EA Exam & Questions

[GTS1101]

I am currently studying to become an EA. I have passed Part 1 in the summer and I am currently studying for Part 3 using the Gleim EA review course which was recommend by someone on this tax board.

I have two questions relating to practicing before the IRS and I hope one of the experienced EA's on this tax board can answer my questions.

The first is under the scope of authority [26 CFR 601.504(a)] it says that a power of attorney is a written authorization for an individual to act on behalf of an individual in tax matters. It goes on to say that a representative can do all of the following:

1. Represent the taxpayer before any office of the IRS. However, a representative cannot advocate the taxpayer's position with respect to the federal tax laws. What exactly does this mean? Does this mean I cannot stand up to the IRS regarding the tax law on a position taken on a tax return? Does this mean I cannot defend the position that I have taken for returns I have prepared. I am confused. I thought one of the purposes of the EA was to represent your client and stand up to the IRS to defend a client and say this is the law from the tax code and this is why I prepared the return the way I did. From reading the statement above it seems as if I won't be able to do that? Am I understanding it incorrectly?

The second question is related to section 10.21 of circular 230 Knowledge of client's omission. It says the practitioner must advise the client of the consequences as provided under the Code and regulations of such noncompliance, error, or omission. So let's say you have a client who you just finish preparing the return and he tells you that he has a side business picking up junk for people and taking it to the junk yard but he is not going to report it on his tax return. Do you then advise him of the consequences of not reporting it and still give him his return. Or do you not prepare it because it would be fraud knowing he has a side business but not reporting it because he won't give you the information to report it. Or let's say someone is renting out a room in their house and you know they do but they won't give you the amount charged so you don't know how much income they got. Do you refuse to prepare the return or do you just advise them of the consequences of not reporting the income from the rental of the room?

Thank You! I am just looking to find out how other EA's deal with these types of issues.

GTS1101

[erchess]

I'll take a stab

First of all congratulations on your decision to become an EA. You will not regret it.

Regarding your first question, I have no idea. I look forward to an answer from someone more learned than I. If you don't get a good answer you might private message NYEA or Bees Knees or you might contact the NAEA which while they won't let you join until you are an EA will still be happy to answer questions for you.

Regarding your second question, the question you encountered presupposes that at the time you discover the error the return has already been given to the client. You cannot give the client a return that you know is not correct. For purposes of this rule you must take into consideration all that the client tells you and all that you personally observe. As best I understand the rules you may safely ignore anything people other than the taxpayer tell you about the taxpayer unless the person telling you provides proof.

[taxea]

EA Exam & Questions

1. I would take that statement to mean that you cannot advocate an unreasonable position taken by a client on tax law. If I think that an issue will stand-up based on documentation I have, I will use it, however, I will not include in a return anything that I cannot document or justify if necessary.

2. In the past, when I had "heresay" knowledge of under the table income I would make it very clear to the client that not reporting this income could mean serious trouble should the IRS learn of it. I include that the client could have his returns audited 10 years back and would suffer penalties and interest. I also let the client know that it only takes one person that is dissatisfied with his/her work to notify the IRS.

Now that the IRS has tightened up the CIR 230 rules questions about cash income are included in my interview. If I have no heresay knowledge or the client does not mention the income, it is his problem when the IRS questions it.

If I do have knowledge and the client does not want to report the income I let him know that I cannot prepare his return without the information because to do so would jeopardize my EA license. taxea

[erchess]

Agree with Tax Ea

I basically agree with everything Tad Ea said. She is one of the wiser than me people I had hoped would respond

Regarding point one I can think of no other reasonable interpretation of what OP found because I know that sometimes the representative must argue with an examiner about what the applicable law is. If you're ultimately mistaken you risk trouble for yourself but if you have the citations to back you up just be careful that the facts of your client's case match. MAYBE SOMEONE ELSE CAN THINK OF AN INTERPRETATION THAT DIFFERS.

Regarding point two, I have a neighbor who for a while ran a junk yard in his small yard. He would at any given time have two or three junked vehicles in his yard and I would see him remove body or engine parts and give them to people who would shake his hand and pass what appeared to be small wads of cash. Based on my knowledge of him I am quite sure that he was not reporting this income. I could not have prepared his return without a believable story regarding the junk yard and its total operation Given what is common in these parts he probably didn't keep records of anything. He bought junked cars sold parts off of them and sold the remnants for scrap. Now if my only knowledge of the junkyard had been one or more people telling me about it I could have done his return and documented for my own records everything he told me about his income and the fact that I warned him about the consequences of unreported income.

[taxea]

EA Exam & Questions

Erchess-Mahalo nui for your kind words. taxea

[Nashville]

Best Wishes

GPS - best wishes on the E A exam. They've changed the format since I took the thing, but I would like to recommend the TTB Ethics CPE Exam product for 2 hrs. It would address both the questions you present, and you have until next Sep 30 to go online and get your credit. That would allow you to pass the EA first so you can apply the 2 hrs credit in a meaningful timeframe. Ethics credit is something the seminars are short on, as a typical 16 hr seminar may have only 1 hr credit for Ethics.

I don't have any kind words from Erchess, but like TaxEA, I also wish you a Mhui Loee or something like that from the Sunny South. Good luck.

[erchess]

Nashville

is another great source of info on this board. I think part of the problem we all face is that "taxation" is too large a field for any one person to be an expert in all of it. But I can't count the times Nashville or one of his other personalities has enlightened me.

[Nashville]

Thanks

Ah yes, now I DO have the kind words from Erchess (not sure I deserve them). So now I can OFFICIALLY give a Mhui Loee for the GTS E A exam.

This is as good as it gets. You don't become any sager or wiser than a Mhui Loee.

[VT-EA]

The question may be about going to Tax Court. A POA of course does not allow an EA to act for a client there.

[taxea]

EA Exam & Questions

Nashville you are really funny. Sorry but Mahalo nui means thank you very much...didn't mean to confuse you. taxea

[erchess]

I get the feeling

that many of the members of this board really like learning about taxes, doing tax returns and giving tax advice. A certain rotund verbose and obnoxious radio personality used to say on the air that he had more fun than ought to be allowed. I know I feel that way about being in this business.

[DTS]

Nashville

Nashville you are really funny. Sorry but Mahalo nui means thank you very much...didn't mean to confuse you. taxea

It's too bad our knowledgeable friend Snaggletooth wasn't around. He would have known the answer to this for sure.

[Black Bart]

Very true;

It's too bad our knowledgeable friend Snaggletooth wasn't around. He would have known the answer to this for sure.

in fact I have it on good authority that when our dentally-challenged colleague is invited to be a guest speaker, his lectures invariably begin:

"My friends, many other people are more knowledgeable about this tax topic than I; however...(looking around the room)...I don't see any of them here! Let us proceed....

[DTS]

in fact I have it on good authority that when our dentally-challenged colleague is invited to be a guest speaker, his lectures invariably begin:

"My friends, many other people are more knowledgeable about this tax topic than I; however...(looking around the room)...I don't see any of them here! Let us proceed....

That's a good one! Bet he could still outshine them all, even if they are in the room.

[Snaggletooth]

Answer #2

You would think I am the most knowledgeable person on this board... Sheesh! But looking around the room, I don't see anyone else.

I dunno what kind of answer they're looking for on #1. No point in representing these people if you are stopped from taking their position. Behind all this is probably a very Clintonesque definition of "advocate."

The thought process has broken down on #2. To admonish someone to be sure and report something that he has already told you he does, and then fill out the return without reporting, is self-incrimination, pure and simple. Evidence on the face of it.

Better listen to more knowledgeable people than me - there are plenty of 'em. In fact, most of 'em. Mhui Loee, or whatever.