Ethics or regulations?

This ethics course mainly contains concepts regarding the recognition of an attorney, certified public accountant, enrolled agents, and other persons representing taxpayers before the IRS. Ethics in this sense is more concerned with regulations such as rules relating to the authority to practice before the Internal Revenue Service, the duties and restrictions relating to such practice, prescription of sanctions for violating the regulations, the rules applicable to disciplinary proceedings and the availability of official records. Usually attorneys, CPAs, enrolled agents, and enrolled actuaries can represent taxpayers before the IRS. Under special circumstances, other individuals, including un-enrolled tax return preparers can assist taxpayers on tax matters. Special forms need to be filed to authorize individuals or certain entities to receive and inspect a taxpayer's confidential tax information.

In addition, the following information is great for understanding what ethics is. We need to strive to be ethical. The more you learn about ethics, the more you will see that being 100 percent ethical in this world is merely impossible. What is extremely wrong to one individual is perfectly fine to the other individual. 

Do unto others

"Do unto others as you would have them do unto you". Seriously? The golden rule? This rule seems to be more like the "It is ok to do anything to others". Then you need to determine who "others" is. Is it others like me? Would others include animals and other creatures? So according to this rule, it would be alright to be slowly roasted over an open frame. Oh, so this only means "Do unto others (humans like me) as you would have them do unto you"?

We can continue to interpret this rule as we wish. We have been doing this for centuries. We can include it in our religious literature and use it for centuries to hurt others. Others have only included "Others like me". What other explanation could there be for these foreigners to come to our land, call it their own, enslave us and force us to convert to their ways? At one time "Others" only included certain people who possessed the power better known as gun powder to force their will upon others. Now we celebrate their triumphs on special legal holidays such as Thanksgiving, Christmas, Independence day etc. Many disguise these so called holidays as "time to spend with family".

Does "Do unto others as you would have them do unto you" mean that you can force feed geese and ducks until their liver explodes in order for you to have an exquisite serving of foie gras? Or does "Do unto others as you would have them do unto you" mean tying up a new born calf and freeze its movements so that the meat remains tender and then killing the baby calf when it is two or three months old to get the best veal? Apparently the younger the baby calf, the better the meat tastes! These acts are all legal. You can do anything to an animal because animals are considered property. The question is: Is it ethical?

Please don't use "Do unto others as you would have them do unto you" or "The Golden Rule" as your measurement of how good you are. If you call me and tell me that this is your measurement of how good you are, I will yell at you.

Ethics is one thing and legal is another. Sometimes they come hand in hand. For instance, the person that constantly breaks the law is not considered an ethical person. Laws are derived from ethics. Something must first be considered unethical or wrong before it becomes illegal.

There is also the person who never breaks the law but does all sorts of unethical things. For this reason, ethics becomes a very complicated concept to understand. Sometimes we cannot tell is something is unethical since there are no laws that prohibit such an act.

Many times, as is the case with foie gras and veal, ethics is a matter of personal conviction. I don't eat foie gras or veal because I know the torture these animals are put through in the manufacture of such. I also only eat eggs from cage free hens. I don't eat at fast food places because I know the little regard for animal life at the farms that produce the meats for these fast food places. I honestly think that fast food places such as McDonalds should disappear from the face of the earth. They are killing and torturing innocent creatures for profit. Come on! You too can be like Bolivia, Yemen, Iceland, Bermuda, Kazakhstan, Macedonia, Ghana, Zimbabwe, Montenegro and ban McDonalds from your country. Your country starts with you. Therefore, if you ban McDonalds from your life and enough people do the same, McDonald's will disappear.

It is a shame that we don't ban McDonald's from the United States. McDonald's and none of these fast food places are breaking the law. They offer jobs and boast about their food production and how they are able to manufacture cheap and unhealthy food for the masses. I've had an opportunity to see the clientele that these fast food places cater to. McDonald's has excellent internet service. Therefore, when my internet broke down, I was at McDonald's to use their internet. Needless to say, I eventually was asked to leave since I never purchased anything. Ok. Back to their unhealthy clientele. Let me sum it up this way - McDonald's customers are overweight, yellowish and very unhealthy looking.

In this course we are more mainly concerned with the tax laws and not breaking the rules when it pertains to these tax laws. Practitioners who don't follow the rules are considered unethical. Also, if the practitioner were to find gray areas in the tax law, he or she would be considered unethical. If a practitioner uses gray areas in the tax law to help his clients, he or she would be performing classical unethical acts. If the practitioner is breaking the law, this would not be too much an issue of ethics but more of an issue of crime. The individual breaking the law is not really "unethical" but rather "a criminal". 

There are many criminals in the world, but many more unethical people. Likewise, there are many practitioners who break the law and who pay the price by getting arrested and losing their license to practice or both. However, there are many more unethical preparers who never get in trouble for anything they do because they are within the legal constraints.

Wait! I was not done with McDonald's yet. McDonald's is not breaking the law when McDonald's tortures its farm animals. The laws against animal cruelty that protect dogs and cats do not apply to farm animals. This fact is a loophole for McDonald's and it saves them tons of money! Tortured animals are easier to handle. It is a whole lot easier and cheaper to gather a whole bunch of chickens in a room and to crush them than to hire employees to kill one at a time. Then after that the chickens are put on an electronic machine to pluck them with rubber pluckers. Some of these chickens which survived the crushing are then put through a horrifying plucking experience. Cattle are put through a similar horrifying torture. Do your own research. Next, think about this when you are enjoying chicken nuggets or that cheeseburger. You can find tons of information online! Don't eat at McDonald's and similar fast food places. Legally they are angels who don't hurt a fly, but ethically they are horrible monsters who eat their pray alive! The reason I mention McDonald's is because they are a prime example of unethical behavior especially when it comes to the treatment of animals. They are extremely unethical but they cannot get in trouble legally for their wrongdoing. I am loud about their mistreatment of animals because that is one of the unethical things that they do that really agitates me!

Write it down

If everything that is unethical was written down as being wrong, then the science of ethics would disappear. There would not be such a thing as ethics. In a sense, anything that is wrong and there is no law that prohibits it, is a matter of ethics. If you break ethics rules, you are unethical and you most probably will not go to jail for that. However, if you break legal rules, you are a criminal and it will most probably land you in jail eventually. Remember President George W. Bush? It was all over the news. Many government employees were committing crimes and instead of charging them for the crimes, he sent them to school to learn ethics. It is understandable, since during his presidency, he was an extremely unethical man himself. What about NBC permitting George W. Bush be interviewed regarding his new found hobby and his paintings of kitties? That was quite unethical of NBC if you ask me!

IRS has Rules that govern ethics

The practitioner must use reasonable efforts to identify and ascertain the facts, which may relate to future events if a transaction is prospective, and to determine which facts are relevant. The practitioner can never base an opinion on any unreasonable factual assumptions, even assumptions as to future events. Furthermore, the practitioner cannot base an opinion on any unreasonable factual representations, statements or findings of the taxpayers or any other person. It would also not be reasonable for a practitioner to rely on a projection, financial forecast or appraisal if the practitioner knows or should know that it is incorrect or incomplete or was prepared by a person lacking skills or qualifications. 

Any practitioner who has principal authority and responsibility for overseeing a firm's practice of providing advice concerning federal tax issues must take reasonable steps to ensure that the firm has adequate procedures in effect for all members, associates, and employees. Any such practitioner will be subject to discipline for failing to comply with the requirements if the practitioner knows or should know that one or more individuals that don't comply with section 10.35 and the practitioner fails to take prompt action to correct the noncompliance.

The Secretary of the Treasury, or delegate, after notice and an opportunity for a proceeding, may censure, suspend, or disbar any practitioner from practice before the Internal Revenue Service if the practitioner is shown to be incompetent or disreputable. Additionally, this would also apply if the practitioner fails to comply with any regulation under the prohibited conduct standards or acts with intent to defraud. The Secretary of the Treasury, or delegate may also censure, suspend, or disbar any practitioner from practice if the practitioner willfully and knowingly misleads or threatens a client or prospective client.

You may be wondering what is considered incompetent or disreputable conduct. Incompetent or disreputable conduct for which a practitioner may be sanctioned includes contemptuous conduct in connection with the practice before the Internal Revenue Service, including the use of abusive language or making false accusations or statements, knowing them to be false. This type of conduct would also include willfully disclosing or otherwise using a tax return or tax return information in a manner which is not authorized by the Internal Revenue Service. Also if you fail to sign a tax return when the practitioner's signature is required by the federal tax laws, would be misconduct. It goes without saying that that it would be misconduct of your part to give false or misleading information that you know to be false or misleading to the Department of the Treasury or any officer or employee thereof, or to any tribunal authorized to pass upon federal tax matters.

When you file a complaint, it would be sufficient to just fairly inform the respondent of the charges brought so that the respondent is able to prepare a defense. It is such a relief that filing a complaint with the IRS both as a practitioner or as taxpayer does not involve filing so much legal complicated paperwork like when filing a lawsuit.

To maintain active enrollment to practice before the Internal Revenue Service, each individual is required to have the enrollment renewed. The effective date of renewal is the first day of the fourth month following the close of the period for renewal. You don't have to wait to receive notification from the Director of the Office of Professional Responsibility of the renewal requirement. You are required to renew regardless if your renewal notification was not received, gets lost in the mail or the Director decided not to send such notification.  

Continuing tax education

To qualify for continuing tax education credit for an enrolled agent, a course of learning must be a qualifying program designed to enhance professional knowledge in federal taxation or federal taxation related matters. The qualifying tax education program must be a qualifying program consistent with the Internal Revenue Code and effective tax administration. This tax education must be administered by a qualifying sponsor of tax education. Individuals can lose their eligibility to practice before the IRS by not meeting the requirements for renewal of enrollment such as when the individual fails to comply with the continuing tax professional education requirements. The practitioner can also request to be placed in an inactive retirement status. Furthermore, individual can lose their eligibility to practice before the Internal Revenue Service by being suspended or disbarred by state authorities to practice as an attorney or certified public accountant. 

Each individual applying for renewal of their EA enrollment must retain for a period of four years following the date of renewal of enrollment the information required with regard to qualifying continuing professional education hours. Such information may include the name of the sponsoring organization, the location, title and description of the content of the program. However, this information may not include the publisher information of the study material used.

You will safeguard your client's taxpayer data as if you were safeguarding your own. Just like you would not like someone else to get a hold of your personal information, you should not give any opportunity for anyone to get a hold of your client's information. The worst enemy for your taxpayer data, nowadays are identity thieves. These people will have their tax returns prepared by you in order to try to get information on your clients that you inadvertently place on your desk. These people will come up with fake W-2's and pretend they are your client and prepare their taxes with you in order to get copies of your client's tax return and other personal information such a social security numbers, dates of birth, address and other personal information. Think about, your client walks in, do you know all of your clients personally? Do you make sure that the client is the client or do you just vaguely try to remember them? Safeguarding your client's taxpayer information should include you asking for ID.

Computer data breaches are a whole different world, and that as well, you must make sure everything that has to do with the internet and your computer is well in order and that protections are in place for you to safeguard your client's taxpayer data information. It is your legal responsibility as a tax professional, together with other agencies to put safeguards in place to protect taxpayer information to proven fraud and identity theft. This will in turn enhance customer confidence and trust.

A few things to consider, even the most basic one that is mentioned above about asking for identification from all your clients can help you safeguard your client's most personal information.

You may be subject to the Gram-m-Leach Bliley Act (GLB Act) and the Federal Trade Commission (FTC) Financial Privacy and Safeguards rules. Even if you are not subject to the rules under these laws, you should consider implementing their procedures and best practices to safeguard your client's taxpayer information. You as a tax professional are defined under the FTC as a financial institution mainly because when you deal with taxpayer information, you are also indirectly dealing with their financial information which is used by many financial institutions. At least you should follow best practices in handling taxpayer information.

Very basic items like asking for ID from every client in order to prevent anyone from posing as a client and taking that client's personal information should be in place. You should always make sure doors are locked so no physical breaches will occur. Always require passwords to computer programs and make sure that whoever has access should have access. Make sure all electronically stored data is encrypted and always keep backups for recovery purposes. Always, always shred into tiny pieces of paper that contain taxpayer information before throwing that paper in the trash. Lastly, you should probably never email taxpayer sensitive personal information.

You knew when you got into this business that you will be dealing with very personal taxpayer information. You must take every measure to ensure that your taxpayer data is safe. Make sure your building is not easily breachable. You should always ask for your client's identification to make sure your client is who he or she is claiming to be. You can make this a blanket request of everyone and this way this will become second nature for your entire operation. You can pretend that to get access to the taxpayer data now or later when they come back another time, you must input their ID number in the system. You can even do this from family and friends. This may sound absurd at first, but your company will acquire a reputation for taking identity theft seriously. When people talk about your business and the services you provide, they will for sure talk about the fact that you ask for ID and this way criminals will stay away.

A practitioner may never take acknowledgments, administer oaths, certify papers, or perform official acts as a notary public with respect to any matter administered by the Internal Revenue Service. A practitioner shall not represent a client before the Internal Revenue Service if the representation involves a conflict of interest. A conflict of interest exists if the representation of one client will be directly adverse to another client. If there is no significant risk that the representation of one or more clients will be materially limited by the practitioner's responsibility to another client, a former client or a third person, or by a personal interest of the practitioner then there is no conflict of interest. I don't think any conflict of interest is prohibited by law and as long as each affected client waives the conflict of interest by giving informed consent, the practitioner can represent the client before the Internal Revenue Service.

However, there is another definition of client that is most important for the professional accountant or lawyer or service provider if you will. This definition is "a person dependent on another, as for protection or patronage". Does that mean that our kids are also clients? You better believe it! Our children most definitely fit the definition of client and so do the people who step into our offices seeking professional tax and accounting services. We really should post this on our walls "You are our client and we will protect you."

The PATH Act has made changes to the ITIN program. Most taxpayers must submit their Form W-7 with the tax return for which the ITIN is needed. The application Form W-7 is submitted by both domestic and foreign applicants. Original documents or certified copies of documents are the only acceptable documentation, except for a few limited reasons.

Under the PATH Act, any ITIN that is not used on a federal tax return for three consecutive tax years, be a dependent or an individual filing a tax return, will expire on December 31st of the third consecutive year of nonuse. For example, if the individual does not file or is not claimed as a dependent on a tax return in 2016, 2017, and 2018, the ITIN will expire on December 31, 2018. This rule applies to all ITINs regardless on when it was issued.

The PATH Act has a schedule of when ITINs will expire unless they have already expired for the three year nonuse. For example,

You should probably modify your interview packets to include the questions that should ask taxpayers in order to show that they qualify for the head of household filing status. This by itself will not show due diligence but the fact that you are asking everyone the same questions will.

The same applies to the Child tax credit and the additional child tax credit. Back in 2016, Form 8867 was modified to include due diligence questions that take into account exercising due diligence for issuing the child tax credit and the additional child tax credit. At the same time, the same Form 8867 was modified to include due diligence questions that take into account due diligence for helping taxpayers claim the American Opportunity credit. Don't wait until the tax laws tell you that must exercise due diligence - Due diligence should be exercised with ever tax credit and deduction you help your clients take.

Paid preparers must meet four due diligence requirements on returns when considering EITC. The Preparer's toolkit on our EITC Central has information on the law and related regulations. Read more about your responsibilities and learn how to protect yourself from potential penalties in the Due Diligence section of the Tax Preparer Toolkit. It is focused and tiered with a goal of increasing the accuracy of EITC claims filed. Walk your clients through the EITC qualification requirements with this interactive tool and show them if they qualify or not.

As a provider of e-file services, you must never advertise that individual tax returns may be electronically filed prior to receiving a Form W-2, W-2G and 1099R. You as a provider are generally prohibited from electronically filing tax returns without the proper Form W-2, W-2 or Form 1099-R. Your advertising must never state or even imply that you can use the taxpayer's check stubs or other documentation of earnings to e-file an individual income tax return.

Addresses on Forms W-2, W-2G or 1099-R; Schedule C or C-EZ; or on other tax forms supplied by the taxpayer that differ from the taxpayer’s current address must be input into the electronic record of the return. Providers must input addresses that differ from the taxpayer’s current address even if the addresses are old or if the taxpayer has moved. EROs should inform taxpayers that when the return is processed, the IRS uses the address on the first page of the return to update the taxpayer’s address of record. The IRS uses a taxpayer’s address of record for various notices that it is required to send to a taxpayer’s "last known address" under the Internal Revenue Code and for refunds of overpayments of tax (unless otherwise specifically directed by taxpayers, such as by Direct Deposit). Providers must never put their address in fields reserved for taxpayers' addresses in the electronic return record or on Form 8453, U.S. Individual Income Tax Transmittal for an IRS e-file Return. The only exceptions are if the Provider is the taxpayer or the power of attorney for the taxpayer for the tax return.

As a participant in the Annual Filing Season Program, you have limited representation rights and can only represent clients for whom you prepare and signed tax returns. This program is getting to be more and more like the enrolled agent program where you are now getting representation rights that were not available to you before. This program allows you to be in the searchable, public directory which includes your name, city, state, zip code along with the information of EAs, ERPAs, Enrolled actuaries. This is a voluntary program but it behooves you to take the extra effort to be a part of it.

If you are in California, Oregon or Maryland, you are required to complete continuing tax education for your state in order to legally prepare tax returns in that state. The good news is, to be part of the Annual Filing Season Program and you comply with the tax preparer education requirements in these state, you are done and are automatically in the Annual Filing Season Program with the Internal Revenue Service. How cool is that? You don't have to do double the work, the education requirements are met for both your state and for the Internal Revenue Service.

So now you can represent taxpayers if you are an attorney, a CPA, an Enrolled Agent, an Enrolled Retirement plan Agent and if you are an enrolled IRS participant in the Annual Filing Season Program. This program is getting to be more and more like the enrolled agent program where you are now are able to represent taxpayers. This is something that was not available to you before.

To be part of the Annual Filing Season Program and you comply with the tax preparer education requirements in these states, you are done and are automatically in the Annual Filing Season Program with the Internal Revenue Service.

Any practitioner who has principal authority and responsibility for overseeing a firm's practice of providing advice concerning federal tax issues must take reasonable steps to ensure that the firm has adequate procedures in effect for all members, associates, and employees. Any such practitioner will be subject to discipline for failing to comply with the requirements if the practitioner knows or should know that one or more individuals that don't comply with the code and the practitioner fails to take prompt action to correct the noncompliance.

Please remember to go into your PTIN account and sign the Circular 230 Consent statement in order to participate in the Annual Filing Season Program. The program is voluntary and therefore you must acknowledge that the you know that the program is voluntary and you must consent to the Circular 230 rules that you will abide by them. To abide the rules, you must know them. As a participant, one of the requirements is that you complete at least 18 hours of continuing tax education which includes the six hours of the federal tax law refresher course. In addition to this, you must also renew your PTIN and when you do, you will consent to adhere to the obligations in Circular 230 found in Subpart B and section 10.51. These are the obligations of owning a PTIN and being part of the Annual Filing Season Program (AFSP). This privilege comes with many perks. One of these is the listing of your information in the public database of tax return preparers on the IRS website which is also knows as The Directory of Federal Tax Return Preparers.

As a participant in the Annual Filing Season Program, you have limited representation rights and can only represent clients for whom you prepare and signed tax returns. The IRS Annual Filing Season Program participants have limited representation rights that include initial audit returns, customer service matters and before the Taxpayer advocate Service. The Annual Filing Season Program participant must be the preparer for both the year the tax return was prepared and for the year of representation. Therefore, if you prepared a tax return two years ago when you were part of the program and now you are not part of the AFSP program, you will be excluded from being able to represent your client. Therefore, you must be part of the AFSP program at every stage of the tax returns you prepare to be able to fully serve your clients.

The new Tax Cuts and Jobs Act tax reform will benefits self employed individuals more than employees. One of these is the office in the home benefit which is only available to self employed individuals and no longer to employees who want to have an office in the home or who want to work from home. Some people are simply not going to be happy with this. 

Now more than ever, it is important to keep better records. Whether you prepare your return yourself or retain a professional tax preparer, you must collect and organize your tax records. You cannot prepare your tax return unless you get your personal tax data in order. Good records will help you figure your income and deductions and will serve as a written record to present to the IRS in the even that you are audited.

Many changes have transpired over the years. If you notice that it is quite interesting that every year we undergo tax changes to account for inflation. It is a very interesting how Social Security benefits base amounts always remain at  $25,000 for singles or $32,000 for married filers which means that more and more of the Social Security benefits are taxable every year.

One thing is clear. The new tax law has placed education on the top of the list. We still have some of the education benefits such as for saving for college. Some of the most popular benefits for education like the credits and the student loan interest deduction remain unchanged. There was no change to the American opportunity credit. With the AOC you can get up to $2,500 per eligible student and up to $1,000 of this credit a refundable credit. The requirements are that you only take this credit for four years and only take it if you have not completed the first four years of postsecondary education (college) before the tax year. To eligible the student must be enrolled at least half-time for at least one academic period and must be trying to acquire a degree. Furthermore, this credit is generally claimed by the parents of undergraduate students.

Another example of this is that the Lifetime learning credit stays the same and the new tax reform has not affected it. You can get up to $2,000 for qualified education expenses paid for all eligible students include in the taxpayer's tax return. There is no limitation as to how many years you can take the Lifelong learning credit and your student does not have to be enrolled in a minimum number of hours to claim the credit. This credit is usually claimed by the graduate student him or herself. If you qualify for the lifelong learning credit and the AOC credits and since you cannot take both, you would usually choose the one that gives you the greater tax benefit which is usually the AOC.

Additionally, this is a year of planning and you have to plan even if you normally don't plan. If you are a self-employed taxpayer, then you have to send in tax payments every so often, which is usually every three months depending on how much money you are making. Many taxpayers start making estimated tax payments every three months and then the Internal Revenue Service may adjust their estimated tax schedule and require them to make payment every month, for example. Estimated tax payments are made by taxpayers who have income that isn't subject to withholding such as self-employment income. You have to plan and take into consideration all the new tax changes because all the tax changes, even the ones that look harmless, will affect every taxpayer. For starters, the Tax Cuts and Jobs Act (TCJA) has changed the way estimated tax is calculated. This mainly has to do with the new tax rates and tax brackets. Many other factors, credits, deductions and the lack of deductions change the how much a taxpayer has to send in in estimated tax payments. The taxpayer has to calculate their taxes based on what he or she estimates his or her taxable income will be.

If we don't properly plan for the new ways, we may end up paying IRS penalties. We all have to keep an open eye, even regular employees who depend on their employers to be doing the correct thing. Your employer may not be withholding enough tax from your paycheck and you through no fault of your own may have to pay an underpayment penalty. We all know or should know that there is a penalty for not paying enough to cover our tax with the Internal Revenue Service. Furthermore, there is also the possibility that your employer may be deducting too much and this also may cause you an IRS 20% penalty for receiving an excessive claim for refund or credit on an original or on an amended tax return.

One of the big ticket items right now is identity theft. Identity theft occurs when someone uses your personal information, such as your name, Social Security number (SSN), or other identifying information, without your permission, to commit fraud or other crimes such as getting a job or filing a tax return to receive a refund. More than ever before, you must do you part to reduce your risk, protect your SSN, ensure your employer is protecting your SSN. You must always make your clients comfortable with your trust and always make sure your clients know that you safeguard their information and more importantly that they can trust you with their information.

Bird, Beverly; (2018, February 9); The Child Tax Credit; 2017 vs. 2018; Retrived online at https://www.thebalance.com/child-tax-credit-changes-4158690

IRS; (n.d.); Rev. Proc. 2017-58; Retrieved online at https://www.irs.gov/pub/irs-drop/rp-17-58.pdf

1. To reduce your risk of identity theft for 2018, you need to

A. Protect your SSN.

B. Ensure your employer is protecting your SSN.

C. Be careful when choosing a tax preparer.

D. All of the above.

2. You should probably modify your interview packets to include the questions that you should ask taxpayers in order to show that they qualify for the head of household filing status for 2018. This by itself

A.  Will not show due diligence but the fact that you are asking everyone the same questions will.

B.  Will show due diligence.

C.  Will be enough for the IRS to show due diligence.

D. Will cause the IRS to fine preparers with high penalties.

3. In 2018, anytime an ERO enters the taxpayer's PIN on the electronic return, the ERO must, prior to submission of the return, complete an IRS e-file Signature Authorization form which

A. Must be signed by the taxpayer.

B. Must be emailed to the Internal Revenue Service.

C. Both A and B above.

D. Must be faxed to the Internal Revenue Service.