Enrolled Agent (EA) Part 3 — Representation, Practices, and Procedures Syllabus

How many continuing education (CE) hours must an Enrolled Agent complete to maintain enrollment?

72 hours per three-year enrollment cycle, with a minimum of 16 hours each year, including at least 2 hours of ethics (professional conduct) each year.

How often must an Enrolled Agent renew enrollment, and using what form?

Every three years using Form 8554 (Application for Renewal of Enrollment to Practice Before the IRS); the renewal cycle is based on the last digit of the EA's Social Security number.

What happens to an EA's enrollment status if CE requirements are not met?

The EA can be placed in inactive status; they cannot practice while inactive and must complete CE and reapply to return to active status (after 3 years of inactivity, enrollment may be terminated requiring re-examination).

What are the three main types of IRS audits/examinations?

(1) Correspondence audit (conducted by mail), (2) Office audit (taxpayer visits an IRS office), and (3) Field audit (IRS agent visits the taxpayer's home, business, or representative's office) — field audits are the most comprehensive.

What is the IRS general statute of limitations for assessing additional tax?

3 years from the later of the due date of the return or the date the return was actually filed.

When does the IRS assessment statute of limitations extend to 6 years?

When the taxpayer omits gross income exceeding 25% of the gross income reported on the return (a substantial omission).

Is there a statute of limitations on assessment for a fraudulent or unfiled return?

No — there is no statute of limitations for a false/fraudulent return filed with intent to evade tax, or for a return that was never filed; the IRS may assess tax at any time.

What is a 30-day letter?

A letter accompanying the examination report that proposes adjustments and gives the taxpayer 30 days to either agree or request a conference with the IRS Independent Office of Appeals (it is NOT a statutory notice).

What is a 90-day letter (Statutory Notice of Deficiency)?

A formal notice (CP3219) giving the taxpayer 90 days (150 days if addressed outside the U.S.) to file a petition with the U.S. Tax Court before the IRS can assess and collect the deficiency.

What is the purpose of the IRS Independent Office of Appeals?

To provide an independent, impartial resolution of tax disputes without litigation, on a fair and impartial basis, considering the hazards of litigation to settle cases.

What is a protest letter and when is a formal written protest required?

A written statement requesting an Appeals conference; a formal written protest is generally required when the total amount of proposed additional tax, penalties, and refund claimed exceeds $25,000 for a tax period (a small case request suffices at or below $25,000).

What are the three courts in which a taxpayer can litigate a tax dispute?

(1) U.S. Tax Court (no prepayment of tax required), (2) U.S. District Court (must pay first, then sue for refund; jury available), and (3) U.S. Court of Federal Claims (must pay first, then sue for refund; no jury).

What is the key advantage of the U.S. Tax Court over the other two trial courts?

The taxpayer can litigate WITHOUT first paying the disputed tax; in District Court and the Court of Federal Claims, the taxpayer must pay the tax and then sue for a refund.

What is the IRS collection statute of limitations (CSED)?

10 years from the date of assessment to collect the tax; after this Collection Statute Expiration Date, the IRS generally can no longer collect (certain events like bankruptcy, OIC, or installment requests can suspend/extend it).

What is a federal tax lien and how does it arise?

A legal claim against all of a taxpayer's property securing payment of a tax debt; it arises automatically (statutory lien) when the IRS assesses the tax, sends a notice and demand for payment, and the taxpayer fails to pay.

What is a Notice of Federal Tax Lien (NFTL)?

A public document filed to alert creditors that the government has a legal right to the taxpayer's property; it establishes the IRS's priority against other creditors (distinct from the underlying statutory lien).

What is a tax levy and how does it differ from a lien?

A levy is the actual legal seizure of property (e.g., wages, bank accounts) to satisfy a tax debt, whereas a lien is only a claim/security interest in the property.

Before issuing most levies, what notice must the IRS provide?

A Final Notice of Intent to Levy and Notice of Your Right to a Collection Due Process (CDP) Hearing, given at least 30 days before the levy.

What is a Collection Due Process (CDP) hearing and how is it requested?

An Appeals hearing the taxpayer can request (within 30 days) using Form 12153 after a Notice of Federal Tax Lien filing or a Final Notice of Intent to Levy; it allows challenging the collection action and proposing alternatives, with a right to judicial review in Tax Court.

What is an IRS installment agreement?

A payment alternative allowing a taxpayer to pay tax debt in monthly installments over time; requested on Form 9465. Interest and penalties continue to accrue until the balance is paid.

What is the threshold for a guaranteed installment agreement?

The IRS must grant an installment agreement if the taxpayer owes $10,000 or less (excluding penalties/interest), has filed and paid timely for the past 5 years, can pay within 3 years, and agrees to comply during the agreement.

What is an Offer in Compromise (OIC)?

An agreement that settles a taxpayer's tax liability for less than the full amount owed; submitted on Form 656 with Form 433-A/B (OIC). Grounds: doubt as to collectibility, doubt as to liability, or effective tax administration.

What is "Currently Not Collectible" (CNC) status?

A temporary IRS designation that pauses active collection because the taxpayer cannot pay due to economic hardship; the debt remains and interest/penalties continue, but levies stop until the taxpayer's financial situation improves.

What is the failure-to-file penalty rate?

5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25%; if more than 60 days late, the minimum penalty is the lesser of a set dollar amount or 100% of the tax due.

What is the failure-to-pay penalty rate?

0.5% of the unpaid tax for each month or part of a month the tax remains unpaid, up to a maximum of 25%.

When both failure-to-file and failure-to-pay penalties apply in the same month, how are they combined?

The 5% failure-to-file penalty is reduced by the 0.5% failure-to-pay penalty, so the combined penalty is 4.5% (file) + 0.5% (pay) = 5% per month for that month, up to the 25% maximums.

What is the accuracy-related penalty under IRC §6662, and at what rate?

A 20% penalty on the underpayment attributable to negligence, disregard of rules, or a substantial understatement of income tax (increased to 40% for gross valuation misstatements or undisclosed noneconomic substance transactions).

What constitutes a "substantial understatement" of income tax for an individual?

An understatement exceeding the greater of 10% of the tax required to be shown on the return or $5,000.

What is the civil fraud penalty rate under IRC §6663?

75% of the portion of the underpayment attributable to fraud.

How is IRS interest on underpayments by individuals determined?

The federal short-term rate plus 3 percentage points, compounded daily; the rate is set quarterly and runs from the original due date of the return until the tax is paid.

What is the hierarchy of federal tax authority from highest to lowest?

Primary authority: (1) Internal Revenue Code (statute), (2) Treasury Regulations, (3) court decisions, (4) IRS guidance (Revenue Rulings, Revenue Procedures). Secondary authority (not binding): treatises, journals, and commentary.

What is the difference between a Revenue Ruling and a Revenue Procedure?

A Revenue Ruling is the IRS's official interpretation of how the law applies to a specific set of facts; a Revenue Procedure provides instructions on procedural/administrative matters (how to comply). Both are published in the Internal Revenue Bulletin.

What is a Private Letter Ruling (PLR)?

A written determination issued to a specific taxpayer in response to their request, interpreting the tax law for that taxpayer's particular facts; it may be relied upon only by the taxpayer who requested it and is not precedent for others.

What are the Taxpayer Bill of Rights (TBOR) — name several of the ten rights.

The right to: be informed; quality service; pay no more than the correct amount; challenge the IRS's position and be heard; appeal in an independent forum; finality; privacy; confidentiality; retain representation; and a fair and just tax system.

What is the Taxpayer Advocate Service (TAS)?

An independent organization within the IRS that helps taxpayers experiencing financial hardship or unresolved problems; a taxpayer requests help via Form 911 (Request for Taxpayer Advocate Service Assistance).

What is innocent spouse relief?

Relief (requested on Form 8857) that relieves a spouse from joint and several liability for tax, interest, and penalties on a joint return when the other spouse improperly reported or omitted items and the requesting spouse did not know and had no reason to know.

What are the realistic possibility / reasonable basis / substantial authority disclosure standards (lowest to highest)?

Reasonable basis (roughly 20%+ chance, lowest standard that avoids negligence if disclosed), substantial authority (roughly 40% chance, avoids the substantial understatement penalty without disclosure), and more-likely-than-not (greater than 50%).

What standard must be met to avoid the accuracy penalty for an UNDISCLOSED position vs. a DISCLOSED position?

Undisclosed position: needs "substantial authority" (~40%). Disclosed position (on Form 8275): needs only a "reasonable basis" (~20%).

What is Form 8275 used for?

Disclosure Statement — used to disclose items or positions not adequately disclosed on the return to avoid portions of the accuracy-related and preparer penalties (Form 8275-R discloses positions contrary to regulations).

What is the tax return preparer penalty under IRC §6694(a) for an unreasonable position?

The greater of $1,000 or 50% of the income derived (or to be derived) by the preparer, for an understatement due to a position lacking substantial authority (or reasonable basis if disclosed) that the preparer knew or should have known about.

What is the IRC §6694(b) preparer penalty for willful or reckless conduct?

The greater of $5,000 or 75% of the income derived by the preparer for an understatement due to willful attempt to understate tax or reckless/intentional disregard of rules and regulations.

What are the four due diligence requirements a preparer must meet for EITC, CTC/ACTC, AOTC, and HOH (Form 8867)?

(1) Complete and submit Form 8867 (Paid Preparer's Due Diligence Checklist), (2) compute the credits using required worksheets, (3) satisfy the knowledge requirement (make reasonable inquiries for incomplete/inconsistent information), and (4) keep records for 3 years.

What is the penalty for failing the EITC/CTC/AOTC/HOH due diligence requirements?

A penalty (indexed annually, around $600 per failure) imposed for EACH credit and EACH return for which the preparer failed to meet the due diligence requirements.

How long must a preparer retain due diligence records (Form 8867 and worksheets)?

3 years from the latest of: the return's due date, the date the return was filed, or the date the preparer submitted the return to the taxpayer/employer for signature.

What confidentiality protection does IRC §7525 provide?

A limited confidentiality privilege for tax advice communications between a taxpayer and a federally authorized tax practitioner (including EAs and CPAs), to the same extent as attorney-client privilege — but ONLY in noncriminal tax matters before the IRS or in noncriminal federal court tax proceedings.

What are the key limitations of the IRC §7525 tax practitioner privilege?

It does NOT apply to: criminal tax matters, state tax matters, communications regarding tax return preparation (only tax advice), or written communications promoting tax shelters.

How does the §7525 practitioner privilege compare to attorney-client privilege?

Attorney-client privilege applies in both civil and criminal matters and all courts; the §7525 practitioner privilege is narrower — limited to noncriminal tax matters before the IRS and noncriminal federal tax litigation, and excludes return preparation and tax shelter promotion.

What does IRC §7216 prohibit regarding taxpayer information?

It makes it a crime for a tax return preparer to knowingly or recklessly disclose or use a taxpayer's tax return information for purposes other than preparing the return without the taxpayer's prior written consent.

What is the e-file mandate for paid preparers?

Specified tax return preparers who reasonably expect to file 11 or more covered individual income tax returns (Forms 1040, 1041, etc.) in a calendar year must file them electronically.

What is Form 8948 used for?

Preparer Explanation for Not Filing Electronically — attached to a paper return to explain why a return subject to the e-file mandate is being filed on paper (e.g., taxpayer chose to opt out).

What is Form 8879 and Form 8453 used for in e-filing?

Form 8879 is the IRS e-file Signature Authorization (authorizing the ERO to enter the taxpayer's PIN as their signature); Form 8453 is the e-file transmittal used to send required paper documents/attachments to the IRS.

What is an Electronic Return Originator (ERO) and how does one become an Authorized IRS e-file Provider?

An ERO originates the electronic submission of returns; to participate one must apply to become an Authorized IRS e-file Provider, pass a suitability check, and obtain an Electronic Filing Identification Number (EFIN).

How long must a tax return preparer retain copies of returns or a list of returns prepared?

Under IRC §6107, a preparer must retain a completed copy of each return (or a list of taxpayers and identification numbers) for 3 years after the close of the return period.

What is the preparer penalty for failure to sign a return or failure to furnish an identifying number (PTIN)?

A per-return penalty (indexed, around $60 each) under IRC §6695 for each failure to sign a return, furnish a copy to the taxpayer, or include the preparer's PTIN, subject to an annual maximum.

What is the negligent or willful disclosure penalty for unauthorized use of return information (IRC §6713 vs §7216)?

IRC §6713 imposes a civil penalty (around $250 per disclosure, capped annually) for unauthorized disclosure or use of return information; IRC §7216 imposes the related criminal penalty (up to $1,000 fine and/or 1 year imprisonment).

What is the difference between a frivolous return position and a reasonable basis position?

A frivolous position has no basis in law and can trigger a $5,000 frivolous return penalty under IRC §6702; a reasonable basis position is a relatively strong (~20%+) position grounded in legitimate authority that, if disclosed, avoids negligence penalties.

Under Circular 230, what conduct can lead to disreputable conduct sanctions?

Examples include conviction of a tax crime or any crime involving dishonesty, giving false/misleading information to the Treasury, willfully failing to file one's own returns, misappropriating client funds, threatening/bribing IRS employees, and aiding suspended/disbarred persons in practicing.

What is the "reasonable cause and good faith" defense to penalties?

A taxpayer may avoid certain penalties (e.g., failure-to-file, failure-to-pay, accuracy-related) by showing the failure was due to reasonable cause and not willful neglect — e.g., reliance on professional advice, serious illness, or events beyond their control.

What is a Taxpayer Identification Number (TIN), and what are its forms?

A number used to identify a taxpayer: SSN (individuals), EIN (employers/entities, applied for on Form SS-4), ITIN (Form W-7, for individuals ineligible for an SSN), and ATIN (adoption taxpayer identification number); a preparer uses a PTIN.