Circular 230 duties and sanctions for EA Part 3

Duties and sanctions are different questions

A stem asking what the practitioner should do is testing conduct. A stem asking what OPR may impose is testing disciplinary consequences. Do not treat every mistake as automatic disbarment; the relevant violation and sanction procedures matter.

What to do when a client has made an error

Section 10.21 starts with knowledge of noncompliance, an error or an omission. Once the practitioner knows about it, the required first response is prompt advice to the client about the problem and its consequences. Distinguish that trigger from a mere unanswered question: an unexplained difference may first require inquiry. Neither situation is solved by selecting the number that gives the smallest tax bill.

Suppose the client omitted a bank account from information used for a prior return. Explain the identified omission and the consequences, document the advice, and discuss an appropriate correction. The duty to advise does not itself authorize an amended return or a disclosure to a third party. If the client refuses, analyze whether you can continue the current engagement consistently with the applicable return, document and advice standards. Do not carry an unsupported figure into the next submission simply because the original return is already on file.

When relying on a client is no longer enough

Diligence is an active responsibility. Section 10.22 addresses accuracy in returns and other documents and in representations to clients and the Treasury. Section 10.34 permits good-faith reliance on client information in its setting, but does not permit ignoring information that appears incorrect, inconsistent or incomplete. The practical question is which additional fact would resolve the warning sign.

If an expense worksheet says $18,000 while invoices total $11,000, ask whether invoices are missing, the worksheet includes a different period, or personal expenses were included. Preserve the explanation and the evidence used. Do not turn reasonable inquiry into an invented requirement to independently audit every fact on every engagement. The exam distinction is between justified reliance and ignoring a contradiction already in front of you.

Separate a records request from a competence problem

A proper IRS request for nonprivileged material invokes the response duties in section 10.20. If the material is not in your possession or control, the regulation addresses notifying the IRS and making reasonable inquiry of the client about its location. A privilege question needs an actual basis; it is not a general excuse to refuse all requests. Conversely, a request does not mean every confidential item can be disclosed without considering its legal status.

Competence under section 10.35 concerns the knowledge, skill, thoroughness and preparation needed for the engagement. An EA who encounters an unfamiliar procedure can develop competence through appropriate study or consultation. The qualification is broad, but it does not make the practitioner equally experienced in every matter. An answer that proposes obtaining the needed expertise is different from one that proposes signing first and researching later.

How to reason from conduct to a possible sanction

For a sanctions question, identify the actual violation, the relevant state-of-mind standard and the person or organization involved. Section 10.52 distinguishes willful violations from reckless or grossly incompetent conduct under specified provisions. An unfavorable result or ordinary mistake does not, by itself, establish every element of a disciplinary charge. Section 10.51 separately describes forms of incompetence and disreputable conduct.

Section 10.50 permits censure, suspension, disbarment and monetary penalties under its conditions. A firm can face a monetary penalty when the provision’s knowledge standard is met; that is not automatic liability for every employee error. Keep this disciplinary analysis separate from an Internal Revenue Code penalty assessed against a taxpayer or return preparer. In a mixed scenario, name the practitioner duty first, then identify the distinct consequence the question actually asks about.