 Income tax 2021-2022, circular 230, regulations governing practice before IRS. Get ready to get refunds to the max, diving into income tax 2021-2022. If you want to find the circular 230 and I recommend looking over it, you can find it at the IRS website at irs.gov. You can search for the circular 230 and then go into it here. We're just going to be touching on some of the key components, but you can read over more of it here. Regulations governing practice before the internal revenue service. Take a look at the table of contents on down below where we have the rules governing authority to practice, offices, definitions, who may practice eligibility to become an enrolled agent, enrolled retirement plan agent, or registered tax return preparer, application to become an enrolled agent, enrolled return plan agent, or registered tax return preparer, term and renewal of status as an enrolled agent, enrolled retirement plan agent, or registered tax return preparer, presenting oneself, participating in rulemaking, limited practice and special appearances, return preparation and application of rules to other individuals, continuing education providers and continuing education programs, Subpart B, duties and restrictions relating to practice before the internal revenue service, information to be furnished, knowledge of client's omission, diligence as an actuary, prompt disposition of pending matters, assistance from or to disbarge or suspended persons and former internal revenue service employees, practice by former government employees, their partners and their associates, notaries, fees, return of client's records, conflicting interests, solicitation, negotiation of taxpayer checks, practice of law, best practices for tax advisors, standards with respect to tax returns and documents, affidavits and other papers, competence, procedures to ensure compliance, requirements for written advice, establishment of advisory committees. And then, Subpart C, sections for violations of regulations, Subpart D, rules applicable due to disciplinary proceedings, and we then have Part E, general provisions. We're going to go over some of the items on the Circular 230 here. If you want more detail, go to the IRS website, irs.gov. So it contains rules governing the recognition of attorneys, certified public accountants, enrolled agents, enrolled retirement plan agents, registered tax return preparers, and other persons representing taxpayers before the internal revenue service. So our focus here, we're kind of pulling stuff out that's related to, in essence, tax return preparers, which could include attorneys, certified public accountants, enrolled agents, and tax return preparers, for example. Subpart A of this part sets forth rules relating to the authority to practice before the internal revenue service. Subpart B of this part prescribes the duties and restrictions relating to such practice. Subpart C of this part prescribes these sections for violating the regulations. Subpart D of this part contains the rules applicable to disciplinary proceedings. Subpart E of this part contains general provisions relating to the availability of official records. Practice before the internal revenue service. Comprehends all matters connected with a presentation to the internal revenue service or any of its officers or employees relating to a taxpayer's rights, privileges, or liabilities under laws or regulations administered by the internal revenue service. So note that if you're representing someone else in front of or to the internal revenue service, you're looking out and basically acting as an agent on someone else's behalf of the rights, privileges, and liabilities under laws and regulations in a similar way as you might see basically a lawyer doing like a criminal type of case. And in that instance, then, you're basically acting in a position where you might have more information or kind of specialized information that the client does not have. And that's usually what defines something as a profession. So when you're talking about a profession, you're often talking about something that needs some kind of regulation either through government regulation or possibly self-regulation because you're looking at a situation like a medical profession or a legal profession or a tax profession where it would take a lot of time to gather the information to really understand what's going on. That's what you're getting paid for is the ability to know the information. And because there's that disparity of information, that's where market forces can kind of get a little out of whack because a traditional market transaction is one in which both sides of the transaction have all the information necessary in order to make an intelligent transaction that would be in their self-interest when you're looking at types of issues where one person doesn't have the information possibly in a situation where it's inherent that they don't have the information because that's what they need is that kind of information. That's when you often need some kind of profession that could help to legitimize and give faith and trust to the person acting in that profession. And of course, tax preparation, especially as taxes get more and more complex and representing your rights in front of the IRS, becomes more and more in alignment with that kind of profession that needs some kind of rules and regulations in order to foster trust within it. Sets presentations include but are not limited to preparing documents, filing documents, corresponding and communicating with the Internal Revenue Service, rendering written advice with respect to any entity, transaction, plan or agreement or other plan or arrangement having a potential for tax avoidance or evasion and representing a client at conferences, hearings and meetings. Who may practice? Attorneys, certified public accountants, enrolled agents, enrolled actuaries, enrolled retirement plan agents. So notice when you're thinking about a situation where you're actually representing, say, a client to the Internal Revenue Service, then you're acting kind of in a traditional role that attorneys have played in other areas. Attorneys you can think of as kind of more of a broad component of this type of activity, right? So if you had some kind of legal problem, if it was a criminal problem or something like that, you might have your attorney then represent you actually making decisions on your behalf in a specific area related to a specific case. If you're talking about tax law, then the attorney could act in that area as well. Although attorneys, oftentimes the attorney is a much more broad designation, legal designation in a broad sense who could then specialize in the area of taxation. And if they do, they're probably in a more specialized area of the tax code as well. Certified public accountants then also could have a more limited capacity to act as an agent that would be specific in this case towards taxation and so on in that area. They're also a little bit broader as well, but not in the sense that the attorney is, which is in legal area in general. The certified public accountants are usually broader in the areas of say business taxation because they also have the accounting knowledge. So that's where their broadening comes out. So oftentimes CPA firms will be pretty good at dealing with issues that are going to be related to business returns that have, you know, an accounting kind of component to it possibly. Enrolled agents then also can be representing, might be more specialized oftentimes and say more likely to be possibly individual types of returns, although again they could broaden their arrangements out as well, picking up, you know, any types of returns as well. And then we got the enrolled actuaries and enrolled retirement plan agents, which you could see are getting more and more specialized in the areas that they're representing. Specialization being oftentimes a good thing. Many people have problems when they're like an attorney, for example, could often have problems that their ability to do things is so broad that they have problems specializing where they want to be. Do they want to be in the tax area? What kind of tax area? Same with certified public accountants. They often have a really broad area that they could be doing stuff in, which stops them from basically specializing sometimes and specializing would often be good because it can allow you to focus where you want your attention and do a better job and often make more money in a specific area. But in any case, registered tax return preparers and others, any individual qualified under section 10.5e or section 10.7 is eligible both to practice before the IRS to the extent provided in those sections, government officers and employees and state officers and employees in some instances as well. If you're looking at those items, you can look at the, go to the IRS website for more detail about them. Fees, so we're talking about practitioner fees. We're not talking here about penalties and interest from the IRS, but practitioner fees in general, a practitioner may not charge an unconscionable fee in connection with any matter before the Internal Revenue Service. So obviously I know none of you would be charging an unconscionable fee, but if you were thinking about doing that, don't charge an unconscionable fee. Obviously that word's somewhat vague. What does it mean to have an unconscionable fee? I'm sure we can think of a few situations that would be unconscionable, but we got a little bit more specific in some of the other items here, except as provided in paragraph B2, 3 and 4 of this section, a practitioner may not charge a contingent fee for services rendered in connection with any matter before the Internal Revenue Service. So a contingent fee is usually something that's going to be a contingent on the outcome. And you can see how that kind of causes a problem when you're a tax preparer or a practitioner. For example, if you're preparing taxes and you're saying, I'm going to charge you a fee based on the refund I'm getting you, then you have a clear incentive to try to maximize the refund. And that's a really big problem because we don't want that kind of incentive there because what we want to be saying is, as a practitioner, we want you to be able to trust the person preparing the tax return and their goal isn't really to optimize the refund. The goal is to file an accurate return optimizing the refund as much as they can within the context of the law. And the fact, the way the structure is with regards to tax preparation, it's quite possible that if someone wanted to scam the system, they could try to charge a contingent fee, they could try to do things that are not legal or would not be sustainable positions to get large refunds. The refunds possibly then being received, then the practitioner disappears before the IRS finally comes back and audits some of the returns at a future point in time, leaving the clients holding the bag at that point in time saying, hey, the practitioner is the one that filled that out, the practitioner is gone now. And so you can see how basically the contingent fees would be a problem here because it leads to negative incentives for unsustainable position. Contingent fee is any fee that is based in whole or in part on whether or not a position taken on a tax return or other filing avoids challenged by the Internal Revenue Service or is sustained either by the Internal Revenue Service or in litigation. The contingent fee includes a fee that is based on a percentage of the refund reported on a return that is based on a percentage of the taxes saved or that otherwise depends on the specific result attained. So the general idea, the contingent fee being dependent on obviously something that's going to be contingent in the future, some result that's going to be happening at some point in the future. So a contingent fee also includes any fee arrangement in which the practitioner will reimburse the client for all or a portion of the client's fee in the event that a position taken on a tax return or other filing is challenged by the Internal Revenue Service or is not sustained whether pursuant to an indemnity agreement, a guarantee, a recession rights or recession rights or any other arrangement with similar effect. And you can see why this might be the case as well because you can see that when you actually file the tax return, if you were to take a position that's a questionable position that might not be sound under scrutiny. In other words, if you had an audit on it, it might be reversed or have a large likelihood of being reversed. And you were a practitioner, if you were to say, I can do this for, you know, a hundred clients and if one or two of them happen to get audited because the likelihood of them being audited is fairly low just in general terms, unless the IRS, you know, did something specific and went down the client list for some reason which possibly they could do if they saw something was bad at some point in time. But just in terms of that, they could say, well, look, I'll just do a hundred tax returns and then if say like a couple percent of them get audited and I base my revenue on the contingent fee which is going to be higher based on this position we're taking and the refund being higher and if they actually overturn a few of them, then I'll just reimburse those few. So then I would have gotten my benefit on the contingent fee being based, getting the higher returns for the hundred returns and I would only have to reinvest them or reimburse in a small percentage that would actually get audited under kind of normal conditions. Obviously, that's kind of like a scam kind of position and the IRS is saying that's another reason the IRS doesn't like these kind of contingent fee kind of arrangements because if someone was to set something like that up, it lowers the professionalism of the whole profession and people lose, you know, trust in general. So return of clients records and generally practitioner must at the request of a client promptly return any and all records of the client that are necessary for the client to comply with his or her federal tax obligations. So there's some instances you would think this would be obvious but there's some kind of instances where someone doesn't get paid, what if they haven't paid you in a few years and whatnot, what are you going to do? Are you going to hold their records hostage that they need to record something else? That's kind of petty but it happens sometimes and you know, you've got to give them their records, right? You've got to give them the records back and if they're not and then take some other actions, just cut the future engagements off or something like that would be the general action taking if there's any kind of problems but you've got to give them the records back because they're their records typically. And that might not be as much of a problem these days when the records are electronic. So you get a lot of this record transfer electronics which means both parties still have a copy of the records oftentimes but may still be an issue. A practitioner may retain copies of the records returned to a client. The existence of a dispute over fees generally does not relieve the practitioner of his or her responsibility under this section. Nevertheless, if applicable state law allows or permits the retention of a client's records by a practitioner in the case of a dispute over fees, the services rendered, the practitioner need only return those records that must be attached to the taxpayer's return. So if the state law in essence is different in some instance then maybe you could just give them the records back that are in compliance with the return and in that event I would think that the best practice would be if they want their records back, give them the records back if you want to cut future engagements then cut future engagements generally. I would generally think that would be the best practice but the practitioner, however, must provide the client with reasonable access to review and copy any additional records of the client retained by the practitioner under state law that are necessary for the client to comply with his or her federal tax obligations. Conflicting interest, except as provided by paragraph B of this section, 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 or there is a significant risk that the representation of one or more clients will be materially limited by the practitioner's responsibilities to another client or former client or a third person or by personal interest of the practitioner. So obviously if you're representing somebody and you have some kind of interest involved in it that can influence your decision, possibly having another client that has some direct influence or possibly having some other kind of possible financial interest in the outcome, then you can't really act as an impartial agent. People get kind of upset when you bring this up because they say, hey, I'll still act honestly even if I had some other client that has an interest or if I have a direct financial interest in the outcome and so on, and that may well be, but the fact is that many people will still, it'll still kind of influence your positions at least subconsciously, most likely, and too if an outside observer was to look at it, they're going to say, hey, this person that's positioning themselves as an agent has a direct interest so it doesn't look like you can be independent in those cases and if you doesn't look independent because of those interests, then again it's going to decrease the level of faith that people have in the system and in you as the practitioner in particular and in the practice in general if that was to happen a lot. So advertising and solicitation, so what kind of advertising can you do? A practitioner may not with respect to any internal revenue service matter in any way use the participant in the use of any form of public communication or private solicitation containing a false fraudulent or coercive statement or claim. So clearly you can't advertise and just lie about it. For example, you can't say, you know, I guarantee everybody's going to get this amount of refund on their tax return 100% or something like that because that doesn't make any sense or a misleading or deceptive statement or claim. So they want to be honest in terms of the advertising. Once again, this being basically a profession trying to regulate its own professionalism to try to increase the value and trust within it which is beneficial typically to everybody involved but obviously one person that violates that kind of thing is going to benefit and they're basically benefiting by lowering the goodwill. They're cashing in the goodwill just like a company that had a good name and then they trashed their good name by having a bad product and bad services and they basically just cashed in their goodwill because people still bought it based on past history but the goodwill will go away sometime because you're basically cashing it in. So enrolled agents, enrolled retirement plan agents or registered tax return preparers in describing their professional designation may not utilize the term certified or employ or employee relationship with the Internal Revenue Service. Examples of, so you got to basically say what obviously your credentials are accurately, examples of acceptable descriptions of the enrolled agents are quote, enrolled to represent taxpayers before the Internal Revenue Service end quote or quote, enrolled to practice before the Internal Revenue Service end quote, and quote, admitted to practice before the Internal Revenue Service end quote. Similarly, examples of acceptable descriptions for enrolled agents, plane agents are quote, enrolled to represent taxpayers before the Internal Revenue Service as a retirement plan agent end quote and enrolled to practice before the Internal Revenue Service as a retirement plan agent end quote. An example of the acceptable description for registered tax return preparers is quote, designated as a registered tax return preparer by the Internal Revenue Service end quote. Advertising and solicitation restrictions continued. A practitioner may not make directly or indirectly an uninvited written or oral solicitation of employment to matters related to the Internal Revenue Service if the solicitation violates federal or state law or other applicable rule, e.g. attorneys or precluded from making a solicitation that is prohibited by conduct rules applied to all attorneys in their states of licensure. Any lawful solicitation made by or on behalf of a practitioner eligible to practice before the Internal Revenue Service must nevertheless clearly identify solicitation as such if applicable, identify the source of the information used in choosing the recipient. Standards with respect to tax returns and documents affidavits and other papers. A, tax returns. One, a practitioner may not willfully, recklessly or through gross incompetence sign a tax return or claim the refund that the practitioner knows or reasonably should know contains a position that A, lacks a reasonable basis. B, is an unrealistic position as described in section 6694A2 of the Internal Revenue Code including the related regulations and other publication guidelines. So in other words, when you prepare the tax returns you're still basically taking the information from the client. It's the client that's giving you the information that you're compiling together in terms of the tax return and they're ultimately responsible for the financial data given to you. But if you see clearly that there's something that's wrong with it that just doesn't make any sense and you should know that just by basically doing the data input I mean if like the W-2 was adjusted or something that's put in the data input is clearly wrong then that's basically the situation that they're addressing here. At what point do you have to say, hey, is it your responsibility to say, hey, this doesn't line up, these are your, this is the records of the client that I'm trying to compile together but something doesn't line up. So in other words, let's go for it one more time. Tax returns, a practitioner may not willfully, recklessly or through gross incompetence sign a tax return or claim the refund that a practitioner knows or reasonably should know contains position that A lacks a reasonable basis, B is an unreasonable position as described in section 6694A2 of the Internal Revenue Code. Okay, C is a willful attempt by the practitioner to understate the liability for tax or a reckless or international disregard of rules or regulations by the practitioner as described in section 6694B2 of the code including the related regulations and other publication guidance and two, advise a client to take a position on a tax return or claim the refund or prepare a portion of a tax return or claim for refund containing a position that A lacks a reasonable basis, B is an unreasonable position as described in section 6694A2 of the code including related regulations and other publications and C or C is a willful attempt by the practitioner to understate the liability for tax or a reckless or intentional disregard of rules or regulations by the practitioner as described in section 6694. So you can't recommend taking a position that you don't think is going to be a sustainable type of position. Now there are positions that you don't know yet. There could be positions where the code isn't clear, the tax law isn't clear, the court cases aren't given you a clear position, but obviously there are other positions which aren't, which could be clear and that's with those are the kind of things that are getting into here. So again, you can get into this in more detail if you would like to by looking it up on the IRS website, irs.gov.