Ethics play a crucial role in the field of tax preparation, as pros are entrusted with handling sensitive financial information and making critical decisions that significantly impact individuals and businesses.

By following ethical principles, you demonstrate your commitment to tax compliance while still acting in the best interests of your clients and the public.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their corresponding answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.   

Q: What should you do if you decide you do not want to work with a client?

A: Although not codified in a specific section of Circular 230, the IRS encourages the following steps when disengaging. 1) notify the client in writing, preferably with an explanation (without breaching confidentiality), 2) revoke any active powers of attorney with IRS Form 2848, Power of Attorney and Declaration of Representative, or by written notice to the IRS, 3) return all relevant records per Circular 230, § 10.28, return of client’s records, and 4) document your reasoning for withdrawal in case of a complaint or regulatory inquiry.

Q: Under Circular 230, §10.3, who can practice? Registered tax return preparers (RTRPs) were not mentioned. Are RTRPs still recognized under Circular 230, §10.3?

A: The proposed regulations removed references to RTRPs. As of July 2025, RTRPs are no longer recognized as a distinct category authorized to practice before the Internal Revenue Service (IRS) under Circular 230, §10.3.

Q: Did the proposed regulations revise the rules on contingent fees?

A: Yes, the proposed regulations significantly revised the rules governing contingent fees in tax practice. They include a provision that prohibits the Treasury Department and the IRS from regulating, prohibiting or restricting contingent fee arrangements in connection with the preparation of the original returns, amended returns or refund claims.

Q: What if you have married clients who file separately only to lower student loan payments? Does a conflict of interest exist, and should each spouse sign a separate engagement letter?

A: Yes, a potential conflict of interest under Circular 230 can arise even if the sole reason a married couple files married filing separate (MFS) is to reduce student loan payments. Per Circular 230, §10.29, a practitioner must not represent a client if the representation involves a conflict of interest unless 1) the practitioner reasonably believes they can provide competent and diligent representation to each affected client, 2) the representation is not prohibited by law, and 3) each affected client gives informed consent in writing. Yes, ideally, each spouse should sign a separate engagement letter or a joint one that explicitly states 1) each spouse is a separate client, 2) the nature of the tax filing choice and the reasons for it, and 3) disclosure and waiver of any potential conflicts of interest.

To learn more about ethics and due diligence requirements of tax prep, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.

If you’ve been holding your breath waiting for new W-2s and other payroll forms in 2025, you can relax at least for now.

The IRS announced that for tax year 2025, as part of the phased rollout of the One Big Beautiful Bill Act (OBBBA), there will be no changes to:

• Form W-2
• Existing Forms 1099s
• Form 941 and other payroll return forms
• Federal income tax withholding tables

That means employers and payroll providers will continue using the same reporting and withholding procedures they’ve been using. The IRS has not yet released guidance on how overtime and other OBBBA-related payroll changes will be reported on existing forms. It is possible this additional information may be reported in box 14 of Form W-2 or added as an option in box 12. Tips will be reported in box 8 as in the past, but again, there has not been specific information on what will be required in each area.

The IRS recently released a fact sheet for more information on how these changes can affect your clients if they are in an industry that receives tips or have overtime pay. Payroll administrators will need to track those changes from the date of the tax law change.

Why the wait?

The IRS says this decision is all about avoiding disruption during filing season and giving employers, payroll providers and tax professionals time to adapt before changes kick in. By holding off until 2026, the IRS hopes to avoid errors that could lead to over- or under-withholding.

What’s next?

The action begins in 2026. Expect new guidance, updated forms, and changes to how tips and overtime pay are reported. Clients can also expect more details on how to file for OBBBA-related benefits they may be eligible for.

What this means for you:

If you prepare payroll or advise clients on withholding, you don’t need to overhaul your process for 2025. But it’s a great time to review your current systems so you’ll be ready for next year’s changes. Educate your clients and let them know there are no changes for this year. Stay connected to NATP updates to keep clients in the loop and be ready to help them navigate new rules as they arrive.

After a period of relative quiet, the IRS has ramped up its collection efforts, and tax professionals are once again seeing a surge in enforcement actions. Understanding the current landscape of IRS collections is essential for practitioners to advise and protect clients effectively. This includes the revived Automated Collection System (ACS), the sequence of collection notices and the mechanics of wage garnishments and bank levies.

After a slowdown during the pandemic, the IRS has shifted back into high gear. If your clients owe back taxes, the risk of enforced collection is higher than it’s been in years. Now is the time to review cases and take action before the IRS does.

Understanding the IRS collection notice timeline

ACS operates on a predictable notice sequence, but it has enforcement behind it. Here’s the path most delinquent taxpayers can expect:

• LT38: Special Reminder Letter

  This letter indicates that IRS collection notices are back in motion. It serves as a warning that follow-up notices and possible enforcement are coming.

• CP501, CP503, CP504: Reminder Notices

  These are issued roughly every eight weeks. They inform the taxpayer of their debt and request payment, but if ignored, enforcement follows.

• LT11: Final Notice of Intent to Levy

  This is the most critical notice. The IRS LT11 notice signals that the agency intends to seize assets, garnish wages or levy bank accounts. Taxpayers have 30 days to respond.

IRS wage garnishments and bank levies are happening now

A wage garnishment is one of the IRS’s most powerful collection tools. After issuing the LT11 and waiting the required 30 days, the IRS can contact an employer and require them to withhold a portion of the taxpayer’s wages to satisfy the tax debt. The amount exempt from garnishment is based on filing status, pay frequency and number of dependents, but the remainder is sent directly to the IRS.

A bank levy allows the IRS to seize funds directly from a taxpayer’s bank account. Unlike ongoing wage garnishments, a bank levy is a one-time event, though the IRS can issue multiple levies if the debt remains unpaid. The bank must hold the funds for 21 days before remitting them to the IRS, giving the taxpayer a brief window to resolve the issue.

Example

Angelica owes $22,000 from tax years 2018 and 2019. After ignoring the LT38 and CP504 notices, she receives IRS LT11. Without a response, the IRS can notify her employer to garnish up to 25% of her paycheck. If she is self-employed, the IRS may issue a bank levy, draining funds directly from her business account. As her tax professional, you can help Angelica by negotiating with the IRS about a payment plan or submitting an offer in compromise, but time is of the essence once garnishment begins.

The good news? Wage garnishments and bank levies can be stopped, but only with immediate action and the right resolution strategy.

Don’t overlook IRS CP508C

In addition to financial enforcement, the IRS may revoke or deny passports for those with seriously delinquent tax debt (over $62,000). The CP508C notice informs taxpayers that their case has been referred to the State Department.

This has major implications for international travelers, contractors and clients in global roles. It’s an enforcement tool that’s gaining more attention and power.

Best practices for tax professionals

• Monitor IRS notices closely:
  Encourage clients to forward all IRS correspondence immediately. Early intervention is key to avoiding enforcement actions.

• Educate clients on the consequences of inaction: Many taxpayers underestimate the seriousness of IRS notices. Make sure clients understand that ignoring the IRS can lead to wage garnishments, bank levies, liens and even passport restrictions.

• Act quickly after LT11:
  The 30-day window after LT11 is critical. File a Collection Due Process (CDP) hearing request if there are grounds to dispute the debt or negotiate a resolution.

• Explore all resolutions options: Depending on the client’s circumstances, consider installment agreements, offers in compromise, or currently not collectible status. Each option has its own requirements and implications.

• Stay informed about special populations:
  Federal employees and contractors face additional risks. The IRS has warned that unresolved tax debts could jeopardize their employment. If you have clients in this category, prioritize their cases and communicate the heightened stakes.

A warm, proactive approach

As tax professionals, our role extends beyond technical expertise. Clients facing IRS collections are often anxious and overwhelmed. Approach these situations with empathy, clear communication and a solutions-oriented mindset. By staying ahead of the IRS’s renewed enforcement efforts, you can help clients avoid the most severe consequences and regain control of their financial lives.

IRS collections are here, so be ready

The IRS’s collection machinery is back in motion, and wage garnishments and bank levies are once again a real threat for delinquent taxpayers. For tax professionals, vigilance, timely action, and client education are more important than ever. By understanding the notice sequence, the mechanics of enforcement, and the available resolution strategies, you can provide invaluable support to clients navigating these challenging waters.

If your clients receive notices LT38, CP501, CP504 or LT11, it’s time to act. Once a levy is in place, recovery becomes more difficult and more urgent.