Part 3 - Representation, Practice And Procedures - Specific Types Of Representation
This section of the exam covers specific types of representation; in other words, the capacity in which an Enrolled Agent can represent clients before the IRS. These include representation during the collection process, for assessed penalties and/or interest, and for audits, exams and appeals.
Representing a Taxpayer in the Collection Process
IRS Publication 594 "The IRS Collection Process" provides a general description of the IRS collection process. The process is the series of actions that the IRS can take against a taxpayer to collect taxes that are owed when the taxpayer does not voluntarily pay them. The collection process begins when the taxpayer does not make required payments in full and on time, after receiving the tax bill. Publication 594 provides an overview of filing a tax return, billing and collection, ways to pay taxes and collection actions in detail. Enrolled Agents must understand the various aspects of the collection process including:
- Adjustments to taxpayer accounts
- Cases that are currently not collectible
- Collection appeals process and program
- Collection due process
- Collection process overview
- Collection statute of limitations
- Extension of time to pay
- IRS collection summons
- Levy and seizure of property
- Notice of Federal Tax Lien
- Offer in compromise
- Other options – collection statue end/extension date, trust fund, etc.
- Request for audit reconsideration
Penalties and/or Interest Abatement
A penalty is a monetary fine levied in response to failure to pay taxes in a timely and complete manner. Enrolled Agents may represent clients who have incurred tax penalties and/or interest. Penalties are automatically assessed when taxes are past due (April 15 of most years), but Enrolled Agents can offer taxpayers assistance in reducing or removing penalties who have a legitimate excuse. Enrolled Agents must be familiar with how common penalties are assessed and the process by which penalties and/or interest can be reduced or otherwise changed. Topics to know include:
- Penalties and interest
- Avoiding, abated and refunded penalties
- Reasonable cause – legitimate excuses
- Interest abatement
- Interest recalculation
Representing a Taxpayer in Audits/Examinations
An audit is an IRS examination of a taxpayer's accounts and financial information to verify the accuracy of the filings in accordance with tax laws. Returns are selected for audit using a variety of methods including: random selection and computer screening, document matching and related examinations (such as business partners whose returns were selected for audit). An audit can be conducted via mail or through an in-person interview and review. This can be at an IRS office or at the taxpayer's home or place of business, or at an accountant's office. The IRS informs the taxpayer regarding what records will be needed for the audit, and any proposed changes to the return will be explained.
Taxpayers are notified by mail or telephone if they have been selected for an audit. IRS Publication 1 "Your Rights as a Taxpayer" explains taxpayer rights as well as the examination, appeal, collection and refund processes. Enrolled Agents should have a comprehensive understanding of the audit process and related topics including:
- Innocent spouse
- Interpretation of IRS agent report (RAR)
- IRS authority to investigate
- Partnership audits – unified audit procedures for TEFRA
- Setting time and place of investigation
- Taxpayer options – agree or appeal
- Verification and substantiation of returns
Representing a Taxpayer Before Appeals
If an audit has been performed and the taxpayer does not agree with the audit findings, he or she may file an appeal request. The appeals process is intended to resolve tax controversies without litigation and in a manner that is fair and impartial to both the government and the taxpayer. The appeals process resolves over 100,000 cases each year. IRS Publication 5 "Your Appeal Rights and How to Prepare a Protest if You Don't Agree" and IRS Publication 1660 "Collection Appeal Rights" examines information regarding to the appeals process. Enrolled Agents can represent taxpayer clients in the appeals process and should know the following concepts:
- Enrolled Agent appearance at appeals conference
- Issuance of 90-day letter
- Request for appeals consideration
- Right to appeal revenue agent findings
- Settlement function of the appeals process
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