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

24 sample cards from the Part 3 — Representation, Practices, and Procedures deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. 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.

2. 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%).

3. 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%).

4. 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).

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.

10. 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.

11. 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.

12. 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.

13. 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.

14. 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.

15. 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).

16. 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.

17. 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).

18. 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.

19. 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.

20. 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).

21. 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.

22. 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.

23. 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.

24. 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.

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Part 3 — Representation, Practices, and Procedures flashcards FAQ