Free Enrolled Agent Part 3 Practice Test: Representation

Answer: B. Preparing a return and furnishing information the IRS requests

Section 10.2(a)(4) defines practice as all matters connected with a presentation to the IRS relating to a client's rights, privileges or liabilities, including preparing documents, filing, corresponding and communicating with the IRS, rendering written advice, and representing a client at conferences, hearings and meetings. Merely preparing a return and furnishing information when the IRS requests it is not, by itself, practice: section 10.8(b) lets any individual prepare a return, appear as a witness or furnish information at the IRS's request. Source: 31 CFR 10.2(a)(4), 10.8(b); Circular 230 (31 CFR Part 10, Rev. 6-2014). Tax year: 2025 (law as of 31 Dec 2025).

Common mistake: Treating every contact with the IRS as practice.

Answer: A. For returns the holder prepared and signed

AFSP participants have limited representation rights: they may represent clients whose returns they prepared and signed before revenue agents, customer service representatives and similar IRS employees, including the Taxpayer Advocate Service, during examination. They may not represent clients before Appeals or collections. Unenrolled preparers without the Record of Completion have no representation rights for returns prepared after 2015. Source: Rev. Proc. 2014-42; Pub. 947; Form 2848 instructions, line 2 designation h. Tax year: 2025 (law as of 31 Dec 2025).

Common mistake: Giving AFSP holders appeals or collection rights.

Answer: A. 16 hours, including 2 hours of ethics

Besides the 72-hour cycle requirement, an EA must complete at least 16 hours of CE each enrollment year (January 1 to December 31), of which 2 hours must be ethics or professional conduct. A newly enrolled EA must complete 2 hours per month of the year enrolled, including ethics, for each enrollment year. Source: 31 CFR 10.6(e)(2)(ii); Circular 230 (31 CFR Part 10, Rev. 6-2014). Tax year: 2025 (law as of 31 Dec 2025).

Common mistake: Assuming the 72 hours can be packed into the last year.

Answer: A. Promptly advise the client of the omission and its consequences

Section 10.21 requires a practitioner who knows that a client has not complied with the revenue laws, or has made an error or omission in a return, to advise the client promptly of the noncompliance, error or omission and of its consequences. The practitioner is not required to notify the IRS or to correct the return himself, and he may not amend without the client's authorization. Source: 31 CFR 10.21; Circular 230 (31 CFR Part 10, Rev. 6-2014). Tax year: 2025 (law as of 31 Dec 2025).

Common mistake: Thinking the practitioner must report the client to the IRS.

Answer: C. Yes, because it relates to an exam of an original return

Section 10.27 generally prohibits contingent fees, but allows them for services in connection with the IRS's examination of, or challenge to, an original return, an amended return or refund claim filed within 120 days of receiving written notice of the examination, a claim filed solely for interest or penalties, and judicial proceedings. An examination of the original return qualifies. Source: 31 CFR 10.27(b)(2); Circular 230 (31 CFR Part 10, Rev. 6-2014). Tax year: 2025 (law as of 31 Dec 2025).

Common mistake: Treating all contingent fees as banned.

Answer: D. Prohibited, as it depends on the refund on an original return

A contingent fee includes any fee based on a percentage of the refund reported on a return. Contingent fees for preparing an original return are not within any exception in section 10.27(b), so the arrangement is prohibited regardless of disclosure or client consent. Source: 31 CFR 10.27(b)-(c); Circular 230 (31 CFR Part 10, Rev. 6-2014). Tax year: 2025 (law as of 31 Dec 2025).

Common mistake: Assuming client consent cures a prohibited contingent fee.

Answer: D. Section 7216, which can bring criminal penalties

Section 7216 makes it a crime (a misdemeanor punishable by a fine of up to $1,000 and up to 1 year in prison) for a preparer to knowingly or recklessly disclose or use tax return information except as permitted by regulation; section 6713 imposes a civil penalty of $250 per disclosure. Using return information for marketing requires the taxpayer's prior written consent in the prescribed form. Source: IRC 7216, 6713; Treas. Reg. 301.7216-3. Tax year: 2025 (law as of 31 Dec 2025).

Common mistake: Assuming disclosure to another professional is permitted.

Answer: B. May be avoided under the reasonable cause exception

No accuracy-related penalty applies to any portion of an underpayment if the taxpayer shows reasonable cause and good faith under section 6664(c). Reasonable reliance on professional advice qualifies when the adviser was competent, the taxpayer gave complete and accurate information, and the taxpayer actually relied on the advice in good faith. Source: IRC 6664(c)(1); Treas. Reg. 1.6664-4(b)-(c). Tax year: 2025 (law as of 31 Dec 2025).

Common mistake: Thinking only Form 8275 disclosure avoids the penalty.

Answer: A. 50% of the income the preparer derived from the return

Section 6694(a) imposes a penalty equal to the greater of $1,000 or 50% of the income derived (or to be derived) by the preparer for the return, when the understatement is due to a position the preparer knew or should have known was unreasonable. Willful or reckless conduct under section 6694(b) raises it to the greater of $5,000 or 75%. Source: IRC 6694(a)(1); Treas. Reg. 1.6694-2. Tax year: 2025 (law as of 31 Dec 2025).

Common mistake: Mixing up the 6694(a) and 6694(b) percentages.

Answer: A. Yes, if line 5a grants it, given his 60-day absence

Under Reg. 1.6012-1(a)(5), another person may sign an income tax return only in case of disease or injury, continuous absence from the United States for at least 60 days before the due date, or specific IRS permission for good cause. The 2848 must specifically grant this authority on line 5a. Ron's absence from February 1 to past April 15 exceeds 60 days. Source: Treas. Reg. 1.6012-1(a)(5); Form 2848 instructions (Rev. 9-2021), Line 5a. Tax year: 2025 (law as of 31 Dec 2025).

Common mistake: Assuming a power of attorney automatically authorizes signing returns.

Answer: A. It is revoked for 2024 when the new form is recorded

When the IRS records a new Form 2848 on the CAF, it generally revokes earlier powers of attorney recorded for the same matter, unless the taxpayer checks line 6 and attaches copies of the powers she wants to keep. Filing Form 2848 does not revoke a Form 8821. Source: Form 2848 instructions (Rev. 9-2021), Line 6, Retention/Revocation of Prior Power(s) of Attorney. Tax year: 2025 (law as of 31 Dec 2025).

Common mistake: Thinking both representatives remain authorized by default.

Answer: C. Endorse or negotiate the taxpayer's refund check

A Form 2848 generally authorizes the representative to receive confidential information and perform any acts the taxpayer can perform for the listed matters, including signing consents to extend the statute and closing agreements. It never authorizes the representative to endorse or otherwise negotiate a refund check, and it does not allow substituting another representative or signing returns unless specifically granted. Source: Form 2848 instructions (Rev. 9-2021), Line 5a, Acts authorized; 31 CFR 10.31. Tax year: 2025 (law as of 31 Dec 2025).

Common mistake: Allowing representatives to handle refund checks.

Answer: D. April 15, 2026

The IRS generally has 3 years after a return is filed to assess (section 6501(a)), and a return filed before the due date is treated as filed on the last day prescribed for filing (section 6501(b)(1)). That day is the statutory April 15 date; section 7503 only lets a return filed on the next business day count as timely and does not move the deemed filing date (Rev. Rul. 81-269; IRM 25.6.1.6.15). So the period ends April 15, 2026. The 6-year period applies only to omissions of more than 25% of gross income. Source: IRC 6501(a), 6501(b)(1), 7503; Rev. Rul. 81-269; IRM 25.6.1.6.15. Tax year: 2025 (law as of 31 Dec 2025).

Common mistake: Counting from the early filing date, or from a weekend- or holiday-shifted deadline.

Answer: D. Timely, and up to the full $2,000

A refund claim filed within 3 years after the return was filed is timely, and the refund is limited to tax paid within 3 years (plus any extension) before the claim. Withholding is treated as paid on April 15, 2023, the 15th day of the fourth month after the year ends (IRC 6513(b)(1)), which falls within the 3-year lookback from April 1, 2026, so the full $2,000 can be refunded. Source: IRC 6511(a), 6511(b)(2)(A), 6513(b)(1); Form 1040-X instructions. Tax year: 2025 (law as of 31 Dec 2025).

Common mistake: Applying the 2-year lookback to a claim filed within the 3-year period.

Answer: B. 25% of the gross income stated on the return

Section 6501(e)(1)(A) gives the IRS 6 years to assess when the taxpayer omits gross income in excess of 25% of the gross income stated on the return (or more than $5,000 of income from specified foreign financial assets). Overstated basis can count as an omission. Fraud or no return leaves the period open indefinitely. Source: IRC 6501(e)(1)(A); Pub. 556. Tax year: 2025 (law as of 31 Dec 2025).

Common mistake: Confusing the 25% omission test with the 10% substantial understatement test.

Answer: D. Withdrawal of the lien notice on Form 12277

The IRS may withdraw a notice of federal tax lien when, among other grounds, the taxpayer owes $25,000 or less and enters a direct debit installment agreement with at least three consecutive payments made, which removes the public filing. Discharge removes the lien from specific property, subordination lets another creditor move ahead, and release follows payment in full. Source: IRC 6323(j); Form 12277 instructions; IRM 5.12.9. Tax year: 2025 (law as of 31 Dec 2025).

Common mistake: Confusing withdrawal with release, discharge or subordination.

Answer: C. Letter 1058 or LT11, Final Notice of Intent to Levy

Under section 6330, the IRS must send a Final Notice of Intent to Levy and Notice of Your Right to a Hearing (Letter 1058 or LT11) at least 30 days before levying. The taxpayer has 30 days from the notice date to request a CDP hearing on Form 12153. A CP504 warns of state refund levies but does not itself carry CDP rights for other levies. Source: IRC 6330(a); Pub. 594; Pub. 1660. Tax year: 2025 (law as of 31 Dec 2025).

Common mistake: Treating CP504 as the CDP notice.

Answer: D. 30 days after the date of the notice

A timely CDP request must be made within 30 days of the date of the levy notice (for liens, within 30 days after the 5-business-day period following the filing of the notice of federal tax lien). A late request within 1 year gets only an equivalent hearing, with no Tax Court review and no suspension of collection. Source: IRC 6330(a)(3)(B), 6320(a)(3)(B); Treas. Reg. 301.6330-1(i); Form 12153 instructions. Tax year: 2025 (law as of 31 Dec 2025).

Common mistake: Confusing the CDP deadline with the 90-day deficiency period.

Answer: C. No, the EA may attend in her place

Under section 7521(c), a taxpayer cannot be required to accompany a representative with a valid power of attorney to an interview, unless the IRS issues an administrative summons to the taxpayer. The representative may attend alone. Either side may audio record an interview with 10 days' advance notice. Source: IRC 7521(c); Pub. 5; Pub. 556 (Rev. 9-2013). Tax year: 2025 (law as of 31 Dec 2025).

Common mistake: Assuming the taxpayer must personally attend.

Answer: A. Signing extends the period; refusing may bring a prompt 90-day letter

Form 872 is a consent to extend the time to assess tax. Taxpayers may refuse, limit the extension to certain issues or set a date, and the IRS must tell them of these rights (section 6501(c)(4)(B)). If they refuse, the IRS will usually issue a notice of deficiency based on the information it has, which preserves Tax Court rights but leaves less time to resolve issues. Source: IRC 6501(c)(4); Pub. 1035. Tax year: 2025 (law as of 31 Dec 2025).

Common mistake: Thinking a consent is mandatory or forfeits appeal rights.

Answer: A. Tax advice in noncriminal matters before the IRS

Section 7525 extends the common-law attorney-client privilege to tax advice between a taxpayer and a federally authorized tax practitioner (such as an EA or CPA) in noncriminal tax matters before the IRS or noncriminal federal court proceedings. It does not apply in criminal matters, to information gathered for return preparation, or to written communications promoting tax shelters. Source: IRC 7525(a)-(b); IRM 34.6.3. Tax year: 2025 (law as of 31 Dec 2025).

Common mistake: Assuming the privilege covers criminal matters or return preparation.

Answer: D. Get her signed choice statement and attach Form 8948

A taxpayer may choose to file on paper. The preparer should obtain a hand-signed and dated taxpayer choice statement (kept in the preparer's records) and attach Form 8948, Preparer Explanation for Not Filing Electronically, to the paper return, checking the client-choice box. Source: Treas. Reg. 301.6011-7(a)(4); Form 8948 instructions; Rev. Proc. 2011-25. Tax year: 2025 (law as of 31 Dec 2025).

Common mistake: Filing on paper without Form 8948.

Answer: A. 10 calendar days after the IRS gives notice of the rejection

If the IRS rejects an electronic return that cannot be corrected and retransmitted, the taxpayer may file a paper return by the later of the due date or 10 calendar days after the IRS notifies of the rejection, with an explanation and a copy of the rejection notice, and it is treated as timely. A corrected electronic resubmission, by contrast, must be made by the fifth calendar day after the due date. Source: Pub. 1345 (current), Rejected returns and the transmission perfection period. Tax year: 2025 (law as of 31 Dec 2025).

Common mistake: Assuming a rejection after the due date makes the return late.

Answer: C. His local IRS Stakeholder Liaison

IRS guidance tells preparers who experience data theft or loss to contact their local IRS Stakeholder Liaison right away so the IRS can monitor clients' accounts, along with notifying law enforcement, states and clients as required. OPR handles practitioner conduct, not data breaches. Source: Pub. 4557, Reporting data theft; IRS Data Theft Information for Tax Professionals. Tax year: 2025 (law as of 31 Dec 2025).

Common mistake: Reporting a breach to OPR or TAS instead.