5.1 Circular 230 Practice Standards & Sec 6694 Penalties
Master tax position thresholds: Frivolous (< 5%), Reasonable Basis (20%), Substantial Authority (40%), and More Likely Than Not (> 50%).
Key Blueprint Takeaways
- Undisclosed tax return positions require 'substantial authority' (approx 40% probability).
- Disclosed positions on Form 8275 require at least a 'reasonable basis' (approx 20% probability).
- CPAs may never negotiate or endorse client tax refund checks.
Treasury Circular 230 governs practice before the Internal Revenue Service. It sets ethical requirements for attorneys, CPAs, and enrolled agents.
CPAs must exercise due diligence in preparing returns, verifying information, and submitting documents to the IRS. Willful or reckless conduct results in severe monetary penalties, public censure, or disbarment from IRS practice.
Knowledge Checkpoint • Section 5.1
Under Treasury Department Circular 230, what minimum level of authority must a tax return position have to avoid penalties under IRC Section 6694 if the position is NOT disclosed on Form 8275?