Part 3 — IRS Authority, Tax Law Hierarchy & Practice Before the IRS

Tax Law Hierarchy

Primary authority (highest weight): IRC (26 USC), U.S. Supreme Court decisions, and tax treaties. Below that, the sources of "substantial authority" include:

1. IRC (Internal Revenue Code) — Congress (26 USC). Highest authority
2. Treasury Regulations — IRS interpretation of IRC. Binding if "legislative"; persuasive if "interpretive"; procedural regs issued by IRS Commissioner
3. Revenue Rulings — IRS interpretation of law for specific fact patterns. Binding on IRS, not on taxpayers or courts
4. Revenue Procedures — IRS procedural guidance (how to apply for/do something)
5. IRS Written Determinations (public, but generally not precedent except for the recipient):
   • Private Letter Rulings (PLR) — response to a specific taxpayer; binding on IRS ONLY for that taxpayer IF the proposed transaction was fully/accurately described and carried out as described; redacted before public release; user fee (often $10,000+)
   • Technical Advice Memoranda (TAM) — Chief Counsel guidance to IRS field employees on a completed transaction in a specific taxpayer's case; not published in the IRB; redacted before release
   • Chief Counsel Advice (CCA) — legal interpretation/advice to field employees; public but not citable as precedent by taxpayers
   • Information Letters — explain general principles; not precedent
6. IRS Notices/Announcements — general IRS communication; can be substantial authority (e.g., Notice 2025-69 on OBBBA tip/overtime deductions)
7. IRS Publications/Forms — guidance documents; NOT binding authority and NOT substantial authority (IRM 4.10.7.2.8). Relying on an outdated publication does NOT avoid accuracy-related penalties (Bobrow v. Comm'r)
8. Court Decisions — Tax Court, District Court, Court of Federal Claims, Circuit Courts of Appeals, Supreme Court. Supreme Court decisions are binding on IRS (same weight as the IRC); IRS may "acquiesce" or "non-acquiesce" in lower court decisions (published as "action on decision" in the IRB)
9. IRS Internal Revenue Manual (IRM) — internal operating procedures; NOT substantial authority; binding on IRS employees only

OBBBA Changes Affecting Authority/Assessment (2025+)

• Clean-energy credit substantial-understatement threshold lowered: If an energy credit (e.g., clean electricity production/investment credit) is denied because of prohibited-foreign-entity material assistance, the accuracy-related penalty triggers when the understatement exceeds 1% (not the usual 10%) of the required tax
• Math-error authority expanded: If a required SSN is missing/incorrect, IRS may use math-error procedures to automatically deny the $6,000 senior deduction, qualified-tip deduction, qualified-overtime deduction, and CTC — adjusting the return and billing without first issuing a 90-day Notice of Deficiency

IRS Operations

The Deputy Commissioner for Services and Enforcement oversees four operating divisions:

• Large Business & International (LB&I) — assets > $10 million (incl. S corps) and large partnerships

• Small Business/Self-Employed (SB/SE) — assets ≤ $10 million; gift/estate/excise/employment/trust filers; individuals with Schedule C/E/F

• Wage & Investment (W&I) — individuals with only wage/investment income (no Schedule C/E/F, no international)

• Tax Exempt & Government Entities (TE/GE) — employee retirement plans (incl. IRAs), exempt orgs, private foundations, government entities

• Chief Counsel: IRS legal advisor; issues legal opinions and guidance

• Taxpayer Advocate Service (TAS): Independent within IRS; helps taxpayers with hardship or systemic issues (free, confidential). File Form 911. Cannot take a case while a return is in "suspended" (still-processing) status

• National Taxpayer Advocate: Reports directly to Congress

Taxpayer Bill of Rights

1. Right to be informed
2. Right to quality service
3. Right to pay no more than correct amount
4. Right to challenge IRS position and be heard
5. Right to appeal IRS decision in independent forum
6. Right to finality
7. Right to privacy
8. Right to confidentiality
9. Right to retain representation
10. Right to a fair and just tax system

FOIA (Freedom of Information Act)

Anyone may request IRS records in writing; IRS has 20 business days to respond. Exemptions allow withholding (national security, privacy, proprietary interests, law enforcement). IRC §6103 prohibits IRS from releasing returns/return info even under FOIA. Redactable portions must be produced. Fees may be charged for search/review/copying. A different FOIA-type request applies to tax preparers (covered in poa-disclosure-privacy).

Practice Before the IRS — Who Can Practice

"Practice before the IRS" includes corresponding/communicating with IRS, representing taxpayers in meetings/hearings, preparing/submits documents (other than return preparation), and giving written advice on tax-avoidance arrangements. Return preparation ALONE is NOT "practice before the IRS" (Loving v. IRS). U.S. citizenship is NOT required to practice.

Unrestricted Practice Rights

• Enrolled Agents (EAs) — Pass all 3 parts of SEE, or qualify via 5+ years of IRS experience; unlimited practice rights at all IRS levels
• Attorneys — Licensed by a state/territory/D.C. bar
• CPAs — Licensed by a state/territory/D.C. board

Limited Practice Rights

• Annual Filing Season Program (AFSP) participants: may represent ONLY for returns they personally prepared and signed, ONLY at the tax examiner/customer service representative level (incl. Taxpayer Protection Office) — NOT before Appeals officers, collection officers, Counsel, or similar officials. Cannot sign closing agreements, extend assessment/collection statutes, waive rights, file refund claims, or sign documents for the taxpayer.
• Non-registered preparers (no AFSP): may prepare returns for a fee but have NO representation rights before the IRS at any level.
• Special-relationship limited practice (no enrollment needed):
  • Self — anyone may represent themselves (even a disbarred professional may represent themselves)
  • Family members — spouse, child, parent, sibling, grandparent, grandchild, step-parent, step-child, step-sibling (NOTE: a disbarred/suspended professional loses family-representation rights, except representing themselves)
  • Officer — bona fide officer of a corporation/association/organization/government unit
  • General partner — for the partnership
  • Full-time employee — for the employer
  • Fiduciary (executor, trustee, receiver, guardian, conservator) — acts AS the taxpayer; file Form 56 (Notice Concerning Fiduciary Relationship), NOT Form 2848
  • LITC/STCP students/graduates — with special appearance authorization
  • Special appearance authorization — rare; granted by IRS Commissioner/OPR for a specific matter

Who CANNOT Practice

• Disbarred/suspended individuals (cannot represent others; may represent themselves)
• Individuals whose enrollment is in inactive/terminated status for failure to meet renewal/CE
• A former government employee may NOT represent a taxpayer on a matter the employee worked on personally and substantially while in government (Circular 230 §10.25 — no uniform "2-year" bar appears in the study material)
• Individuals convicted of federal crimes involving dishonesty may be denied enrollment

Enrolled Agent Requirements

Two paths to an EA license:

1. Exam path — pass all 3 parts of the SEE; submit Form 23 (Application for Enrollment) within 1 year of passing; pass a background check (tax compliance + fitness). Return Preparer Office (RPO) decides.
2. Experience path — 5+ years of IRS employment with the technical experience specified in Circular 230; apply within 3 years of leaving IRS via Form 23; background check. RPO may grant limited or unlimited representation rights.

Renewal

• Renew every 3 years via Form 8554 (Application for Renewal of Enrollment); submit Nov 1 – Jan 31 before the new cycle begins April 1.
• Renewal cycle determined by the last digit of the EA's SSN (0–3, 4–6, 7–9/no-SSN). IRS sends a reminder, but the duty to renew exists even if no reminder is received.
• IRS checks the EA's filing/payment history and the firm's tax compliance, and verifies CE completion. Report an address change within 60 days.

Continuing Education (CE)

• 72 hours per 3-year cycle; minimum 16 hours per year, including 2 hours of ethics per year (no carrying excess ethics to a future year)
• IRS-approved providers only; providers must register annually and are assigned a provider number
• A course must be ≥80% federal tax topics to count; state-tax-only courses do NOT qualify
• Minimum creditable session = 50 minutes (1 contact hour); instructor credit = 1 hour per contact hour, or 2 hours per hour of actual prep; max 6 instructor/prep hours per year
• New EA's first-cycle CE is prorated: 2 hours CE per month of enrollment + 2 hours ethics/year (no exception)
• An EA who retakes and passes the SEE after a prior renewal needs only 16 hours (incl. 2 ethics) in the final year of the current cycle
• Retain CE records 4 years after the renewal date
• CE waivers available (health, extended active-duty military, leave the U.S., other case-by-case) — request before the renewal-application period ends
• Inactive/terminated EA: RPO sends a first-class notice; the EA has 60 days to respond. If no response, the EA goes inactive and may NOT practice or hold out as an EA. To reinstate after a missed full cycle: pay both cycles' fees, complete required CE, and submit written appeal within 30 days with valid reason (serious illness, extended absence abroad).
• Loss of practice rights also arises from: failure to meet CE, failure to renew PTIN, requesting inactive/retired status, or state-license discipline (suspended/revoked CPA or attorney is suspended/revoked federally for the duration).

PTIN Requirements

• CPAs/attorneys who do NOT prepare returns do NOT need a PTIN (but all EAs must hold a PTIN regardless).
• PTIN is issued to a single individual, is non-transferable, and expires each 12/31; renew annually. Fee (Oct 2025 for 2026 use): $18.75, nonrefundable.
• To renew for 2025, a preparer must certify possession of a Written Information Security Plan (WISP).
• Supervised preparers (employees of attorney/EA/CPA firms who do NOT sign returns and do NOT represent taxpayers) must also have a PTIN and provide their supervisor's PTIN.

"Substantial Portion" Rule

Only a person who prepares all or a "substantial portion" of a return is a preparer of that return. A portion is generally NOT substantial if it involves income/deductions/credit basis of:

• Less than $10,000, OR
• Less than $400,000 AND less than 20% of AGI (or gross income if not a Form 1040)

A single schedule is usually not substantial unless it represents the main portion of income (e.g., a Schedule C that is most of the return). The preparer with primary responsibility for the return's overall accuracy must sign.

Return Preparer Classifications

• Signing preparer: Signs the return. Primarily responsible.
• Non-signing preparer: Prepares substantial part but doesn't sign (reviewers, supervisors, preparers of supporting schedules)
• Supervised preparer: Works under supervision of an attorney/CPA/EA/ERPA/enrolled actuary who signs; does not sign or represent

Preparer Penalties (Brief)

• IRC §6694(a) — Understatement due to unreasonable position: greater of $1,000 or 50% of preparer income
• IRC §6694(b) — Willful/reckless understatement: greater of $5,000 or 75% of preparer income
• IRC §6695 — Failure to sign, provide copy, retain records, file correct returns: various per-failure penalties
• IRC §6713 — Disclosure or use of taxpayer information: $250 per disclosure (max $10,000/year)
• IRC §7407 — Injunction against preparer for prohibited conduct