Tax Preparers Gone Bad, Volume 4 -

Ethics for Tax Professionals

Presented by Jason T. Dinesen, LPA, EA

Hello!
I am Jason Dinesen, LPA, EA

I am a practicing accountant in Iowa and

have been presenting since 2012. I’ve
been an EA since 2009.

Always happy to connect:

[email protected]

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Today’s Plan

▷Circular 230 from A to E

▷Other preparer penalties
▷Throughout the training, we will use real-life examples
of practitioners who ran afoul of Circular 230
As we will discover, ethics is not just “being a good person.”
This topic can be as complicated as anything else we talk
about in taxes.

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Practitioners Gone Bad

▷ The title of this session is “preparers” gone bad, and

we try to keep the examples focused on those who
got busted for things related to tax returns
▷ However, sometimes we sprinkle in other stories,
outside of tax preparation, to illustrate points about
Circular 230
▷ Therefore, within this presentation, we use the term
“practitioners” gone bad
Circular 230

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 What is Circular 230?

To quote the IRS:

“Circular 230 is the common name given to the body of regulations

promulgated under the enabling statute found at Title 31, United States
Code § 330. This statute and the body of regulations are the source of
the OPR’s authority. Circular 230 defines “practice” and who may
practice before the IRS; describes a tax professional’s duties and
obligations while practicing before the IRS; authorizes specific sanctions
for violations of the duties and obligations; and, describes the
procedures that apply to administrative proceedings for discipline.”

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 What is Circular 230?

▷ Note: Circular 230 is the regulations under Title 31 of the US Code,

which deals with money and finance. (The tax code is found under
Title 26.)
○ Title 31, Section 330.
▷ The history of this dates back to the “Horse Act of 1884” and the
creation of enrolled agents.
▷ The Treasury Department said in December of 2020 that it planned
to update Circular 230 in 2021 – as of summer of 2024, this update
still hasn’t been released.

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 Circular 230
▷ Subpart A: who can practice before the IRS; also rules for tax return preparers
▷ Subpart B: Duties and restrictions on practice before the IRS
▷ Includes return of client records, disclosure of information to the IRS, due diligence rules,
and conflict of interest

▷ Subpart C: Sanctions for violating Circular 230

▷ Subpart D: Disciplinary Proceedings
▷ Subpart E: “General Provisions” (deals mainly with what information the IRS can make
public)
Circular 230, Subpart A

1
Circular 230, Subpart A

▷ Who is covered by Circular 230?

○ Anyone practicing before the IRS
▷ Who is “practicing before the IRS?”

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Practice Before the IRS

▷ Preparing a tax return in and of itself IS NOT considered

practicing before the IRS
▷ Per Section 10.2(a)(4) of Circular 230, practice before the
IRS includes:
○ “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.”

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Examples of Practice

▷ Preparing a tax return = NO

▷ Representing a taxpayer at a hearing or meeting = YES
○ Includes preparing or filing documents, corresponding
with the IRS, giving written advice to a taxpayer, or
representing a taxpayer in a conference, hearing or
meeting.

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 Who May Practice
▷ Attorneys: Circular 230 defines an attorney as any attorney
who is not currently suspended or disbarred from practice
before the IRS.
▷ CPAs: again, as long as they are not suspended or disbarred
from practice before the IRS.
▷ Enrolled agents
▷ Enrolled actuaries: anyone who is enrolled by the Joint Board
for the Enrollment of Actuaries
▷ Enrolled retirement plan agents: similar to an enrolled agent
but limited to issues regarding qualified plans – IRS did away
with this program in 2016 but anyone who had the
designation at that time can keep using it.
▷ Appraisers: limited to providing written opinions regarding the
value of property for federal tax purposes.

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Preparer’s Gone Bad

▷ A note/preview of our look at preparer’s gone bad.

▷ Professionals can be sanctioned by the IRS/Office of Professional
Responsibility (OPR) for problems not related to taxes.
▷ The IRS publishes a list of sanctioned professionals in Internal
Revenue Bulletins.
▷ Not all of the sanctions involve tax wrongdoings
○ Some of the sanctions start at the state level, with boards of
accountancy or bar associations handing out sanctions
○ OPR always finds out about these things, and then there are
Circular 230 sanctions

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Registered Tax Return Preparers

▷ Unlicensed tax preparers can only represent taxpayers during an

examination by the IRS if the preparer signed the tax return AND the
preparer has a record of completion of the Annual Filing Season
Program.

○ Cannot represent before appeals officers, revenue officers, IRS

Counsel “or similar officers or employees of the Internal Revenue
Service or the Treasury Department.”

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Registered Tax Return Preparers

▷ Circular 230 still uses “registered tax return preparer.”

▷ Originally RTRP was a program the IRS wanted to
create in which a competency exam would have been
required.
▷ A court ruled in early 2013 that the IRS was not
authorized to do this.
▷ So now we have the “Annual Filing Season Program”

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Annual Filing Season Program

▷ This program is intended for unenrolled tax preparers

(i.e. not attorneys, CPAs or EAs).
▷ The IRS says its intention with the AFSP is to
encourage unlicensed preparers to participate in
continuing education.
○ There are two incentives the IRS offers

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AFSP Incentives

1. Listed in a public database along with attorneys, CPAs, EAs, ERPAs

and actuaries
2. Ability to represent taxpayers, in a limited manner, on returns the
AFSP prepared.
NOTE: if the AFSP did not prepare the return, they cannot represent
a taxpayer at all for any return prepared for calendar year 2016 and
beyond!
Also, if an unlicensed preparer doesn’t have an AFSP record of
completion, they can’t do any representation work at all, even on
returns they prepared.

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Bottom Line for Tax Preparers

▷ Must have a PTIN (more on this in later). (THIS APPLIES WHETHER OR NOT
YOU REPRESENT A TAXPAYER; ALSO APPLIES TO ATTORNEYS, EAs AND
CPAs)
▷ For the AFSP: Must get at least 18 hours of CPE each year, including a mandatory
6-hour Annual Federal Tax Refresher course
○ People who passed the old RTRP exam, or certain state-level registration tests,
have a 15-hour CPE requirement.
○ For AFSPs, you must meet both of these requirements in order to represent a
taxpayer under Circular 230.

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 Who Can Represent

▷ Attorneys, CPAs and enrolled agents: unlimited except cannot

provide a written opinion on the value of property.
▷ ERPA: practice is limited to representation involving retirement
plans
▷ Enrolled actuary: limited, mainly to retirement plan issues
▷ Appraiser: limited to providing written opinions on the value of
property
▷ Unenrolled preparers with no AFSP: can prepare tax returns (which
is not representation) but can not do any representation
▷ Unenrolled preparer WITH an AFSP: can provide limited
representation on returns they prepared

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 Other Representation Issues
▷ An individual can always represent themselves, regardless of enrollment or
licensing.
▷ Individuals can also represent taxpayers in the following circumstances:
○ Representing an immediate family member (spouse, parent, child,
brother/sister)
○ A full-time employee representing an employer
○ General partner or full-time employee of a partnership can represent
the partnership
○ An officer or full-time employee of a corporation can represent the
corporation
○ Employees of a trust can represent the trust
○ An officer or employee of a governmental unit can represent that
agency
○ An individual can represent an individual or entity who is outside the
US when the representation takes place outside the US

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PTINs

▷ The PTIN requirement is found in Section 10.8 of

Circular 230 and Regulation 1.6109-2.
▷ Per Circular 230: Any individual who prepares “all or
substantially all of a tax return or claim for refund must
have a preparer tax identification number.”
▷ Regulation 1.6109-2 adds the phrase “compensated
for preparing all or substantially all”

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Who Needs a PTIN?

▷EAs need a PTIN even if they don’t prepare tax returns

▷Attorneys and CPAs don’t need a PTIN if they don’t prepare tax returns

▷A PTIN is an individual number; you cannot share a number or have an “office”

number

▷A PTIN is different from an EFIN

▷An employee preparing their employer’s tax return (such as an office manager) does
not need a PTIN

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▷ A bookkeeper in your office keeps the Quickbooks file for
a client, which you use to prepare the tax return for the
client. The bookkeeper is NOT considered a preparer and
does not need a PTIN.
▷ You hire interns or administrative staff to do data entry
into your software. They do NOT need a PTIN.
▷ Variation: the interns or administrative staff sometimes
meet with clients and prepare simple tax returns. You
review and sign the returns as the paid preparer. They DO
need a PTIN.
▷ What if your interns or assistants call clients to followup
on missing information? They do NOT need a PTIN.
 PTIN Scenarios

▷ You are retired and no longer have a tax practice, but you
sometimes prepare returns at the local VITA clinic. You do
NOT need a PTIN.
▷ You use software that walks the preparer through a series
of questions in preparing the return. You hire employees
who sit with clients and the employees use the software
questions to prepare the return. The answer to the PTIN
question here is, “it depends.”

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 Signing the Return

▷What does preparing “all or substantially all” of a return

mean?
○ De minimus rule: not a “substantial portion” if either 1)
item is less than $10,000 of AGI or 2) or less than
$400,000 of AGI and less than 20% of AGI.
○ Applies only to whether or not the return needs signed.
▷The individual with final authority over the return must
sign it; the names and PTINs of others involved in
preparing the return are not shown on the return.

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Paid Preparer

▷What if the client doesn’t pay your invoice?

▷See Regulation 301.7701-15

○ This regulation doesn’t address the situation of a client not paying an invoice, but
it does say this about a situation where a preparer is NOT a paid preparer:

■ “A person who prepares a return or claim for refund for a taxpayer with no
explicit or implicit agreement for compensation, even if the person receives an
insubstantial gift, return service, or favor.” The regulation is saying a person is
not a paid preparer if there was no agreement for compensation.

■ So it seems: if you have an agreement to get paid, you are a paid preparer,
even if the client ends up not paying you

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Continuing Education

▷ Subpart A also gives the continuing education requirements for EAs and AFSP

▷ As said earlier, AFSP = 15 hours per year if they passed the old RTRP exam. This is
actually in Circular 230. Otherwise they are required to get 18 hours a year.

▷ Enrolled Agents: 16 hours minimum per year, and 72 hours in total every 3 years; a
minimum of 2 hours a year must be ethics.

▷ CPAs are not referenced in Circular 230 as having a CPE requirement; CPA CPE is
governed by state licensing boards

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Circular 230, Subpart B

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Furnishing Information to the IRS

▷ If the IRS asks for something, you must “promptly submit”

the information unless you believe that the information is
privileged. (NOTE: it’s probably not privileged.)
▷ Interference with the IRS is prohibited.

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Knowledge of a Client Omission

▷ If you discover an error or omission, you must advise the client

of the error or omission, and the consequences of the
problem.
▷ It is up to the client to fix or not fix
▷ You are not required to turn the client in
▷ Note that this refers to things the client has already done (i.e.
prior returns, etc.) – you can’t sign a return with a known error
or omission on it
▷ The taxpayer technically doesn’t have a “requirement” to
amend (see the Badaracco Supreme Court case) but their
decision not to amend could — and probably should —
influence whether or not you want to work with them
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Diligence as to Accuracy

▷ Section 10.22 – “Diligence as to accuracy”

▷ Applies not just to tax returns but to anything a practitioner files or
provides to the IRS
▷ When relying on the work product of others, a practitioner can rely
on that work if the practitioner used “reasonable care in engaging,
supervising, training and evaluating the person.”
▷ Section 10.24 – A practitioner cannot accept help from any person
who is disbarred from practicing before the IRS.
Practitioner Gone Bad
 Practitioner Gone Bad
▷ James Canfield, Enrolled Agent in Wisconsin
▷ A district court in 2022 sentenced him to 8 months in
prison and permanently prohibited him from preparing or
filing any tax returns
Practitioner Gone Bad

▷ The news release from the Justice Department did not say
what the dollar amount of loss to the government was, but
it did note that this is part of a repeated pattern of
behavior
Practitioner Gone Bad

▷ Canfield was suspended under Circular 230, effective July 25, 2023
Now Back to Circular 230,
Subpart B
Fees

▷ Section 10.27
▷ Practitioners cannot charge “unconscionable fees”
▷ Contingent fees are prohibited except for:
○ IRS challenges to an original return (i.e. an audit) or to an
amended returns or claims for refund if filed within 120 days of
the taxpayer receiving written notice of examination, or a
written challenge to an original tax return.
○ When a claim involves only IRS penalties and interest
○ Judicial proceedings
Return of Client Records

▷ Circular 230 says practitioners must return “all records of

the client that are necessary for the client to comply with
his or her Federal tax obligation.”
▷ In a dispute over fees, the practitioner only needs to
return documents that are required to be attached to the
taxpayer’s return. (Depends on state law.) You must allow
the client to make copies of those records, though.
Practitioner Gone Bad
Practitioner Gone Bad

▷ The case of Ronak Shah, a CPA in Minnesota, shows how return of

records can go bad
▷ In April of 2016, a business client and Shah had a “heated exchange”
during which the client requested all of their documents back so
they could find another accountant
▷ Shah told them he wouldn’t release the records unless the client
paid the amounts he said were due on their account (he didn’t say
what the amounts were)
▷ In August of 2016, Shah told the business that he would send the
invoice “in the next few weeks”
Practitioner Gone Bad

▷ But the invoice never came, and neither did the documents
▷ The client was unable to file their business return on time
▷ The company took action in small claims court (called “conciliation
court” in Minnesota, where this took place)
▷ There’s a lot to this case involving court decisions on whether Shah’s
firm owed reimbursement for IRS penalties to the client, and what
the amount owed by the client to Shah for prior services really was,
but let’s fast-forward to the bottom line (on next slide)
Practitioner Gone Bad

▷ At the end of the day, the court ruled that Shah had violated
Minnesota statutes regarding return of client records by an
accountant
▷ It took a few years, but Shah was eventually hit with a $4,000
penalty by the state board of accountancy and a suspension that
would be in place for the longer of 2 years or however long it took
Shah to pay the penalty
○ This was February of 2021
○ IRS suspended Shah indefinitely under Circular 230 effective
September 28, 2023
▷ https://casetext.com/case/in-re-shah-co
Now Back to Circular 230,
Subpart B
Conflict of Interest

▷ A practitioner cannot represent a client if there is a

conflict of interest. Circular 230 defines a conflict of
interest as:
○ Representing one client is directly adverse to another
client
○ There is a “significant risk” that the representation of
one client will be limited by the representation of
another client, or a former client, or some other
personal interest of the practitioner

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 Conflict of Interest
Divorce would be a common conflict of interest area, but it’s not the only place
this could come into play:
▷ You’re preparing a business return for a business with multiple owners, and
there’s a problem with the return
▷ Various non-divorce issues with spouses:
○ When there is a balance due on a joint tax return, BOTH parties are
“jointly and severally liable.”
○ One spouse knows nothing about the details of the other spouse’s
business. Doesn’t know if the in-business spouse is committing tax fraud.
○ One spouse is gambling – the other spouse doesn’t know the tax return
includes gambling income – and possibly unsubstantiated gambling
losses.
○ One spouse is actively trading his/her stock account, generating lots of
losses – real losses, eating up the family’s funds – with deductions limited
to only $3,000.
○ One spouse is responsible for paying the property taxes on the home.
S/he hasn’t been paying them. The house is in danger of a Tax Sale.
 DISCLOSE
DISCLOSE
DISCLOSE
• You must stop working the case.
• Announce that there is a conflict of interest – and define what the conflict is about.
• You cannot continue this engagement without bringing in all parties and laying out the
problems and issues they face.
▷Having INFORMED everyone, you may continue the engagement only with a signed,
informed consent document.
▷Keep for 3 years
▷Must provide to the IRS if they ask for it
▷For more, check out the “Conflict of Interest” course in the Lambers “Representation
Series”
Advertising

▷ A practitioner cannot engage in false advertising, making

false statements, etc.
▷ EAs/RTRPs etc. cannot use the word “certified” nor can
they imply any relationship with the IRS.
▷ Terms that are okay to use include:
○ Enrolled to represent taxpayers before the Internal
Revenue Service (if you’re an EA)
○ Admitted to practice before the Internal Revenue
Service (if you’re an EA)
Fee Information in Advertising

▷ Publishing of fee schedules is okay

▷ But the rates cannot change for at least 30 days after the
last date on which the fee schedule was published
▷ On advertising in general: you must retain a copy of the
advertising for at least 36 months.
Standards on Positions Taken

▷ Section 10.34 of Circular 230: Practitioner cannot sign a

tax return if they know or reasonably should know that
the position lacks reasonable basis, is unreasonable under
IRC Section 6694(a)(2), or is a willful attempt to understate
liability.
▷ You also cannot advise a client to take an unreasonable
position on a tax return.

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Standards on Positions Taken

▷ On other documents or filings sent to the IRS, a

practitioner cannot advise a taxpayer to:
○ File something designed to delay or impede the IRS
○ File something frivolous
○ File something that deliberately contains or omits
information in a “manner that demonstrates intentional
disregard of a rule or regulation.”

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Standards on Positions Taken

▷ You must advise clients of any penalties that they may

incur

9
Standards on Positions Taken

▷ You can rely in good faith on information given to you by

the client
▷ But you cannot ignore the implications of information
furnished to you, or things actually known by you, and you
must make reasonable inquiries if the information appears
to be inaccurate or incomplete.
▷ And the practitioner must have “competence” as defined
under Section 10.35 of Circular 230.
Compliance

▷ Each individual practitioner is subject to Circular 230

▷ But owners or partners may be accountable for ensuring
that the firm follows Circular 230

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 Written Advice
▷ Includes electronic communication advice. (Presumably
texts too??)
▷ A practitioner must:
○ Base written advice on reasonable factual and legal
assumptions
○ Consider all relevant facts and circumstances
○ Use reasonable efforts to identify relevant facts
○ Not rely on representations from the taxpayer or
anyone else if the reliance would be unreasonable
○ The communication must relate the law to the facts
▷ CANNOT take into consideration the chance of audit!
Practitioner Gone Bad
Practitioner Gone Bad

▷ Kathie Russell, an attorney in North Carolina

▷ Involved in a dispute with a non-profit real estate investment
corporation on which she was a board member
▷ Among the items of dispute: the purchase of a piece of property
from a for-profit company in which Russell had an ownership
interest (but the non-profit didn’t know she had an ownership
interest)
▷ Why do we talk about this, at this spot in the training?
○ Back-dating of “drafts” purported to relate to the case
Practitioner Gone Bad

▷ Russell said she divested her ownership in the for-profit

company before the sale to the non-profit
▷ She offered as “proof” a forwarded copy of a draft e-mail
▷ The Bar Association hired a forensics computer expert to
examine, and the expert determined that the draft as fake,
including a fake “exchange” between Russell and another
person
 Practitioner Gone Bad
▷ From the case:
https://www.nccourts.gov/
assets/documents/opinions
/2022%20NCBC%209.pdf?
8p5bUOtTYw2L4NfeWU9
8qC7INRVhOuLf
Practitioner Gone Bad

▷ Details of what happened after this are hard to find

▷ But the bottom line is, Russell was suspended under
Circular 230, effective February 5, 2024
Now Back to Circular 230,
Subpart B
Relying on Advice of Others

▷ Can rely on the advice of other practitioners/outside

practitioners if the advice was reasonable and the reliance
is in good faith.
Standards of Review

When evaluating whether or not a practitioner giving written

advice acted reasonably, the following circumstances are
taken into consideration:
▷ “Reasonable practitioner” standard
▷ Tax avoidance or evasion standards

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Practitioner Gone Bad
Practitioner Gone Bad

▷ Justice Department news release:

https://www.justice.gov/opa/pr/justice-department-
continues-efforts-stop-unlawful-tax-return-preparers
▷ Contains a roundup of enforcement actions, as shown on
next slide
 Practitioners Gone Bad

▷ John Savignano, CPA – from Department of Justice:

▷ Savignano was suspended under Circular 230 on July 6, 2023

Circular 230, Subpart C

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Sanctions

Situations where a practitioner may be sanctioned under

Circular 230:
▷ Conviction of any criminal offense under Federal tax law
▷ Conviction of any criminal offense involving dishonesty or
breach of trust
▷ Conviction under Federal or State law for which the
conduct involved makes the practitioner unfit to practice
before the IRS.

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Sanctions

▷ Giving false or misleading information to the Treasury,

including on tax returns.
▷ False or misleading advertising
▷ Willfully failing to file the practitioner’s own tax returns or
taking unreasonable positions on the practitioner’s own
returns (this includes payroll returns)
▷ Willfully helping or encouraging a client to violate tax law

9
Practitioner Gone Bad
Practitioner Gone Bad

▷ Steven G. Shimizu, a CPA in Bellevue, Washington

▷ He admitted to committing tax fraud on his own tax
returns
Practitioner Gone Bad
Practitioner Gone Bad

▷ Shimizu was to be sentenced in 2022; details on the

sentence handed down to him are not available in a
Google search
▷ In 2022, the Washington Board of Accountancy revoked
his CPA license, and the license of his firm
▷ Circular 230 sanction: suspended effective May 30, 2023
Now Back to Circular 230,
Subpart C
Sanctions

▷ Misappropriation of client funds intended for paying

federal taxes.
▷ Attempting to influence employees of the IRS (i.e.
intimidation, threats, bribery, etc)
▷ Disbarment from practice by a state agency for attorneys,
CPAs or actuaries.
▷ Knowingly aiding and abetting someone who has been
disbarred by the IRS

2
Sanctions

▷ “Contemptuous conduct” in connection with practice

before the IRS (abusing language, making false statements
to an IRS employee)
▷ Knowingly, or through incompetence, giving a false
opinion (i.e. advising someone to take a position contrary
to the law)
▷ Willfully failing to sign a tax return the practitioner
prepared

3
Sanctions

▷ Willfully disclosing or using a tax return or tax return

information in a manner not authorized by the Code, or
under a court order.
▷ Willfully failing to e-file when required to do so
▷ Willfully preparing a return without a PTIN
▷ Willfully representing someone when not authorized to do
so.

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Sanctions

This list is from Section 10.51 of Circular 230, but penalties

can also apply for violations relating to other sections of
Circular 230. For example, not dealing with conflict of
interest appropriately, or not advising a client of a past
omission.

In addition, any sanctions at the state level will always reach

the IRS and result in Circular 230 sanctions.

5
How Does the IRS Know a Practitioner Has Committed Violations?

▷ Their own employees

▷ Reports from other persons (taxpayers can submit on
Form 14157)
▷ Court proceedings
▷ Sanctions at the state level by boards of accountancy or
the state bar association

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Practitioner Gone Bad
 Practitioner Gone Bad

▷ Sean Gerold, a CPA in California

▷ This is a state-level issue that involves problems with Gerold’s
hours of experience as required by California to obtain a CPA
license in the state
○ Gerold had sent a verification of his hours of experience
using a “stamp” of a CPA he worked under, dated 2006
○ But it was a 2020 form … and the CPA who allegedly
signed the form was dead by this point!
▷ Read the disciplinary action here:
https://www4.cba.ca.gov/cba/discipline/actions/ac-2023-8.pdf
Practitioners Gone Bad

▷ Gerold’s license was revoked by the California board in

July of 2023
▷ The IRS finds out about these things – Gerold was
suspended under Circular 230 on January 30, 2024
Circular 230, Subpart D

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Disciplinary Proceedings

▷ Practitioner will be notified in writing of the alleged

violation (Sections 10.62 and 10.63 lay out specifics)
▷ The practitioner can dispute the allegations, offer a
defense, or bring up mitigating circumstances
▷ Generally have 30 days to respond to the initial charges
Sanctions

▷ Censure – a public reprimand

▷ Suspension – can be suspended from representing
taxpayers for a period ranging from one month to 59
months
▷ Disbarment – the most serious sanction. The terminology
here says “permanent,” but a practitioner can apply for
reinstatement after 5 years have passed.
▷ Monetary penalties may be assessed as well.
Circular 230, Subpart E

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IRS Divulging Records

Subpart E gives the IRS the authority to make public:

▷ Practitioners disciplined under Circular 230
▷ Lists of enrolled agents or ERPAs
▷ Registered tax return preparers (i.e. AFSP)
▷ Disqualified appraisers
▷ Qualified CPE providers

14
Other Preparer Penalties

1
 Preparer Penalties
ALL PENALTY AMOUNTS ON THE NEXT SLIDES ARE FOR 2024 RETURNS
PREPARED IN 2025
▷ Section 6695(a), Failure to furnish copy of return to taxpayer
○ Penalty: $60 per return, up to $31,500 per year
▷ Section 6695(b), Failure to sign return
○ Penalty: $60 per return, up to $31,500 per year
▷ IRC: 6695(c), Failure to comply with IRC 6109(a)(4) to furnish preparer's
identifying number (i.e. not using PTIN)
○ $60 per return, up to $31,500 per year
▷ IRC: 6695(d), Failure to comply with IRC 6107(b) to retain copies of returns
prepared or maintain a list of returns prepared
○ Penalty: $60 per return, up to $31,500 per year
 More Preparer Penalties
▷ Section 6695(e), Failure to comply with IRS 6060 requirements for
maintaining information on all preparers employed during a return period
○ Penalty: $60 per preparer or per item missing from required information,
up to $31,500 per year

▷ Section 6695(f): Negotiating a tax refund check or misappropriating a refund

via electronic means
○ Penalty: $635 per refund, no maximum amount
▷ Section 6695(g), Failure to meet all four “due diligence" requirements for
earned income credit, child tax credit, head of household filing status and the
American Opportunity Credit
○ Penalty: $635 per return (adjusted for inflation), no maximum amount
○ This is Form 8867
 More Preparer Penalties
▷ Section 6694(a), Understatement of taxpayer's liability due to
unreasonable position
○ The greater of $1,000 per return or 50% of income derived
by the tax return preparer with respect to the return or
claim for refund

▷ Section 6694 (b), Understatement due to preparer's willful or

reckless conduct or intentional disregard of rules
○ The greater of $5,000 per return or 50% of income derived
by the tax preparer with respect to the return or claim for
refund
 More Penalties
▷ Section 6713, Improper disclosure or use of return information
○ Penalty:$250 for each disclosure or use of to $10,000 per
year
▷ Section 7216, Improper disclosure or use of return information
○ The penalty is a misdemeanor – maximum $1,000 or one
year in prison or both! (The penalty becomes $100,000 if
the usage of data without disclosure results in identity
theft)
○ Don’t ignore Section 7216 – many groups and licensing
bureaus have special Section 7216 resources available. – it
Comes into play more often than you think
More Penalties

▷ Section 7407(b)(1)(B), Misrepresentation of eligibility to

practice before the IRS, or experience or education, as an
income tax preparer.
▷ Section 7407(b)(1)(C), Guarantee payment of tax refund or
tax credit.
▷ Penalties include court action to prevent the preparer
from preparing returns.
Practitioner Gone Bad
Practitioner Gone Bad

▷ Even IRS employees can go bad

▷ In June of 2024, a former IRS employee was indicted by a
federal grand jury on charges of preparing fraudulent tax
returns
▷ Details on next slide
 Practitioners Gone Bad

▷ https://www.justice.gov/usao-wdmo/pr/former-irs-employee-
indicted-fraudulent-tax-returns
Form 8867
Form 8867

Tax preparers are required to verify the following items on

tax returns, using Form 8867:
○ Earned Income Credit
○ Child tax credit
○ Additional child tax credit
○ Other dependents credit
○ American Opportunity Credit
○ Head of household filing status
Form 8867

The penalty is now $635 per “failure” on 2024 returns

prepared in 2025
○ Example: taxpayer files as head of household, claims the
EIC, and CTC. Your potential penalty on this return is
$635 x 3 = $1,905
Form 8867

Meeting your due diligence requirements:

1. Interviewing the taxpayer, asking questions, documenting
the answers, computing the amounts.
2. Complete the form to truthfully and accurately
3. Submit the 8867 with the tax return
4. Keep documents for 3 years (list on next page)
Form 8867

These documents must be kept for 3 years:

▷ The 8867
▷ Any worksheets used relating to the credits claimed
▷ Copies of taxpayer documents you relied upon
▷ A record of how, when and from whom the information
used to prepare the Form 8867 and the applicable
worksheet(s) was obtained.
▷ A record of any additional info you relied on, questions
you asked, etc.
Thanks!
Any questions?

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