What more can you do?

So you passed the CPA exam and maybe the EA test, too! You have a thriving practice but there is one client you have been unable to help. The IRS doesn't want to listen to your reasoning or review your proof of your client's position. The Notice of Deficiency has been issued. Do you tell your client to leave you and hire a tax attorney?

[ILLUSTRATION OMITTED]

Wrong!

You can sit for the U.S. Tax Court examination for non-attorneys. This test, given every two years, allows a non-attorney (Enrolled Agent or CPA) to practice in the Tax Court on equal footing with any attorney admitted to the Tax Court Bar.

"But," you exclaim, "no one ever passes that test! It's impossible!"

Not so! The exam is a four-hour written test given every other year (the next one will be given in 2004), usually in November--and it's open book! There is one test site, the U.S. Tax Court Building in Washington, DC. (Even though there's only one test site, the Court itself travels nationwide to hear cases.) Each testing session has passing scores. You've done it once for your CPA or EA license; you can do it again. Impossible to pass? Obviously not--besides, you really know this stuff.

OK, now exactly how do you go about this?

Next summer (2004), the Chief Judge will issue the announcement about when and where the test for non-attorneys will be given. The announcement for the last test has been on the Tax Court website (www.ustax-court.gov), along with the application to take the test. It asks hard questions like your name, address, date and place of birth, and your credentials. You also have to assure the Court that you haven't been suspended from practice or been denied admission to any other court. Fill in the application and submit it to the Court with your application fee, historically $75. (The application asks for two references who are already Tax Court practitioners, but you don't have to supply those until you pass the test.)

The announcement also outlines the subjects to be tested and the percentage weight each subject will carry. Typically, the Tax Court Rules of Practice and Procedure is worth 25 percent, Federal Rules of Evidence is 25 percent, Federal Taxation is 40 percent and Legal Ethics, including the ABA Model Rules of Professional Conduct, is worth 10 percent.

Now you know you're going to do well--40 percent of the test is on federal taxation, work you do on a daily basis. To prepare for the test and to fill in any gaps in your knowledge, you will want to take some continuing education courses. Commercial tax court courses are available; they are more expensive than the run-of-the-mill education courses because of the specialized subject. You may have to travel away from home for these courses. Some courses prepare you to take and pass the test; some courses actually teach the petition and how to file it with the Court. And then you may want to brush up on some special part of tax that was presented on a day you were absent from school. At the very least, you'll have plenty of continuing education hours to maintain the credentials you now hold. (The good news is that the Tax Court admission does not require any additional hours over and above what your current credentials need.)

The test is open book! You get to use the Tax Court Rules of Practice and Procedure and the ABA Rules of Ethics. Even the IRS Code is available should you need to double check an answer. The only part of the test where no text help is available is evidence.

Now, let's make a plan. First, call the Tax Court and ask for a copy of past tests. They'll send them to you for a small fee. Notice that the earlier tests don't have the ethics section; it's a relatively new addition to the test. You'll notice, too, that there are no answers to the tests; you have to come up with those yourself.

Look at the federal taxation section. Can you answer these questions? These questions were taken from prior tax court tests.

1. Are the following taxpayers entitled to file joint returns for 2003?

a. Taxpayer and Spouse were married on December 30, 2003.

b. Taxpayer and Spouse were divorced on December 30, 2003.

c. Taxpayer and Spouse were separated and living apart as of June 15, 2003 but have not entered into any written separation or other agreement.

d. Taxpayer died on February 18, 2003, leaving Spouse surviving.

e. Taxpayer is the sole income earner for the family. Spouse has no income or deductions for the year.

f. Taxpayer and Spouse filed separate returns for 2001 and 2002.

2. Taxpayer, aged 45, needs money to pay for his daughter's college tuition. He withdraws $10,000 from his IRA. How will the IRA withdrawal be taxed?

These situations are met in your practice every day, aren't they? The test can cover any portion of the IRS Code. How much of the Code do you cover in your practice every day? Lots more than you realize; potentially any portion of it.

Procedure is covered in a text called Tax Court Rules of Practice and Procedure. It's available online or you can get a printed copy from the Court for a few dollars. The test asks questions like what's in a valid tax court petition. If you check Rule 34, it's there in black and white and available for use during the test. One of the tests asked what the statute of limitations was on the Notice of Deficiency. The Notice of Deficiency is commonly called the 90-day letter--guess how long you have to reply. Here's another difficult test question:

1. When does the examination statute expire on the following tax returns that are properly, timely, and non-fraudulently filed except as noted below:

a. An income tax return with respect to a deduction claimed on the face of the return.

b. An income tax return with respect to a gross income item not included in the return and with respect to a deduction claimed on the face of the return.

c. A fraudulent income tax return for year 1 is filed in year 2, and in year 3 a non-fraudulent and correct return for year 1 is filed.

You'll want to be really familiar with the Rules; this is the basis for working in the Court. Even though you have access to the Rules during the test, readily knowing what's there and where is a better approach to preparing for the test.

Evidence is the only section you need to know cold. Don't rely on reading Perry Mason to get past this one. You may want to invest in some evidence texts. Even better are the evidence cram texts available from law school bookstores. Those texts typically give both questions and suggested answers and why they are right. You want to get the feel for the thinking of the law school personnel who allegedly score the test. The questions aren't hard but the scoring is. Flash cards are also available, again from law school bookstores, that cover evidence and ethics. These provide a good, quick review of concepts with the defining answers immediately available on the reverse side. Remember, the Tax Court is a civil court; don't spend any time on criminal rules.

OK, now you've decided you can do this test. You ordered the prior tests from the Court and you sat down with those tests and came up with answers you think are correct. You've done the research in your tax software and by networking with other practitioners or test takers. Some of the commercial services will offer correct answers collected from previous test takers (of course, for a fee). Now do some more analysis. If you look at the tests, you'll see that the test remains consistent over time. You'll also see that the tax law covered isn't overly complex. You may learn some-out-of-the-ordinary concepts like "treasure trove," i.e., what's the basis of the letter you find in your newly purchased antique table that was sent to Bill Clinton when he was a student and signed by Jack Kennedy? That's part of the fun of this type of tax law--it's not something you happen upon every day, but it's something that your good, common sense could tell you because of your experience in the tax industry.

If you still have some doubts about any shaky sections of the law, you may want to go to the IRS publications or to your research media for examples. Both places often have story-like qualities that make the concept easier to master. You may want to make a scenario so absurd that it sticks in your memory with the appropriate concepts applied. (Do the three blind mice have a partnership, LLC, S corp or C corp?)

About a month prior to the test, you will want to review the current literature for new court cases. Keep in mind that any law is a constantly developing field and tax law is no different. What is correct one year may not be the next, either because there's been a precedent-setting court case or Congress has fixed some flaw in legislation. You may remember the Solimon case that controlled office-in-the-home deductions until Congress specifically addressed it some years later. The Redlark case, concerning whether interest attributable to Schedule C tax was a business expense and fully deductible, had one answer on the 1998 test and a different answer in 2000 because it had been appealed. Again, the cases covered usually aren't complex but do pave new tax territory. You don't have to cite the exact case on the test, but you should be able to recognize the scenario and know the outcome.