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Federal Tax Ethics

 

Instructions - Steps to follow.

Please do the following for Ethics:

 

Step 1. Read the reading material on this page.

Step 2. Answer the questions on this page (scroll down to the end).
Step 3. Submit review question one by one at "Submit Review Questions (scroll down to the end)
Step 4. Complete the Ethics Topic Final exam. 
 

Table of Contents

Ethics or regulations?

Do Unto Others?

Write It Down

IRS has Rules That Govern Ethics

Continuing Tax Education

Tax Related Identity Theft

Safeguarding Taxpayer Data

More Rules On Tax Practitioners

Best Practice

Tell Your Client There is a Problem

Overview and Expiration of ITINs

Preparer Penalties

Due Diligence in Tax Preparation

E-File Requirements

Annual Filing Season Program Requirements

Consent to Circular 230 Rules

Limited Representation Rights

More On Unenrolled Preparers

Power of Attorney

3. Federal Tax Ethics

 

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.

Tax-related 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. To reduce your risk, protect your SSN, ensure your employer is protecting your SSN and be careful when choosing a tax preparer. You know that your clients will be careful when they choose their tax preparer. Therefore, you must always make your clients comfortable with your trust. Your clients must know that you safeguard their information and that they can trust you with this information. The security lock companies have done a great job at instilling fear in people by highly advertising their services to the public. As a result of this, taxpayers are very careful about trusting the right individuals with their identity such as social security and credit card numbers.
Safeguarding Taxpayer Data
You must adhere to your promise of protecting your client. A client of a professional person or organization is a person or company that received a service from them in return for payment. That is really nice, really defined information about what a client is. However, a person dependent on another, as for protection or patronage is another definition of client. If you go with the latter definition, you will have satisfied the first and also your obligation towards your client when he or she walks into your office. You will also use the later definition when you safeguard your client's data.

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.

  • Restrict access and disclosure - don't disclose information over the telephone to anyone without properly identifying the individual or to be on the safe side don't disclose anything at all - no matter what.
  • Proven improper or unauthorized modifications or destruction. Please, please don't just throw taxpayer information in the trash.
  • Maintain the availability of taxpayer date by providing timely and reliable access and data recovery.

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.

  • Take responsibility or assign an individual or individuals to information safeguards.
  • Access the risks of taxpayer information in your office such as your operations, your physical space, computer systems and your employees. List all the locations where you keep taxpayer information.
  • Write a plan that includes how you will safeguard taxpayer information.
  • Make sure the providers you use also have safeguard provisions in place.
  • Monitor and adjust as necessary your security safeguards as your business and circumstances change.

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.

More rules on tax practitioners

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.

A practitioner may not take acknowledgements, 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 cannot represent a client before the Internal Revenue Service if the representation involves a conflict of interest. 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.  

Best Practice
There are so many definitions of the word client. You can think about it as the definition we all think about - a client is a person who gets services in exchange for a fee or money.

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."

Tax advisors should provide clients with the highest quality representation and protection concerning federal tax issues by adhering to best practices in providing advice and in preparing or assisting in the preparation of a submission to the Internal Revenue Service. Best practice includes establishing the facts, determining which facts are relevant, evaluating the reasonableness of any assumptions or representations, relating the applicable law to the relevant facts, and arriving at a conclusion supported by the law and the facts. Simply advising a client to take a position on a document, affidavit or other paper submitted to the Internal Revenue service would not be a best practice action. It would also not be a best practice for the practitioner to advise a client to submit a document, affidavit or other paper to the Internal Revenue Service if such impedes the administration of the federal tax laws. Neither would it be proper conduct to advise your clients to do anything necessary to avoid the payment of tax at all cost. A best practice would be to represent your client in a legal and ethical manner and this means following the tax laws and avoiding tax loopholes. After all, tax dollars benefit everyone.

In cases where any part of the understatement of the tax liability is due to a willful attempt by the return preparer to understate the liability, or if the understatement is due to reckless or intentional disregard of the rules or regulations by the tax preparer, the preparer is subject to the greater of $5,000 or 50% of income derived or to be derived from the misconduct. A penalty will not be imposed on any part of an underpayment if there was reasonable cause for your position and you acted in good faith in taking that position. However, if you failed to keep proper books and records or failed to substantiate items properly, you should just pay the preparer penalty because you will not be able to avoid the penalty by disclosure.
Many un-enrolled individuals can represent the specific taxpayers before the IRS, provided this individual presents satisfactory identification. You family member can represent you before the Internal Revenue Service. The officer of the corporation can represent the corporation before the IRS. Additionally, any employee can represent the employer before the Internal Revenue Service. In general, individuals who are not eligible or who have lost the privilege as a result of certain actions cannot practice before the IRS. If an individual loses eligibility to practice, his or her power of attorney will not be recognized by the Internal Revenue Service. Out of courtesy, the Internal Revenue Service will most likely send the individual, his client or both a letter notifying them of such non-recognition.
Being convicted of any criminal offense under the revenue laws or of any offense involving dishonesty or breach of trust is considered disreputable conduct. The Office of Professional Responsibility presides over a hearing on a complaint for disbarment based on a violation of the laws or regulations governing practice before the Internal Revenue Service. For example, as for negotiation of taxpayer refund checks, practitioners who are unenrolled income tax return preparers must never endorse or otherwise cash any refund checks issued to the taxpayer. Don't engage in disreputable conduct. Any individual engaged in limited practice before the IRS who is involved in disreputable conduct may be disbarred, suspended, or censured.
Tell your client there is a problem
A practitioner who knows that his or her client has not complied with the revenue laws or has made an error or omission in any return, has the responsibility to advise the client promptly of the noncompliance. Every practitioner also has the responsibility to advise the client of the consequences of any noncompliance. Any unenrolled preparer who knows that the client has not complied with the revenue laws, or that the client has made an error in or omission from any return, document, affidavit, or other paper that the client is required by law to execute, shall advise the client promptly of the fact of the noncompliance, error or omission.
Overview and expiration of Individual Taxpayer Identification Numbers (ITINs)
Significant changes were made to the Individual Identification Number (ITIN) Program. ITINs were authorized under Section 6109 in addition to requesting the information need to issue these numbers. An ITIN is needed in order for a taxpayer to meet the social security requirements for U.S. tax purposes. The taxpayer who is issued an ITIN is usually not eligible to receive a social security number from the Social Security Administration. These people are usually not eligible for an SSN.

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,

  • ITINs issued before 2008 will remain in effect until January 1, 2017.
  • ITINs issued in 2008 will remain in effect until January 1, 2018.
  • ITINs issued in 2009 or 2010 will remain in effect until January 1, 2019.
  • ITINs issued in 2011 or 2012 will remain in effect until January 1, 2020.

If your ITIN expires be it for the three year nonuse or because one of the above timeframes apply, you will need to reapply by submitting a new Form W-7 and supply the required documentation to prove your identity. Taxpayers should make sure to check "renewal" to make the process flow easier. The new thing this time around is that these individual will not have to attach a tax return to their Form W-7 to renew their ITIN.

Preparer penalties
A penalty may be imposed on a return preparer who endorses or negotiates a refund check issued to any taxpayer other than the return preparer. The amounts can add up since there is a penalty of $520 for each check endorsed. The prohibition on return preparers negotiating a refund check is limited to a refund check for return they prepared.

Preparer penalties may be asserted against an individual or firm meeting the definition of a tax preparer under I.R.C. §7701(a)(36) and Treas. Reg. §301.7701-15. Preparer penalties that may be asserted under appropriate circumstances include, but are not limited to, those set forth in I.R.C. §§ 6694, 6695, 6701 and 6713.

Under §301.7701-15(c), Providers are not tax return preparers for the purpose of assessing most preparer penalties as long as their services are limited to "typing, reproduction or other mechanical assistance in the preparation of a return or claim for refund". If an ERO, Intermediate Service Provider, Transmitter or the product of a Software Developer alters the return information in a non-substantive way, this alteration is considered to come under the "mechanical assistance" exception described in §301.7701-15(c). A non-substantive change is a correction or change limited to a transposition error, misplaced entry, spelling error or arithmetic correction.

If an ERO, Intermediate Service Provider, Transmitter or the product of a Software Developer alters the return in a way that does not come under the "mechanical assistance" exception, the IRS may hold the Provider liable for income tax return preparer penalties. See Treas. Reg.§301.7701-15(c); Rev. Rul. 85-189, 1985-2 C.B. 341 (which describes a situation where the Software Developer was determined to be an tax return preparer and subject to certain preparer penalties).

A $520 penalty may be imposed, per I.R.C. §6695(f), on a return preparer who endorses or negotiates a refund check issued to any taxpayer other than the return preparer. The prohibition on return preparers negotiating a refund check is limited to a refund check for returns they prepared.

A preparer that is also a financial institution, but has not made a loan to the taxpayer on the basis of the taxpayer’s anticipated refund, may cash a refund check and remit all of the cash to the taxpayer, accept a refund check for deposit in full to a taxpayer’s account provided the bank does not initially endorse or negotiate the check, or endorse a refund check for deposit in full to a taxpayer’s account pursuant to a written authorization of the taxpayer.

A preparer bank may also subsequently endorse or negotiate a refund check as part of the check-clearing process through the financial system after initial endorsement. Under Treas. Reg. 1.6695-1(f), a tax preparer, however, may affix the taxpayer's name to a check for the purpose of depositing the check into the account in the name of the taxpayer or in joint names of the taxpayer and one or more persons (excluding the tax return preparer) if authorized by the taxpayer or the taxpayer's recognized representative. The IRS may sanction any income tax return preparer that violates this provision. In addition, the IRS reserves the right to assert all appropriate preparer and non-preparer penalties against a Provider as warranted.

Providers are not tax return preparers for the purpose of assessing most preparer penalties as long as their services are limited to "typing, reproduction or other mechanical assistance in the preparation of a return or claim of refund". If an ERO, Intermediate Service Provider, Transmitter or the product of a Software Developer alters the return in a way that does not come under the "mechanical assistance" exception, the IRS may hold the Provider liable for income tax return preparer penalties.

The return preparer penalties under IRC 6695 are assessed against preparers who:

* Fail to provide the taxpayer with a copy of the return, $50 per failure, up to a maximum of $26,000 for each calendar year; per IRC 6695(a),

* Fail to sign the return, $50 per failure, up to a maximum of $26,000 for each calendar year, per IRC 6695(b),

* Fail to provide an identifying number, $50 per failure, up to a maximum of $26,000 for each calendar year; per IRC 6695(c),

* Fail to retain a copy of the return or a list of returns prepared, $50 per failure, up to a maximum of $26,000 for each return period, per IRC 6695(d),

* Fail to file a tax return preparer information return or set forth an item in the return as required under IRC 6060, $50 for each failure, up to a maximum of $26,000 for each return period, per IRC 6695(e),

* Negotiate a refund check or misappropriate a refund via electronic means, $520 per failure per IRC 6695(f), or

* Fail to be diligent in determining eligibility for the Earned Income Tax Credit, $520 per failure per IRC 6695(g).

These penalties are generally processed under the pre-assessment penalty procedures.

The prohibition on return preparers negotiating a refund check is limited to cash a refund check and remit all of the cash to the taxpayer, accept a refund check for deposit in full to a taxpayer's account provided the bank does not initially endorse or negotiate the check and to endorse a refund check for deposit in full to a taxpayer’s account pursuant to a written authorization of the taxpayer. A preparer that is also a financial institution or preparer bank, may subsequently endorse or negotiate a refund check as part of the check-clearing process through the financial system after initial endorsement.

Due diligence in tax preparation
Under IRC section 6692(g), the new tax law Tax Cuts and Jobs Act of 2017 expands a paid preparer's due diligence and record keeping requirements to include the determination of a client's eligibility to file as head of household. If you fail to comply you will be liable $520 for each failure. These same due diligence requirements are already in place for the child tax credit, the American opportunity tax credit and the earned income tax credit. It is not clear in the new law of when the new mandate will apply, therefore, you will be safe to start now - you are supposed to exercise due diligence in all your tax preparer matters anyways. Why wait for a law to tell you to do so?

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.

If your client's claims about self-employment income seem inconsistent, incorrect or incomplete, you need to ask them more questions. Find out how to meet your due diligence requirements and help your self-employed clients reconstruct their business records by taking EITC Schedule C and Record Reconstruction Training. More than 86 percent of professional preparers use tax return preparation software. IRS partnered with software companies to form the IRS/Software Developers Working Group. This group works to improve software and help preparers meet their due diligence requirements.

Complete and submit Form 8867 for all paper and electronic tax returns and for all other EITC claims for claims with qualifying children and also for claims with no qualifying children. Any person who is a tax return preparer with respect to any return or claim for refund who fails to comply with due diligence requirements imposed by the Secretary by regulations with respect to determining eligibility for, or the amount of, the allowable EITC credit. There is the diligence requirement to ask all the questions required on Form 8867 and to keep a copy of form and EITC calculation worksheets. You also must ask additional questions when the information your client gives you seems incorrect, inconsistent or incomplete. Remember, you must complete and submit the Form 8867 for all paper and electronic tax returns and for all other EITC claims regardless if with children or claims with no children.

The tax return preparer must keep a copy of the Form 8867 and the EIC calculation worksheet. You may feel that this is not you job but you must verify the identity of the person giving you the return information and keep a record of who provided the information and when information was provided. It is your duty to keep copies of any documents your client provided that you relied on to determine eligibility for the amount of the EITC.

To meet your earned income credit due diligence requirements, you must complete the form with information you get from your client. And, you must document, at the time of the interview, any Additional questions you asked and your client’s replies. I cannot iterate enough, complete all required parts! You must complete Parts I, IV and V for every client, and, either Part II or Part III as required. Always, submit the completed Form 8867 with each EITC electronic return you send or attach the completed Form 8867 to any EITC return or claim for refund you prepare and present to your client to send. Remind your client that Form 8867 must be send in order for their Earned Income Credit be processed correctly. If too many of your clients leave Form 8867 out, the IRS for sure will come knocking on your door.

You need to answer the questions covering EITC eligibility on the Form 8867 using information from your client. But, we don't recommend you ask your clients the questions listed on the form. Use words and terms your client knows and won't misunderstand. For example: Don't ask: What's your marital status? Ask: Are you single or married? Don't ask: Are you head of household? Find out if they qualify by asking all the right questions. Don't ask if they have a qualifying child or a dependent, find out who they lived with during the tax year and for how long. The manner in which you ask the interview questions will determine the accuracy of the responses. Also, you want to avoid any possibility of fraud, so gear your questions in such a way as to be clear of fraud.

If you give your client an EITC return or electronic version to sign and send in, you must attach the completed Form 8867 to it. Be sure to stress the importance of sending in all the forms to the IRS. Form 8867 is extremely important. Follow and make sure the questions are answered on it correctly. If you suspect any wrongdoing or anything wrong with the responses, ask more questions. Ultimately, you are given the responsibility of the accuracy of information that goes on this form. There are high penalties at stake for you and you must do everything is your power to avoid these due diligence penalties.

If the Form 8867 is not included with EITC returns you prepared, you may get a warning letter from the IRS during the filing season. You may also start getting alerts with your acknowledgements that Form 8867 is not being included. You can use all the help you can get, and the IRS is there to help you after all. Furthermore, if Form 8867 is not included with EITC returns you prepared, you may get letter 5364 which is sent to those who prepare paper EITC returns without a Form 8867. Receiving acknowledgement Alerts which are sent electronically to those preparers who e-file EITC returns without Form 8867, is a good thing. You may inadvertently be excluding this extremely important document from your filings and these notifications could be a blessing.

If you have been leaving this form out of your filings, you don't want to submit Form 8867 separately without a tax return because the IRS cannot associate a Form 8867 with a tax return that has already been processed. Therefore, doing so will have no effect on the tax preparer's penalty assessments. You should never send Form 8867 separately. If the IRS continues to receive EITC claims prepared by you missing the Form 8867, they will continue to send warning letters. The IRS can only take so much abuse and may start sending Letter 1125 with the Form 5816, assessing the EITC Due Diligence penalty of $520 for each missing form.

You should start changing your procedures to ensure the Form 8867 is completed and submitted with every EITC claim to avoid the warnings for not submitting Form 8867 with returns. The last thing you want to do is ignore the letters. You could also make sure that your tax return software is not automatically excluding Form 8867. So, for tax returns submitted electronically, make sure the setting for including the Form 8867 is not disabled and for paper returns, make sure you let your clients know the importance of submitting all the forms you include. In addition, make sure to keep a record of the forms you included in the package your give your clients and personalize Form 8867 as much as possible by asking those additional questions.

If the IRS examines your client's return and deny all or a part of EITC, your client must pay back the amount in error with interest. Furthermore, your client may need to file Form 8862 and may be banned from claiming EITC for the next two years if the IRS finds the error is because of reckless or intentional disregard of the rules. If the error is extreme and due to fraud, your client may be banned from claiming the Earned Income Credit for the next ten years.

If the IRS examines the EITC claims you prepared and they find you did not meet all four due diligence requirements, you can get A $520 penalty for each failure to comply with EITC due diligence requirements. You will get a minimum penalty of $1,000 if you prepare a client return and IRS finds any part of the amount of taxes owed is due to an unreasonable position. If you just don't care and exercise reckless or intentional disregard for the rules, you will be liable for a minimum penalty of $5,000.

IRS can also penalize an employer or employing firm if an employee fails to comply with the EITC due diligence requirements. However, there are only specific circumstances when an employer is subject to the due diligence penalty.

You should be careful. Tax preparation is your profession and you should always follow the due diligence rules. If you receive a return-related penalty, you can also face suspension or expulsion. Your firm can also face expulsion from the IRS e-file program. There are so many penalties involved, such as many disciplinary actions by the IRS Office of Professional Responsibility. If you deteriorate your service to such an extent, you can also face injunctions barring you from preparing tax returns or imposing conditions on the tax returns you may prepare.

The Internal Revenue Service will pass new rules for a certain items when that item is being abused. First it was with the EIC where they force tax preparers to exercise due diligence. Then other credits and deductions have been abused and the IRS has to jump in and force tax preparers once more to exercise due diligence. Can you think of other deductions or credit of which the IRS is not forcing you to show that you exercised due diligence? Think about it. You should exercise due diligence in everything you do in your tax preparation business. Don't wait for a higher power to dictate to you what you should already be doing. Exercise due diligence in every credit, every deduction and item you claim on tax returns. It is your obligation.

E-file requirements
The IRS has identified questionable Forms W-2 as a key indicator of potentially abusive and fraudulent returns (see Safeguarding IRS e-file from Fraud and Abuse above). Be on the lookout for suspicious or altered Forms W-2, W-2G, 1099-R and forged or fabricated documents. EROs must always enter the non-standard form code in the electronic record of individual income tax returns for Forms W-2, W-2G or 1099-R that are altered, handwritten or typed. An alteration includes any pen-and-ink change. Providers must never alter the information after the taxpayer has given the forms to them. Providers should report questionable Forms W-2 if they observe or become aware of them. See "Reporting Fraud and Abuse Within the IRS e-file Program".

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.

EROs should advise taxpayers that they can avoid refund delays by having all of their taxes and obligations paid, providing current and correct information to the ERO, ensuring that all bank account information is up-to-date, ensuring that their Social Security Administration records are current and carefully checking their tax return information before signing the return. EROs can do a number of things for clients and customers to avoid rejects and refund delays. First, they can insist on identification and documentation of social security and other identification numbers for all taxpayers and dependents. Second, EROs can exercise care in the entry of tax return data into tax return preparation software and carefully check the tax return information before signing the tax return. Third, don't submit returns claiming dubious items on tax returns or present altered or suspicious documents. Also, ask taxpayers if there were problems with last year's refund; if so, see if the conditions that caused the problems have been corrected or can be avoided this year. Lastly, keep track of client issues that result in refund delays and analyze for common problems; counsel taxpayers on ways to address these problems. One of the most common reasons a return rejects is due to a mismatch between the taxpayer's TIN and Name Control involves newly married taxpayers so make sure you ask if their social security number has changed due to marriage.

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 must be signed by the taxpayer. Form 8879, IRS e-file Signature Authorization, authorizes an ERO to enter the taxpayers’ PINs on individual income tax returns and Form 8878, IRS e-file Authorization for Form 4868 and Form 2350, authorizes an ERO to enter the taxpayers’ PINs on Form 1040 extension forms. The ERO must keep Forms 8878 and 8879 for three years from the return due date or the IRS received date, whichever is later. EROs must not send Forms 8878 and 8879 to the IRS unless the IRS requests they do so. Note: Form 8878 is only required for Forms 4868 when taxpayers are authorizing an electronic funds withdrawal and want an ERO to enter their PINs. The ERO may enter the taxpayer's PINs in the electronic return record before the taxpayers sign Form 8878 or 8879, but the taxpayers must sign and date the appropriate form before the ERO originates the electronic submission of the return. The taxpayer must sign and date the Form 8878 or Form 8879 after reviewing the return and ensuring the tax return information on the form matches the information on the return. The taxpayer may return the completed Form 8878 or Form 8879 to the ERO by hand delivery, U.S. mail, private delivery service, fax, email or an Internet website.

Only taxpayers who provide a completed tax return to an ERO for electronic filing may sign the IRS e-file Signature Authorization without reviewing the return originated by the ERO. The ERO must enter the line items from the paper return on the applicable Form 8878 or Form 8879 prior to the taxpayers signing and dating the form. The ERO may use these pre-signed authorizations as authority to input the taxpayer's PIN only if the information on the electronic version of the tax return agrees with the entries from the paper return.

Once signed, an ERO must originate the electronic submission of a return as soon as possible. EROs must not electronically file individual income tax returns prior to receiving Forms W-2, W-2G or 1099-R. If the taxpayer is unable to secure and provide a correct Form W-2, W-2G, or 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., the ERO may electronically file the return after the taxpayer completes Form 4852, Substitute for Form W-2, Wage and Tax Statement or 1099-R.

E-file requirements such as not filing tax returns with pay stubs, when to get signature form, and the timing for handling rejects. Questionable Forms W-2 as a key indicator of potentially abusive and fraudulent returns. As an e-filer of your tax client's tax return, you should always be on the lookout for suspicious or altered Forms W-2, W-2G, 1099-R and forged or fabricated documents. Other things that you may not have thought about such as advertising that you can file tax returns without bringing Form W-2, W-2G and 1099Rs. Things to look for are the addresses in the Form W-2, Form W-2G, and your Form 1099R. If the address differs you must ask for an explanation. The addresses must also be accounted into the electronic record of the tax return.

EROs should probably advice the taxpayer that they can avoid refund delays by having all their taxpayer obligations met such as taxes paid. Taxpayers should provide current and correct information to the ERO. You should also ensure that all bank account information is up-to-date. You must also ensure that their Social Security Administration records. You should also make sure that all information on tax return is correct. Remember that only taxpayers who provide a completed tax return to an ERO for electronic filing may sign the IRS e-file Signature Authorization without reviewing the return originated by the ERO.  Once signed, an ERO must originate the electronic submission of a return as soon as possible. EROs must first secure all Forms W-2, W-2G and Form 1099R before electronically filing their individual income tax returns electronically.

Annual Filing Season Program Requirements
The IRS has implemented many new programs over the years. One of these programs offers the ability to be able to help your tax clients more. Starting in 2016 if you are a tax return preparer who is not a an attorney, CPA, Enrolled Agent, you will only be permitted to prepare tax returns and not be able to represent clients before the IRS if you are not enrolled to participate in the Annual Filing Season Program. It is not hard to be part of the Annual Filing Season Program, with a few simple continuing tax education tax courses and you're in.

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.

Let's face it, every little bit helps. You and your company can be part of a larger system - the Internal Revenue Service. The IRS does a lot of the promotion for you and all you have to do is complete a few short courses to be part of the program and as long as you complete these courses within the allotted timeframe, you are in. You can also advertise that you are part of the IRS registered tax preparer program and that you are listed in the Annual Filing Season Program and people can verify that you are indeed part of the IRS system listed along with enrolled agents, enrolled retirement plan agents, Certified public accountants and attorneys. This indeed gives you a competitive edge over your competitions. This program is voluntary so you know that not everyone is part of it, so you win.

Consent to Circular 230 and Circular 230 rules
The practitioner must use reasonable effort to identify and ascertain the facts, which may relate to future events if a transaction is prospective, and to determine which facts are relevant. Therefore, a practitioner must never base an opinion on any unreasonable factual assumptions (including assumption as to future events). This means that a practitioner cannot base an opinion on any unreasonable factual representations, statements or findings or of the taxpayers or any other person. As a matter of fact, it would be unreasonable 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 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.

The practitioner has an obligation for the facts in the tax return. Many tax practitioners feel or erroneously believe that as long as they have a client sign swearing that they reviewed the information in the tax return and that it is true to the best of their knowledge, that they are off the hook. There could be an exchange of conversations in the realms of "I'll do it as you want as long as you sign here that this is the information you have given me". Guess again, you as the tax preparer must use reasonable effort 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 must take information and use care that the information supplied is correct and true. Tax preparers who interview clients in a dishonest manner will eventually pay the price. Too many clients with the same issues can trigger a problematic preparer. Ultimately, the taxpayer will spill the beans and tell the auditor exactly how his or her preparers do business. Too many of these will eventually get the tax preparer restricted from preparing tax returns. That little statement the tax preparer has all his or her clients sign will do nothing to help him or her in this situation. Remember that you must sign that you abide the rules in your PTIN account and you must sign the Circular 230 Consent statement in order to participate in the Annual Filing Season Program. You must agree to abide the rules and you must know the rules.

Limited representation rights
It is good to know who the boss is. The IRS Return Preparer Office (RPO) in the boss in the tax professional industry. This office is the one responsible to the issuance and management of PTIN and continuing tax education for tax professionals. This office is also in charge of suitability checks to make sure only good people are enrolled in the programs it oversees. As mentioned before if you are enrolled in the Annual Filing Season Program, they are the ones you comply with as they are the ones in charge of the Annual Filing Season Program. This is the same agency that is in charge of enrolled agents, enrolled retirement plan agents and enrolled actuaries. All these programs, including the Annual Filing Season Program are governed by Circular 230.

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.

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 helping your clients only in their initial audit. You can help your client customer service matters. Furthermore, you can help your client with matters with the Taxpayer advocate Service. The Annual Filing Season Program participant must be in the program at all times which involves the tax return of his or her client. You simply must be an AFSP tax preparer in both the year the tax return was prepared and for the year of representation. This is key because you can only represent individuals for whom you prepare taxes for. If you are no longer part of the programs then you cannot represent anyone, not even your own clients. Being part of the program only allows you to represent your own clients and that representation is limited. Consequently, you must be part of the AFSP program at every stage of the tax returns preparation task. This is no different that when a lawyer wants to represent a client or continue to represent a client in court - if the lawyer has lost his or her license to practice, he or she can no longer represent anyone.

The new tax reform was finally approved by Congress on December 22, 2017. The new Tax Cuts and Jobs Act (TCJA) was passed to take effect on both individuals and businesses. This new legislature dictates how businesses and individual will computer their deductions and credit from January 1, 2018 forward. Many of the deductions and credits are set to expire December 31, 2025. For example the exemption credits will be zero from 2018 through 2025. After that it is either going to revert or depending on who is in charge at that time, may continue to be zero. Furthermore, the deduction of interest for home equity indebtedness is eliminated for tax years 2018 through tax year 2025. After than it will revert or depending on who is in charge, it may continue to stay eliminated. However, the regular deduction for home interest has been limited but not eliminated. This limitation will only affect a few taxpayers in the nation as for most people own homes that are worth less than $750,000. Many do have homes that are worth more than that, though and these homeowners will for sure be affected by the new tax law. People who live in the Bay area for example most own high end expensive homes.

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.

People with children are getting all the credits. For good reason, raising children is not an easy task, from the time they are infants, you have to wake up late at night, and the constant crying, and then when they are teenagers they give you more headaches. Any relief parents can get from anywhere is great news.

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.

More on unenrolled preparers
An unenrolled preparer may, in a dignified manned, publish, use, or broadcast through any means of communication the names of individuals associated with the firm, a factual description of the services offered and the appropriate fee information. The unenrolled preparer will be expected to recognize questions, issues and factual situations as expected of enrolled agents. An unenrolled individual who signs a return as its preparer may act as the taxpayer's representative if accompanied by the taxpayer or by filing a written authorization from the taxpayer. The unenrolled tax preparer cannot use false, fraudulent, misleading or deceptive advertising and he or she cannot make uninvited solicitation of employment in matters relating to the Internal Revenue Service.
An examining officer, or other Service officer or employee who has reason to believe that an unenrolled preparer's conduct has been or is such as would render the preparer ineligible to appear as the taxpayer's representative before the Internal Revenue Service shall communicate this information to the District Director of the taxpayer.
 Enrollment as an enrolled agent based on an applicant's former employment with the Internal Revenue Service may be of unlimited scope. Enrollment as an enrolled agent based on an applicant's former employment with the Internal Revenue Service may also be limited to permit the presentation of matters only of the particular class for which the applicant's former employment has qualified the applicant. Enrollment may also be limited to permit the presentation of matters only before the particular unit or division of the Internal Revenue Service for which the applicant's former employment has qualified the applicant.
The director of the Office of Professional Responsibility must inform the EA enrollment applicant as to the reason for any denial of an applicant for enrollment. The applicant may within 30 days after receipt of the notice of denial of enrollment, file a written appeal of the denial with the Secretary of the Treasury or his or her delegate.
 An applicant for enrollment as an enrolled agent who is requesting such enrollment based on former employment with the Internal Revenue Service must have had a minimum number of years of continuous employment with the Internal Revenue Service during which the applicant must have been regularly engaged in applying and interpreting the provisions of the Internal Revenue Code and the regulations relating to income, estate, gift, employment, or excise taxes. Minimum years of continuous employment must be five years.
Subject to certain limitations, an individual who is not a practitioner may represent a taxpayer before the Internal Revenue Service, even if the taxpayer is not present, provided the individual presents satisfactory identification and proof of his or her authority to represent the taxpayer. For example, an individual may represent a member of his or her immediate family. Furthermore, a regular full-time employee of an individual employer may represent the employer. Also, a general partner or a regular full-time employee of a partnership may represent the partnership.
Any individual may prepare a tax return, appear as a witness for the taxpayer before the Internal Revenue Service, or furnish information at the request of the Internal Revenue Service or any of its officers or employees. Of course, individuals may always appear on their own behalf before the Internal Revenue Service that is why we have enrolled agents.
An individual who prepares and signs a taxpayer's tax return as the preparer, or who prepares a tax return but is not required (by the instructions to the tax return or regulations) to sign the tax return may represent the taxpayer before revenue agents, customer service representatives or similar officers and employees of the Internal Revenue Service during an examination of the taxable year or period covered by that tax return. However, this right does not permit such individual to represent the taxpayer before the appeals officers, revenue officers, counsel or similar officers or employees of the Internal Revenue Service.
A practitioner must, on a proper and lawful request by a duly authorized officer or employee of the Internal Revenue Service, promptly submit records or information in any matter before the Internal Revenue Service unless the practitioner believes in good faith and on reasonable grounds that the records or information are privileged.
A "Declaration of Representative" is a written statement made by a recognized representative that he or she is currently eligible to practice before the Internal Revenue Service and is authorized to represent the particular party on whose behalf he or she acts.
Power of Attorney
An attorney is any person who is a member of good standing of the bar of the highest court of any state, territory, or possession of the United States, including a commonwealth, or the District of Columbia. A Durable power of attorney is a power of attorney which specifies that the appointment of the attorney-in-fact will not end due to either the passage of time (i.e. the authority conveyed will continue until the death of the taxpayer) or the incompetency of the principal (e.g. the principal becomes unable or is adjudged incompetent to perform his or her business affairs).

A power of attorney must contain the name, mailing address and the identification number of the taxpayer. The power of attorney must also contain the name and mailing address of the recognized representative and also a description of the matter or matters for which representation is authorized. Also, if applicable, the power of attorney must contain the employee plan number.

 
References:

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

 

Instructions - Steps to follow.

Please do the following for Ethics:

 

Step 1. Read the reading material on this page.

Step 2. Answer the questions on this page (scroll down).
Step 3. Submit review question one by one at "Submit Review Questions (scroll down)
Step 4. Complete the Ethics Topic Final exam. 
Review Questions:

 

1. To reduce your risk of identity theft for 2021, 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 2021. 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 2021, 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.

 

 

4. For 2021, the following is a true statement regarding practitioners.

A. 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.

B. The practitioner can base an opinion on any unreasonable factual assumptions (including assumption as to future events).

C. The practitioner can base an opinion on any unreasonable factual representations, statements or findings or of the taxpayers or any other person.

D. It is 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.

 

 

5. To qualify for continuing tax education credit for an enrolled agent, a course of learning must

A. Be a qualifying program designed to enhance professional knowledge in federal taxation or federal taxation related matters.

B. Be a qualifying program consistent with the Internal Revenue Code and effective tax administration.

C. Be sponsored by a qualifying tax education sponsor.

D. All of the above.

 

 

6. With respect to any matter administered by the Internal Revenue Service, a practitioner may

A. Take acknowledgments.

B. Administer oaths.

C. Certify papers or perform official acts as a notary public.

D. None of the above.

 

 

7. Tax advisors should provide clients with the highest quality representation concerning federal tax issues by adhering to best practices in providing advice and in preparing or assisting in the preparation of a submission to the Internal Revenue Service. For tax year 2021, best practice includes

A. Advising a client to take a position on a document, affidavit or other paper submitted to the Internal Revenue Service.

B. Advising a client to submit a document, affidavit or other paper to the Internal Revenue Service even if this impedes the administration of the federal tax laws.

C. Establishing the facts, determining which facts are relevant, evaluating the reasonableness of any assumptions or representations, relating the applicable law to the relevant facts, and arriving at a conclusion supported by the law and the facts.

D. Advising a client to take any step necessary to avoid the payment of tax at all cost.

 

 

8. Being convicted of any criminal offense under the revenue laws or of any offense involving dishonesty or breach of trust is

A. Acceptable conduct if offense was committed in a state other than the one you practice in.

B. Alright as long as it does not directly involve your client.

C. Not considered disreputable conduct.

D. Considered disreputable conduct.

 

 

9. Subject to certain limitations, an individual who is not a practitioner may represent a taxpayer before the Internal Revenue Service, even if the taxpayer is not present, provided the individual presents satisfactory identification and proof of his or her authority to represent the taxpayer. For example

A. An individual may represent a member of his or her family.

B. A regular full-time employee of an individual employer may represent the employer.

C. A general partner or a regular full-time employee of a partnership may represent the partnership.

D. Any of the above.

 

 

10. A durable power of attorney is a power of attorney which

A. Is able to withstand IRS interrogations while representing his or her client.

B. Specifies that the appointment of the attorney-in-fact will not end due to either the passage of time or the incompetency of the principal.

C. Authority will continue even after the death of the taxpayer.

D. Will stop once the principal becomes incompetent to perform his or her business affairs.

 

 

Instructions - Steps to follow.

Please do the following for Ethics:

 

Step 1. Read the reading material on this page.

Step 2. Answer the questions on this page.
Step 3. Submit review question one by one at "Submit Review Questions."
Step 4. Complete the Ethics Topic Final exam.