write IRS where POA was filed,
or simply file a new POA
 Revoking POA (and not Issuing New) – Either:
 Send copy of 2848 to original IRS office & service
center, write REVOKE top center, sign, or
 File revocation statement to same place, sign
 New POA – Revokes prior POA (but has no
effect on tax information authorization)
 Inadequate Info on POA – Amend with new
 Question 19 and Question 20
16
Topic 4
Tax Information
Authorizations
(TIAs) and Central
Authorization Files
(CAFs)
17
4A Enrollment – Tax Information
Authorizations
 Form 8821 – Required for TIA (not a POA)
 TIA Disclosure – Does NOT have to be to
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an authorized or enrolled representative
TIA Form – NO effect on TP rep. or POA
TIA Info – Added to CAF for distribution
Required Info – Generally same as POA
Question 21 and Question 22
18
4B Central Authorization Files
 CAF – Automated file containing info on TP reps
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authorized as POA or TIA (3 maximum)
Use by IRS – Determine if rep may receive
confidential information or other notices (for a
specific time period only)
CAF – Does NOT authorize a person to practice
before IRS
Durable Power of Attorney – Must also have a
Form 2848 to insure entry in CAF
Question 23 and Question 24
19
Topic 5
Administrative
Proceedings for
Complaints Against
Enrolled Agents
20
5A – Enrollment – Disreputable
Conduct
 Disciplinary Action – for disreputable conduct
 Disreputable Conduct – Includes criminal
offense, false info, unlawful soliciting, failure to
file or pay tax, bribe IRS, embezzle, disbarred,
aided suspended practitioner, false opinion,
contemptuous conduct with IRS
 Enrollee – Has obligation to inform IRS of
Circular 230 violation, unless request violates
confidentiality or is of doubtful validity
 Question 25 and Question 26
21
5B Complaints Against Enrolled
Agents
 IRS or Others – File complaint to the Director of
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the Office of Professional Responsibility (OPR)
DP – Either reprimand or institute proceedings
Complaint – Describes (mail or personally) an
allegation, enrollee response within 15 days
Practitioner – Responds in writing to each
specific complaint (default if not), may appear in
person or with rep (does not have to be enrolled)
OPR – Maintains roster of disbarred or
suspended practitioners and appraisers
Question 27 and Question 28
22
5C Enrollment – Hearing on
Suspension or Disbarment
 Adm. Law Judge – default if TP not there
 Each Party – Submits proposed findings & concl
 ALJ Decision – disbar/suspend/reprimand or
dismissal; findings/conclusions filed with
Director, OPR; notice to IRS personnel
 Appeals- W/I 30 days by either party to Treasury,
other party has 30 days to reply, final decision by
Sec. of Treasury
 Disbarred – Apply with OPR only after 5 years;
may prep returns during 5 yrs, but not represent
 Questions 29, 30, 31 and 32
23
5D Assistance From
Disbarred/Suspended Persons
 Assistance From D/S Person– not allowed
(knowingly), either directly or indirectly
 EA – May not accept employment from a
D/S person
 Former Gov’t Employee – EA may not
accept assistance if this person violates
Circular 230 rules on separation from
service (e.g., old cases)
 Question 33
24
Topic 6
Electronic Filing –
Special Issues
25
6A Electronic Filing (EF) –
Business Filing
 EF – Required if partners > 100
 Form 941 –EF or Phone (Telefile Tax Rec)
 EFTPS – Payments may be direct,
financial institutions, or same day
 Form 9979 – Bus. enroll., PIN # rec’d.
 Form 8633 – EF Application, EFIN # rec’d.
 Question 34
26
6B Electronic Filing (EF) –
Paying Tax
 Authorized IRS e-file Provider – Electronic
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Return Originator (ERO), Intermediate Service
Provider (ISP), transmitter, software developer,
or reporting agent
Registration- By principal or resp. individual
Removal From EF – no efile for 2 years (60 day)
30 Days to Appeal – For denied applicants (2nd)
Pay Tax – Direct debit, Credit card, check,
installment agreement request
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6C Electronic Filing – Signature
Responsibilities
 E-file Providers (except software) – Tax
preparers subject to all rules
 Nonstandard Form Code – entered for
altered W-2’s
 TP Signature – Form 8453 or file Form
8879 for electronic PIN signature (TP may
self select with date of birth and AGI info)
 Paper Documents – Attach to 8453 (W-2)
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6D Electronic Filing – Sanctions
 ERO – Provides paper copy & 8453 to TP, mail
8453 within 3 days, retains copies until end of yr,
informs TP direct deposit not rescinded
 Violations of E-file Rules – Warning/sanction
(sanctions effective 30 days after warning)
 Levels of Sanctions – One (little impact, letter or
warning), Two (adverse impact, restrict or
suspend) or Three (significantly adverse, suspend current year plus 2 years, then expulsion)
 Question 35
29
6E Electronic Filing – Special
Returns
 Returns Ineligible for E-file – Prior years,
fiscal years, amended, M/S in communityproperty states, nonprocessible forms,
certain TINs (900-999), rare/unusual
 Returns With Substitute W-2, W2-G, or
Form 1099-R – Cannot be transmitted until
February 15th
 Question 36
30
6F Electronic Filing – Rejected
Returns
 Completed Form 8453 – Must generally be
submitted within 24 hrs. of accepted EF
 If EF rejected – Notify TP within 24 hours
with the reject codes (if < $50 income or <
$14 difference, no signatures necessary)
 Changes – Normally corrected & transmit;
new Form 8453 only if substantive change
 Question 37
31
6G Electronic Filing –
Advertising
 General Adv. Restrictions – Most apply to EF
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also
Broadcast Commercials – Keep copy until end
of year following the last broadcast
E-File Promotional Kit – Furnished by IRS, may
be incorporated into ads
Slogan – “Authorized IRS e-file Provider”
If Cooperative Project – List all parties
Question 38
32
6H Electronic Filing – Refund
Anticipation Loans
 RALs – Loan to TP from lender based on antici
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pated refund: IRS not involved in any manner
ERO – Must explain (int. bearing), include all
RAL indicators on return, may disclose financial
information only with TP written consent
ERO & Lending Institution – May not be related
Fees – ERO may charge flat fee to assist,
identical for all, no sharing fees w/ lender (other
than flat fees lenders charge clients for RALs)
Question 39
33
6I Electronic Filing – Fee
Structure
 ERO Fees – May not base fees on % of
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refund or on amounts on return
Direct Deposit – No separate fee for this
Refunds – May not be direct deposited to
credit card accounts
ERO Caution – Advise TP that some
financial institutions do not permit deposit
of joint refunds into individual accounts
Question 40
34
Topic 7
IRS Audits and
Notices of
Deficiency
35
7A IRS Audits – Transfers to
Another District
 General Audit Rule – Audit performed in
taxpayer’s district
 Exception – If return can be examined
more quickly and conveniently in another
district (e.g., location of TP’s books and
records), then transfer is allowed
 Question 41
36
7B IRS Audits – Repetitive Audits
 Repetitive Audits – When TP examined for
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the same items in either of two previous
years and no change in liability
TP – May contact IRS to request that the
exam be discontinued
TCMP Returns – Not covered by this rule Taxpayer Compliance Measurement Prog.
IRS – Always has the right to reopen exam
Question 42
37
7C IRS Audits – Recordings and
Taxpayer Rights
 Recordings – 10-day advance notice to other
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party, provide own equipment
TP – May represent self, or may bring enrolled
practitioner or nonenrolled return preparer
IRS – Provide Pub. 1 (Rights) to TP before audit
Info From 3rd Parties – IRS must give prior
notice to TP unless criminal case, in jeopardy,
possible reprisal, or TP consent
Taxpayer Assistance Order to TP – May be
issued from TP Advocate Office, if sign. hardship
Question 43
38
7D IRS Audits – Interest Charges
 Interest – Due on deficiency & penalties from
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due date of return until notice issued
No Add’l Interest – If paid w/i 10 days after
receipt of notice (21 days if < $100,000)
TP Deposit – Stops interest on that amount only
Amounts Sent by TP – Treated as payment
against deficiency unless written notice to treat
as a bond (deposit); if “payment” sent the full
deficiency, no notice mailed (and NO Tax Court)
IRS Abatement – For errors, delays, etc., TP
must file Form 843 (global netting rule available)
Question 44
39
7E Statutory Notice of Deficiency
– Basic Procedures
 30-Day Letter & Proposed notice of deficiency with offer of conference on proposed audit adj.
 Requirements for Appeal – If deficiency is:
 > $2,500 – Need only letter explaining reason
 <= $2,500 – No letter/protest needed; notification only
 > $25,000 – Formal written protest required
 90-Day Letter and Statutory Notice – To TP if no
response to 30-day or no settlement—90 days
to pay or file to Tax Court (issued w/i 3 yrs due)
 If Paid After Notice Rec’d – Tax Court still option
 Question 45
40
7F Statutory Notices of
Deficiency and Court Options
 Tax Court – Only option TP does not have to pay
first (but TP must file petition within 90 days after
receiving the Statutory notice)
 District Court or Court of Claims – TP must pay
first and file claim for refund (TP may ask that
claim be immediately rejected)
 Once Claim Is Denied (or if no IRS Action in 6
months) – Suit may be filed in U.S. District Court
or Claims Court no later than 2 years after IRS
notice of rejection
 Question 46 and Question 47
41
Topic 8
IRS Appeals
Procedures and
Court Options
42
8A IRS Appeals Procedures and
Written Protest Requests
 Appeals Conference – If TP responds within 30
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days
Protest – Required if case > $25,000 (or has
p’ship or S Corp.); need sworn statement w/
signature (TP or rep)
If Case > $2,500 <= $25,000 – May be
designated “small case”, requires letter with
reasons for position (otherwise, protest req.); if <
$2,500, notification only
TP – May represent self, use rep, or preparer
Question 48 and Question 49
43
8B IRS Appeals Procedures –
Waivers and Burden of Proof
 IRS Appeals – Not necessary for court
 Notice of Deficiency – May not appeal on
religious, political, conscientious grounds
 TP – May request to waive 30-day period, and
ask that claim be rejected (save time)
 Burden of Proof – TP may ask Court to shift to
IRS on any factual issue if “credible evidence”
offered (records, cooperative, and net worth <
$7 million if corp, p’ship, or trust)
 Question 50 and Question 51
44
8C U.S. Tax Court – Small Case
Procedure
 If Deficiency < $50,000 – Taxpayer may
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ask for TC Small Case Division ($60 fee)
Small Case – Legal rep not required,
evidence rules relaxed, judge is usually an
experienced lawyer
No Appeal – If TP loses the case
Figure 1
Question 52
45
8D U.S. Tax Court – Basic
Procedure
 TC – 19 judges, appointed to 15-yr. terms
 Characteristics – Do not have to pay first, no
jury, appeals to TP’s U.S. Circuit; case heard by
Associate Judge, refers to Chief Judge, who
may submit to all 19 judges (en banc) for review
 Once Case is Docketed – TP must have a
lawyer or someone who passed TC exam (no
power of attorney needed); EA does not qualify
 Employment Tax Cases – TC hears only status
cases (employee or IC), various requirements
 Question 53
46
8E U.S. Tax Court Decisions
 TC Chief Judge – Labels each decision as either
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 Regular Decision (law point, pub. by Gov’t.)
 Memorandum Decision (facts, not published)
Board of Tax Appeals (BTA) – Pre-42 TC
Acquiescence – IRS may announce it will abide
by a unfavorable court decision (Rev. Rul.)
Nonacquiescence – IRS may announce it will
continue to contest unfavorable dec. (Rev. Rul.)
Acq/Nonacq Policy – Now applies to all courts
Question 54
47
8F U.S. District Court and U.S.
Court of Federal Claims
 All Courts – Either party may appeal, stare
decisis rule, dicta issued (explanatory fact), may
overturn Regulations, and TP has 2 years to file
suit in DC or FC
 DC – 13 federal circuits, 94 districts; pay first,
court hears all types of cases, jury trial for facts
(not law), appeal to appropriate Circuit
 FC – National court, 16 judges, hears all types
of claims, appeal to CA for Fed. Circuit, no jury
 Question 55 and Question 56
48
8G U.S. Courts of Appeal and the
U.S. Supreme Court
 Circuit Courts of Appeal – 13 circuits (12
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geographical, plus CA for Federal Circuit); 3
judges will either affirm, reverse or remand; not
required to follow other circuits; appeal to U.S.
Supreme Court
U.S. Supreme Court – 9 judges appointed for
life, 4 judges req. for granting certiori, few tax
cases (circuits conflict, or novel tax issue)
Dicta – Statements of fact (not precedent)
Figure 2
Question 57 and Question 58
49
Topic 9
Tax Preparers –
Definition and
Possible Penalties
50
9A Income Tax Preparer –
Definition
 ITP – Anyone who prepares or hires one to
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prepare for compensation an income tax return,
substantial part or return, or refund claim
Includes – Employer, employee, S/E person, but
normally not a fiduciary
“Substantial Portion” – Does not include amt. <
$2,000 or <$100,000 and < 20% GI
Signer of Return – Not automatically ITP
Question 59
51
9B Identifying Preparers
 Employer of Person Preparing Return – Is
automatically an income tax preparer
 Employee – Is not an ITP for purposes of
preparer penalties
 ITP & Supervisory Advisor – May be
subject to preparer penalties (below)
 Questions 60 and Question 61
52
9C Preparer Penalties – Sec.
6694(a) Understatement of Tax
 $250 Penalty – Per occurrence for any tax
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understatement due to unrealistic position (e.g.,
not having substantial authoritative support)
“Unrealistic Position” – Not having realistic
probability (1 in 3) of being sustained (Note – will
be “more likely than not” standard in 2008)
Waiver of Penalty – If position is “not frivolous”
(<5%) & fully disclosed on return
Figure 4
Question 62 and Question 63
53
9D Preparer Penalties – Sec.
6694(b) Willful Understatement
 $1,000 Penalty – For reckless disregard of rules,
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willful understatement of tax
Required – Intentional disregard of TP’s facts &
information, burden on preparer
Imposition of Penalty – On actual preparer and
not employer, no statute of limitations
Both Penalties – Unrealistic position and
intentional disregard may apply at same time;
willful understatement penalty reduced by any
unrealistic position penalty
Questions 64 and 65
54
9E Tax Preparer Penalties – Sec.
6694 Payments by Preparers
 Preparer – May appeal 6694 assessments
 Appeals Procedure – Pay at least 15% of
assessment within 30 days of notice and
file a claim for refund
 If Preparer Wins Appeal – Penalty will be
abated and refunded
 Question 66
55
9F Tax Preparer Penalties –
Unauthorized Disclosures
 Civil Penalty - $250 per use ($10,000 maximum)
 Criminal Penalty – Reckless disclosure,
misdemeanor (up to 1 yr. prison, $1,000);
preparer def’inition much broader (e.g., clerk)
 Not Subject to Penalty – Code-required , client
permission, or court-ordered (not just subpoena)
 Client Death – Share info only with legal
fiduciary of the estate
 Question 67
56
9G Tax Preparer Penalties –
Earned Income Credit
 Due Diligence – In determining eligibility
 $100 Penalty – Each failure to exercise
due diligence with E/I credit compliance
 Penalty – Can be in addition to willfulness
or unreasonable position penalties
 Records – Preparer must retain eligibility
checklist, worksheet, info on TP providing
information; retain for each client using cr.
 Question 68
57
9H Tax Preparers – Who Must
Sign the Return
 Primary Tax Return Preparer – Must sign; no facsimile,
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one individual treated as preparer (one with primary
responsibility for overall accuracy, not math); a reviewing
supervisor may sign (if OK w/ TP)
Signing Preparer - may represent TP at IRS if not EA
Substitute – Sign if original preparer not available, if
thorough review of information & tax forms
Signing – Preparer must sign before giving return to TP,
copy OK if signed by TP, sign Form 8453 if electronic (or
include signed copy)
Question 69, 70 and 71
58
9I Tax Preparers – Penalty for
Failure to Sign a Return
 Preparer – Must sign return and provide a
copy to the taxpayer
 $50 Penalty – For failure to sign a return
or claim as required by Regulations
 $25,000 – Maximum total fine in one year
59
9J Tax Preparer Penalties –
Failure to Furnish Copies to TP
 Completed Copy – Must be furnished to
TP no later than when presented to TP for
signature
 Penalty - $50 per failure, $25,000 max. yr.
 Reasonable Cause – May escape penalty
 Question 72
60
9K Preparer Penalties – Failure
to Retain Copies or Records
 Copy of Return – Must be retained
 Alternative List – Preparer may instead
retain a list (for 3 yrs) of name, ID number,
and type of return for each person’s return
 Penalty - $50 per failure, $25,000 max. per
year
 Reasonable Cause – May escape penalty
 Question 73 and Question 74
61
9L Tax Preparer – Failure to
Retain Employment Records
 Required – Retain a list of all persons employed
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by TP to prepare returns/claims
Retention – Keep for 3 yrs after next 7/1
Info Req. – Name, ID #, Place of work
Penalty - $50 per failure, $25,000 maximum yr.
Reasonable Cause – May escape penalty
Each Preparer – Must furnish their ID # and
employer ID # on each return prepared
($50/$25,000 fine for noncompliance)
Question 75
62
9M Basics - Preparer Penalty for
Endorsing/Negotiating Refunds
 Power of Attorney – May be used by TP to
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authorize representative to receive a tax refund
check on his or her behalf
Preparer – Can NEVER be authorized to
endorse or otherwise cash a tax check
Circular 230 – Clear prohibition for attorney,
CPA, EA, or enrolled actuary
$500 Penalty – For each violation (does not
apply to deposit of full amount in TP’s account
by a bank)
Question 76
63
9N Penalty for Endorsing/
Negotiating Refund – Special
 Tax Preparer – May receive the check and
deposit the full amount for the taxpayer,
with a power of attorney
 Check-Cashing Business – May be owned
by taxpayer if not related in any way to the
tax preparation business
 Questions 77 and 78
64
Topic 10
Tax Advice and
“Covered
Opinions”
65
10A Covered Opinions Defined

Definition – A covered opinion is written advice
from a practitioner concerning one or more
federal tax issues arising from:
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A tax avoidance transaction identified as a listed
transaction in Reg. Sec. 1.6011-4
Any plan or arrangement with the principal
purpose of tax avoidance or evasion
Any plan or arrangement with the significant
purpose of tax avoidance or evasion (automatic
for four types of opinions listed below)
66
10B Classifying Opinions With a
Tax Avoidance Purpose
 Four Opinions Automatically Presumed to Have
a Sign. Tax Avoid/Evasion Purpose:
 Reliance – Concludes with >50% success
 Marketing – Someone else will promote/mkt.
 Confidentiality – Practitioner imposes disclosure
limitations on advice
 Contractual Protection – Fee refund arrangement if
advice is not successful
 “Legend” – Avoid penalty w/ disclaimer
 Question 79 and Question 80
67
10C Compliance & Disclosure
Req. for “Covered Opinions”
 Key Disclosures – (1) Identify relevant facts, (2)
relate law to facts, (3) evaluate & discuss
significant tax issues (must ignore audit lottery),
and (4) overall conclusion
 Tax Issue Discussion – Should also discuss &
evaluate areas with negative conclusion and
areas with no conclusion
 Prominent Disclosures – Required for special
fee arrangements, limited scope engagements,
and marketing purpose (if a marketing opinion)
68
10D Exceptions to the Covered
Opinion Rules
 Exceptions to the Covered Opinion Rules 
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Written advice to be followed with subsequent advice
Advice on pension plans, bond issues, or SEC filings
Advice after return is filed (usually amended)
Advice from employee to employer on taxes
Negative advice (issue not likely in TP favor)
 Other (Non-covered) Advice – Should not rely on
clearly unreasonable factual or legal
assumptions
 Question 81 and Question 82
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Questions?
As Time Permits
Contact:
John Everett
Professor of Accounting
Virginia Commonwealth University
[email protected]
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