An EA signs a 2025 Form 1040 claiming earned income tax credit (EITC), American Opportunity Tax Credit (AOTC), and HoH status without completing Form 8867, signs a written tax opinion that "assumes" the partnership qualifies as a trader, deposits a client refund check into the firm operating account "to cover fees first," and forgets to file Form 8554 before the renewal window closes. Four Circular 230 problems stack inside one afternoon.
Section 10.22 reaches three distinct domains.
- Preparing, approving, and filing returns, documents, affidavits, and other papers relating to IRS matters.
- The correctness of oral and written representations made to the Department of the Treasury.
- The correctness of oral and written representations made to clients about any matter administered by the IRS.
Reliance on another person's work product is acceptable if the practitioner uses reasonable care in engaging, supervising, training, and evaluating that person. Reliance fails when the practitioner knows or should know that the other person is unqualified, careless, or producing flawed output.
Common mistakes
- Treating the $650 §6695(g) penalty as per-return rather than per item. EITC, CTC/ACTC/ODC, AOTC, and HoH each generate separate $650 failures on returns filed in 2026. Four items on one return is $2,600 in exposure.
- Confusing the §10.34 thresholds. Undisclosed ordinary positions need substantial authority (~40%), disclosed positions need reasonable basis (~20%), tax shelters and reportable transactions need MLTN (>50%). Frivolous is never acceptable.
- Assuming covered-opinion rules still govern written advice. The detailed former-§10.35 covered-opinion regime (and the long email disclaimers) were repealed in June 2014. §10.37 is now the standard.
Bottom line
- §10.22 due diligence covers preparing and filing returns, statements made to Treasury, and statements made to clients, including reasonable care when supervising others.
- §6695(g) adds Form 8867 documentation for EITC, CTC/ACTC/ODC, AOTC, and HoH at $650 per failure per return for returns filed in 2026 (each item counts separately, so four items reach $2,600), with records kept 3 years.
- §10.29 conflicts are waivable only if competent representation is possible, the law does not prohibit it, and each affected client gives informed consent confirmed in writing, retained 36 months.
- §10.31 refund check rule is absolute. A return preparer may never endorse, negotiate, cash, or direct a client's federal refund check into a practitioner-controlled account, with or without client consent.
Exam shortcut
"Refund check into my account" is always wrong. §10.31 is absolute. If an answer choice involves the preparer touching the refund, eliminate it immediately, regardless of consent language. Pick the threshold by disclosure and shelter status. No disclosure plus ordinary position equals substantial authority (~40%). Disclosure on 8275/8275-R equals reasonable basis (~20%). Tax shelter or reportable transaction equals MLTN (>50%), no matter what is disclosed.
The full lesson (about 3,697 words, 25 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
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