SEE Part 3 practices and procedures explained
Practices and Procedures is the largest SEE Part 3 domain, with 26 of the 85 scored questions (about 31%). It covers two bodies of rules: Circular 230, the Treasury regulations governing practice before the IRS (31 CFR Part 10), and the Internal Revenue Code penalties on return preparers. Read Circular 230 itself; the exam uses its wording.
What practice before the IRS means
Practice covers any presentation to the IRS about a taxpayer’s rights, privileges or liabilities: filing documents, corresponding with the IRS, written advice, and representing a client at conferences and hearings.
| Who | Extent of practice |
|---|---|
| Attorneys, CPAs | Unlimited, if not suspended or disbarred |
| Enrolled agents | Unlimited, if not suspended or disbarred |
| Enrolled actuaries, enrolled retirement plan agents | Limited to their specialist areas |
| Unenrolled preparers with an Annual Filing Season Program record | Limited: examinations of returns they prepared and signed, before revenue agents and similar staff |
| Family members, officers, employees, fiduciaries | Limited practice for the taxpayer they are connected to (§10.7) |
Anyone who prepares all or substantially all of a return for pay needs a PTIN, renewed each year, and is subject to Circular 230’s duties and sanctions even without being a practitioner (§10.8).
Circular 230 duties you must know
| Section | Rule |
|---|---|
| §10.20 | Promptly give the IRS requested records unless you believe in good faith they are privileged; if you lack them, say who has them. |
| §10.21 | Promptly advise a client of a known error or omission and its consequences. You need not tell the IRS. |
| §10.22 | Due diligence in returns and in representations to clients and the Treasury. |
| §10.23 | Do not unreasonably delay the prompt disposition of any matter. |
| §10.24–10.25 | No help from or to disbarred or suspended persons; limits on former government employees. |
| §10.27 | No unconscionable fees. Contingent fees only in three situations (below). |
| §10.28 | Return client records promptly, even in a fee dispute; copies may be kept. |
| §10.29 | Conflicts need informed consent confirmed in writing within 30 days; keep it 36 months. |
| §10.30 | No false, misleading or coercive advertising or solicitation. |
| §10.31 | Never negotiate a client’s refund check or direct it into your account. |
| §10.34 | Standards for return positions and for advising clients on penalties. |
| §10.35–10.37 | Competence; supervisory procedures for those running a firm’s practice; written advice. |
Contingent fees
A fee based on the result, including a percentage of the refund, is allowed only for:
- Services connected with the IRS’s examination of or challenge to an original return, or an amended return or refund claim filed within 120 days of receiving written notice of the examination or challenge;
- A refund or credit claim filed solely about statutory interest or penalties;
- Any judicial proceeding under the Code.
Advertising
Enrolled agents may not use the word “certified” or imply that the IRS employs them. “Enrolled to practice before the Internal Revenue Service” is the kind of description Circular 230 accepts.
Written advice and covered opinions
The 2014 amendments replaced the old covered-opinion rules with principles-based standards in §10.37: reasonable assumptions, all relevant facts considered, no unreasonable reliance, and no weighing of audit odds. The outline still names covered opinions; know that they are history.
Enrollment and renewal
Enrollment renews every three years (by last digit of SSN); the PTIN every year. CE is 72 hours per cycle, at least 16 a year including 2 of ethics, with records kept four years.
Sanctions
The Office of Professional Responsibility administers discipline. After notice and an opportunity for a proceeding, a practitioner may be:
- Censured — a public reprimand
- Suspended from practice
- Disbarred from practice
- Subject to a monetary penalty
Disreputable conduct (§10.51) includes tax-crime convictions, knowingly giving false information to the IRS, and wilfully failing to file your own returns.
Preparer penalties
| Penalty | Trigger | Amount |
|---|---|---|
| §6694(a) | Understatement due to an unreasonable position the preparer knew or should have known about | Greater of $1,000 or 50% of the preparer’s income from the return |
| §6694(b) | Understatement due to willful or reckless conduct | Greater of $5,000 or 75% of that income |
| §6695 | Failures to give a copy, sign, show an ID number, keep a copy or list, or file employee records; negotiating a refund check; due diligence failures | Per failure, adjusted for inflation |
A position is unreasonable if it lacks substantial authority and is not disclosed, or is disclosed but lacks a reasonable basis. Reasonable cause and good faith avoid the §6694(a) penalty. To contest a §6694 penalty, a preparer can pay at least 15% within 30 days of notice and file a refund claim.
Record rules: keep a copy of each return or a list of taxpayers and returns for three years after the close of the return period, and keep records of the preparers you employed.
Sample questions
Question 1. A client disputes an enrolled agent's invoice and asks for the return of the W-2s and 1099s the client provided. State law does not permit the agent to hold records in a fee dispute. What must the agent do?
- A. Hold the records until the invoice is paid
- B. Return the records only after the client signs a payment plan
- C. Promptly return the records, keeping copies if desired
- D. Send the records to the IRS for safekeeping
Show answer
Answer: C
Section 10.28 requires the practitioner to promptly return records the client needs to comply with federal tax obligations, and a fee dispute generally does not change that. The practitioner may keep copies. Holding records as leverage is only possible where state law allows it, and even then the records needed for the return must be returned.
Question 2. In which situation may an enrolled agent charge a contingent fee?
- A. Representing a client in the examination of an original return
- B. Preparing an original return for a percentage of the refund
- C. Tax planning for a percentage of the taxes saved
- D. Preparing an amended return filed a year after an examination notice
Show answer
Answer: A
Circular 230 allows a contingent fee for services connected with the IRS’s examination of an original return. A fee based on a percentage of the refund on an original return is a contingent fee and is prohibited. Fees tied to taxes saved in planning are also contingent and not within the exceptions.
Question 3. Which of the following is NOT a sanction the Office of Professional Responsibility can impose on a practitioner?
- A. Censure
- B. Suspension from practice
- C. A monetary penalty
- D. Criminal imprisonment
Show answer
Answer: D
Circular 230 authorises censure, suspension, disbarment and monetary penalties. Criminal prosecution is not an OPR sanction; it belongs to the Department of Justice and the courts.