 Hello and welcome to this session in which we will discuss Circular 230 and it reads the title of it, regulations governing practice before the internal revenue service, before the IRS. Simply put, regulations. How do you practice in front of the IRS? Why are you learning about this topic? Because this topic is covered on the CPA exam as well as the enrolled agent exam. Now if you are a CPA candidate or an enrolled agent candidate for that matter, please check out my website farhatlectures.com. I don't replace your Becker, Roger, Gleam or Wiley. I can be a useful addition to your CPA review course. I can add 10 to 15 points to your CPA score by explaining the material differently. I don't assume any prior knowledge. What you should do? Try it out. I do have multiple choice through false questions to help you practice but your risk is one month of subscription. Your return is passing the exam. Are you willing to take that risk? And if not for anything, check out my website to find out how well is your university doing on the CPA exam. I do have resources for other courses in CPA sections and connect with me on LinkedIn and check my LinkedIn recommendation. You will see what others use the system because they do share their reviews on my website. Please like this recording, share it, connect with me on Instagram and Facebook. So let's talk about Circle or 230. The first thing is we need to define who can practice in front of the IRS. So there we go. The following groups can practice before the IRS. Who are they? Well, there are four groups. The first group is attorneys, lawyers. You have to be in good standing with the IRS as well as your state bar. Simply put, you cannot be disbarred. And you have to have a written declaration by the party authorized to represent. So if somebody sign you, they said, you can represent me. You have to have a written permission to obviously CPAs. This is what you are. This is who you are going to be. You have to be a qualified CPA in your state or jurisdiction. And simply put, you cannot have your CPA cannot be suspended. You cannot be suspended from practice also by the IRS office because you could be suspended by the IRS office of professional responsibilities. And your state or your jurisdiction may or may not suspend you, but just you have to be aware of both rules. And you have to have a file written declaration by the party who appoints you. The third group is enrolled agents. Now, enrolled agents, they're also enrolled actuaries, another group, as well as enrolled retirement plan agents, but we don't really concern ourselves with them. Just remember, we have enrolled agents, EAs, those are EAs. And who's an EA? Somebody pass a CPA exam, not CPA, enrolled agent exam, an IRS enrolled agent exam. I believe it's three parts. And you might be one of these individuals who are listening to my recording to learn about this. And the fourth party is registered tax return preparers, those they register with the IRS, then they can and they can prepare returns. Now, Circular 230, they have rules of conduct for people who practice in front of the IRS. And we're going to look at some of the rules of conduct. And this is a list of them. And we're going to look at each one separately, speak about it a little bit enough that you can answer CPA questions on the CPA exam day. The first rules of conduct we're going to look at is conflict of interest. And what is conflict of interest? Simply put, it's a situation in which the concern or aims of two different parties are incompatible. A classic situation is you are the CPA of a husband and a wife, they're going through some divorce or having some IRS issues and you are representing both parties. If that's the case, you might have a conflict of interest. Okay, that could be that could be the case. What do you have to do under those circumstances to represent both parties? You want to make sure you have consent from both parties, simply put, all parties have to be informed about this conflict of interest and you have to be in written within 30 days. Okay, now when I said all parties, it doesn't mean the IRS has to be known about this, only the parties who are involved in this conflict in this conflict of interest. Now, you cannot represent parties if you have conflict of interest, you're not allowed to do so if you believe your effectiveness to represent the parties is diminished by this conflict of interest. Simply put, you cannot give your best because if you give one representation, you're going to be harming the other. If you give one party a better representation, you'll be harming the other. So that's you're not giving your best effort. Now, if you watch Better Called Soul sometime he would or or not Better Called Soul break in bed, he was representing at some point people with different conflict of interest. Hopefully you can relate to that to that show. Okay, I like that show. Breaking bad. Okay, information to be furnished to the IRS. So what if the IRS asks you for records and information? What do you have to do? Well, generally speaking, you have to submit the information if you are asked by an authorized officer or an employee of the IRS unless unless unless you truly believe you have a reasonable belief not reasonable reasonable reasonable belief in good faith that the information is privileged or the request is not proper or lawful and under those circumstances, you don't have to give them the information. Let's assume they ask you but you don't have the information but you know who has the information, then you have to let them know what other person would help them with their request. So if you don't have the information but you know well you have to exercise due diligence and what is due diligence? Basically being careful and and have a persistent work or effort that's what due diligence is. So you have to exercise due diligence when you are preparing and assisting and preparing tax returns filing returns documents and other papers related to the IRS simply put when you're going to be presenting information to the IRS you have to be very careful you have to have all your eyes dotted and your teeth crossed because they're going to challenge you okay and due diligence is assumed if you rely on the work product of another person and now that that's not only the case it's not like well I relied on the other person and use reasonable care in hiring or engaging that other party you're supervising that other party if you if you have to and evaluating the person's capabilities so it's not only well I relied on the other person therefore I did my due diligence well you did rely that's fine you made that choice but make sure you you vetted them you make sure that they are competent you supervise them you reviewed their work okay so also the practitioner may not reasonably delay any matter before the IRS so don't drag your feet that's not that's not due diligence that's you cannot claim due diligence and delay the process okay client records notice here the word client so remember that word client right you must return notice I underline must return client record regardless of a fee dispute if you have a dispute with the client they did not pay their fee you still have to return the record you know it belongs to the client it's the client record remember the client might have to file the return and you're hindering that process if they don't have the record they cannot file the return you want to go somewhere else now bear in mind paperwork prepared by the practitioner is not required to be returned we'll give you a simple example and for example you have you have a client they have a lot of medical expenses and I remember one client they have over a hundred thousand dollars in medical expenses and they just simply gave you their bills you add up all the bills that qualify for a medical expense you don't have to give them that excel sheet that's that's work paper prepared by by you by the practitioner that's not that that's not their work paper okay now there's an exception to that rule about returning the record in some state what happened is they allow you to withhold the record they allow you to withhold the record there is a fee dispute however you have to return any record that's required to be attached with the return for example you'll have to send your w2 you have to attach it certain certain forms they have to be attached to the return so that that you have to return also you have to give them reasonable access and the right to review and copy any records so simply put it's it's a law without teeth in my opinion but you have to know about that rule that in certain state you can you can withhold the record also the one we say the client records that includes any work done by a third party on behalf of the client so if the client hired a third party to do to do some work on their behalf as part of this engagement you cannot withhold that record because they hired that third party a good example will be let's assume you're working with for a construction company and part of the revenue is they do the revenue based on percentage of completion and you want to know how many units they constructed for a particular year or how far are they in the process they might hire an architect or an engineer to review that and they will give you a report now because they hired them they did the work on their behalf that's the record as well remember your record is anything prepared by you the practitioner that's your paperwork you don't have to return it but any paperwork by a third party that was hired on behalf of the client that's their paperwork okay what happened if you discovered there are some clients non-compliance simply put the clients made errors or a mission in the past and now you discovered them what do you have to do well what do you have to do you are required to advise the client about the non-compliance look here's the issue and you have to tell them about the consequences of non-compliance or the errors or what the emission or whatever it is you don't have to tell the IRS this is they always test you on this you don't have to tell the IRS you don't work for you don't work for the IRS you work for your client you don't have to tell the IRS and you don't need to withdraw from the engagement if you don't want to you and some of the answers I would say part of it is withdrawal you don't have to withdraw just be aware of these two tricky kind of they sound very logical but you have to be aware of them rules about solicitation and advertisement obviously we all advertise somehow even on a personal level so you have to be careful you cannot have any false misleading deceptive unfair statement you can't do any of these whether you do them privately or in public privately means whatever you tell someone in person you know in a conference or you put them on on the web you're right you you have an ad on a website or a billboard or anything like this you cannot you cannot do that and this reminds me again better call Saul about solicitation and advertisement if not just look up that movie look up that show on on Netflix I'm laughing because I know this is the second time I mentioned this you cannot give any guarantees like I'll give you the maximum refund or just come along you know use my service and you will not pay any taxes you cannot give those guarantees that's basically not good you cannot you know you cannot present yourself as an in an expertise unless you have to credential you have to back that up okay now each of the following fees might be advertised what are they fixed fees for specific routine services they must be honored for 30 days a range of fees for particular services that's fine the fee for initial consultation hourly rate availability of a written fee schedule that's all that's all okay and you can communicate this information in many ways radio email tv newspaper etc and you have to keep record of three years of that advertisement okay there are certain things that you cannot do just they're easy to kind of remember there are no no one you cannot endorse you cannot endorse which is negotiated check issued to a client yourself so if the refund check is issued to the client you cannot endorse it to yourself and do anything with it you can keep it for them until they come back from that from that you know from that vacation or whatever they are but you cannot endorse it for any reason simply put remember if it says endorsement you cannot endorse that check to you okay you may not charge what's called unconscionable fee in in connection with any matter before the irs what is unconscionable fee it's basically a high fee because a lot of people they get afraid when they are being audited by the irs you might be able to take advantage of them so it said you can do that for example somebody who is not familiar with the process or an old person you can do that okay you cannot also charge a contingent fee what is a contingent fee contingent fee a fee upon the performance you know commission like a commission if i get you ten thousand dollar i'll get 20 percent of that or pay for performance the more i get the more i get paid you can do that unless unless it's an irs examination so notice here it's an examination and it it's an examination of an original return amended return or claims for refunds and credit if it's an irs examination that deals with those then that's okay because the now you are being challenged by the irs now if you can beat the irs good for you will pay you more okay it's an examination remember it's an examination you cannot give any advice to the client that's considered frivolous tax position simply put you're given that that that advice and bad faith and you know what's wrong that's what that's what it means you can't do that now also you have to be competent now how do we define competency well you have to possess appropriate level of skills and knowledge how do you demonstrate this well you can demonstrate this through experience you can demonstrate this through education if you do research if you can consult with experts and you become you know competent in the topic so it's not it's it's not it's not difficult also the circular 230 recommends some best practices what are some of those best practices you have to provide the highest quality representation what is highest quality representation well they're going to give you four general elements to show you what's high what's the what's the highest quality representation one if you have to have a clear communication between you and the client the terms of engagement that's called the terms of engagement communicating clearly with the client about the terms of the engagement what are we what's the purpose of our engagement usually that's documented in the engagement letter like you remember the engagement letter that either learn about and all the things or you would learn about something called the engagement letter it's like a contract what what am I doing for you let's spell it out that's one two any conclusion that you give to the client must be supported by evidence facts and law and you did your due diligence you did a lot of work you did research enough research that you can you can back that position advise the client about any potential issues with the conclusion simply put if you're gonna be challenged by the IRS you gotta let them know look we might be challenged by the IRS and if we're challenged we might have to pay penalties if you're gonna rely on my advice so those are best practices you have to let them know up front and obviously you have to act fairly and with integrity before the IRS of course now this is if you're a sole proprietorship if we're dealing with a firm the firm will have to make sure all their members employee follow the standards they should have a good internal control simply put they will need to disseminate this information educate their employees train them test them supervise them make sure that they're doing what they're supposed to do let's look at other issues you must inform the client about any penalty reasonably likely to apply with the respect of any document submitted to the IRS if it's reasonably likely you have to let them know any position taken on a tax return for example we're you know we're we're gonna defer this revenue or we're gonna take this expense well you have to let them know if it's reasonably likely reasonably likely we're gonna hit it we're gonna be charged with a penalty you have to let them know if you gave them the advice prepare to return or sign to return okay what happened if information provided by the client if information provided by the client generally speaking you have to rely on it you're not really auditing the client i used to prepare tax return the client will give you the information and there is no way for you to verify it okay of course you can use your common sense oftentimes if the information is incomplete you have to let them know if some of the information is contradictory if it's wrong if it's questionable it's unreasonable they should have certain expenses and they don't have those expenses the revenue is way below what they're supposed to have so on and so forth so if any of this information appears to you then you can question it that's that's up to you how far you want to go but generally speaking you have to you accept whatever the client is giving you written media any written communication written advice about any federal tax matter should be based on advice the advice should be based on reasonable assumptions you have to comply with all relevant facts laws no cherry picking you pick the laws that you want and keep the other ones and the communication can be paper physical or electronics and this will include email or even text as well okay so the advice must not consider this is important must not consider so when you give an advice you cannot consider the possibility that either a tax return will not be audited or the matter will not be raised during an audit so you cannot tell the client look let's not worry about this this will never get audited or this you don't you give the advice based on the facts the laws and the evidence that you have not based on the possibility there's a low possibility it's going to be audited or raised during an audit that's not that's not how you do things practitioner you can rely on good faith on other practitioner but not anyone only if the advice is reasonable given all the fact and circumstances obviously if you're relying on someone you have to make sure they are reasonable they are competent they have enough expertise in the field okay so the practitioner can rely on the advice of a person also who's either who either the practitioner knows or should have knows is not should have no is not competent to provide the advice or that individual has some conflict of interest in their decision therefore you should not rely on their advice because there's a remember the conflict of interest they may not be giving you the best advice so what happened in case of violation well the secretary of the treasury may censor you suspend suspend you or disbar you from practice before the irs so any practitioner who does the following to be shown to be incompetent not in good faith obviously and does not have a good reputation disruptible refuses to comply with rules and regulation relating to practice before the irs you're just disregarding the rules willfully or knowingly with the intent to defraud deceive mislead or threaten the clients well you'll be subject to disbar when you'll be subject to suspension okay the following is a brief list okay we're going to look at them that could result in suspension or disbarment basically being convicted of an offense involving dishonesty or breach of trust simply put we don't want you to practice in front of us providing false or misleading information to the treasury department or the irs negotiating a client's refund remember you cannot do that remember you cannot endorse the check or not promptly remitting refund a check you can't you cannot withhold any money circulating or publishing matter relating to practice before the irs that being labelous or malicious you can't do that using abusive language suspension from practice as a cpa by any state licensing authority any federal court of record or any federal agency body or board to simply put if your state says you're out you're no longer a cpa well that may result in suspension in practicing before the irs conviction of any felony involving the conduct that renders the practitioner unfit to practice before the irs attempting to influence the official action of the of an irs employee you know simply put you're trying to bribe them willfully evading or assisting others to evade any federal tax payment you cannot is evading you can try to lower your tax bill legally but you cannot evade or assist other in evading okay notice of disbarment or suspension of a cpa from practice before the irs is issued to the irs employees who gets direct they get a record of your name interested department at agencies of the federal government and your state licensing authority which they could in some situation your state might also suspend your license in the state to practice in the state basically take away your cpa so make sure you are ethical that's that's that's that's the lesson here at the end of this recording i'm going to remind you for additional lectures please visit farhatlectures.com as i mentioned earlier i don't replace your cpa review course i'm only in addition i'm only that vitamin pill that supplement that could help you increase your score which in turn help you pass the cpa and go ahead and practice in front of the irs good luck study hard and stay ethical