Circular 230 basics for the SEE exam
Circular 230 is the Treasury regulation, 31 CFR Part 10, that governs who may practise before the IRS and how they must behave. Its decision rule for exam questions: first ask whether the person is a practitioner or a paid return preparer, then match the situation to one duty section (§10.20 to §10.37) and, if the duty is broken, to a sanction under §10.50. This guide is exam preparation, not advice on a real engagement.
Version and source: the text below follows the current Part 10 on the eCFR, checked in October 2026. The IRS also offers a PDF edition through its Circular 230 page; that PDF is labelled Rev. 6-2014, so prefer the eCFR for current wording. The source notes in the eCFR show that the duty sections tested on the exam come from the 2007, 2011 and 2014 amendments (T.D. 9359, 9527 and 9668). Always read the current text before an exam sitting.
Step 1: who is covered
Practice before the IRS (§10.2) is broad: preparing and filing documents, corresponding and communicating with the IRS, giving written advice about a matter, and representing a client at conferences or hearings.
Practitioners (§10.3) are attorneys, CPAs, enrolled agents, enrolled actuaries and enrolled retirement plan agents. Attorneys and CPAs qualify by their state licence and a written declaration; enrolled agents are enrolled by the IRS. Registered tax return preparers are also listed in §10.3, but that programme is a historical footnote, so treat any question that relies on it with care.
Two further groups matter:
- Paid preparers. Under §10.8, anyone who prepares or assists with all or substantially all of a return or refund claim for pay needs a PTIN and is subject to the duties in Subpart B and the sanctions in Subpart C. The text of §10.8(a) still ties a PTIN to a credential “except as otherwise prescribed” in IRS guidance; since the courts struck down the registered preparer programme in Loving v. IRS (D.C. Cir. 2014), the IRS issues PTINs to non-credentialed preparers too.
- Limited practice (§10.7). Anyone may represent themselves; a non-practitioner may also represent an immediate family member, an employer (as a regular full-time employee), a partnership (as a general partner), a corporation (as a bona fide officer) and a few other defined relationships. Suspended or disbarred persons cannot use it.
Step 2: the duties, grouped by what the exam asks
| Situation | Rule | Section |
|---|---|---|
| IRS requests records | Provide them promptly unless privileged in good faith on reasonable grounds. If someone else has them, say so | §10.20 |
| You learn of a client error or omission | Tell the client promptly and explain the consequences. The rule does not require telling the IRS | §10.21 |
| Preparing, approving or filing documents | Exercise due diligence; reliance on others is fine if you used reasonable care in selecting and supervising them | §10.22 |
| Slow-walking a matter | Do not unreasonably delay | §10.23 |
| Setting a fee | No unconscionable fees; contingent fees only in the listed exceptions | §10.27 |
| Fee dispute | At the client’s request, promptly return records needed for tax compliance; you may keep copies. If state law allows retention during a fee dispute, only records that must be attached to the return have to be returned | §10.28 |
| Two clients with opposing interests | Informed consent from each affected client, confirmed in writing within 30 days, kept at least 36 months | §10.29 |
| Marketing | No false, fraudulent, coercive, misleading or deceptive statements; enrolled agents may not describe themselves as “certified” or imply IRS employment | §10.30 |
| Client refund check | Never endorse or negotiate it, or direct it into your account | §10.31 |
| Taking a return position | Do not sign or advise a position that lacks a reasonable basis, is an unreasonable position under IRC §6694(a)(2), or is a willful or reckless understatement; tell the client about likely penalties and how disclosure can avoid them | §10.34 |
| Taking an engagement | Competence: knowledge, skill and preparation, possibly by consulting experts | §10.35 |
| Running a firm | Whoever has principal authority for the firm’s practice must take reasonable steps to ensure adequate compliance procedures | §10.36 |
| Writing advice | Reasonable factual and legal assumptions; do not assume the return will not be audited | §10.37 |
Worked example, conflict. An enrolled agent prepares returns for two business partners who are now in dispute about who owns a deduction. The interests are directly adverse, or at least there is a significant risk the duty to one will limit the work for the other. The agent may continue only if they reasonably believe they can be competent and diligent, the law permits it, and both clients give informed consent, confirmed in writing within 30 days. The agent keeps the consents for at least 36 months after the representation ends. Without that, the safe answer on the exam is to decline one engagement.
Contingent fees are the classic memory item. They are generally prohibited. The exceptions in §10.27 are services in an examination of, or challenge to, an original return; an amended return or refund claim filed within 120 days of written notice of an examination; refund claims solely for interest or penalties; and judicial proceedings under the Internal Revenue Code. Under the regulation text, a fee as a percentage of the refund on an original return is therefore not allowed; §10.27(c) names a percentage of the refund as a contingent fee. A 2014 district court decision (Ridgely v. Lew) bars the IRS from enforcing the rule for ordinary refund claims prepared before any examination, but exam questions follow the regulation text.
Step 3: what happens when a rule is broken
Section 10.50 allows the Treasury to censure, suspend or disbar a practitioner after notice and an opportunity for a proceeding, and to impose a monetary penalty that may not exceed the gross income derived or to be derived from the conduct. A firm can be penalised too if it knew or should have known of the conduct. Section 10.51 lists disreputable conduct, including tax-crime convictions, knowingly giving false or misleading information to the IRS, misappropriating client funds, willfully failing to file one’s own returns and willfully disclosing return information without authority. Section 10.52 distinguishes how: most rules need a willful violation, while §10.34 to §10.37 are sanctionable when violated recklessly or through gross incompetence. Anyone may report a suspected violation to the IRS, orally or in writing (§10.53).
Circular 230 sanctions are separate from Code penalties on preparers. The same conduct, such as signing an unreasonable return position, can lead to both; see preparer penalties.
Which exams test this
| Exam | How it appears | On this site |
|---|---|---|
| SEE Part 3 | Domain 1, Practices and Procedures (26 of 85 scored questions): what counts as practice and who may practise, information to the IRS, client omissions, fees, advertising, due diligence, conflicts, refund checks, return positions and written advice, client records, supervision, and sanctionable conduct with the sanctions imposed by the Office of Professional Responsibility. Domain 2, Representation, also lists competence and conflicts of interest when taking on a case | Practices and procedures, cheat sheet |
The outlines for Parts 1 and 2 (2026-27 testing window, tax law through December 31, 2025) list no practitioner-conduct objectives; they test return content.
How the questions are built
- “May the practitioner…” Find the section. Fees, records, conflicts and check negotiation each have a crisp answer.
- Numbers. 30 days (written confirmation of consent), 36 months (keeping consents), 120 days (amended return after an examination notice).
- “Must the practitioner tell the IRS?” Usually no for a client’s error (§10.21), yes when the IRS makes a proper and lawful request for records or information (§10.20).
- “Contingent” makes you check the four exceptions. Original return preparation is not one of them.
- Trap: mixing up Circular 230 sanctions (censure, suspension, disbarment) with Code penalties (§6694, §6695) that are assessed in money.
Practice questions
Question 1. An enrolled agent prepares an original Form 1040 and proposes to charge 20 percent of the refund. What is the issue under Circular 230?
- A. None, if the client agrees to the fee in writing
- B. A fee based on the refund of an original return is a prohibited contingent fee
- C. The fee is allowed because refund claims are always an exception
- D. The fee is allowed if the agent is also a CPA
Show answer
Answer: B
Contingent fees are generally prohibited under section 10.27. Preparing an original return is not one of the exceptions, which cover examinations of original returns, certain amended returns filed within 120 days of an examination notice, interest and penalty claims, and court proceedings. The client’s written agreement does not change that, refund claims are not a blanket exception, and holding a CPA licence as well makes no difference.
Question 2. A practitioner discovers that a client omitted income from a return the practitioner filed last year. What must the practitioner do first?
- A. Promptly tell the client about the omission and its consequences
- B. Report the omission to the IRS immediately
- C. Amend the return without telling the client
- D. Wait until the next filing season
Show answer
Answer: A
Section 10.21 requires the practitioner to promptly advise the client of the omission and its consequences. The rule does not require reporting the client to the IRS, and ending the engagement or amending the return without the client’s involvement skips the duty to inform. Waiting until the next engagement is an unreasonable delay.
Go deeper
- 31 CFR Part 10 on the eCFR, the authoritative text.
- IRS Circular 230 page and the PDF edition.
- Related guides: preparer penalties, filing status, risk management for the compliance-procedure mindset, and how to study for certification exams.
- SEE Part 3 guide: representation.