Treasury Department Circular 230 Summary Notes

Circular 230 Overview & Subparts

• Treasury Department Circular 230 contains regulations governing practice before the Internal Revenue Service (IRS).

• Circular 230 Subparts:

  • Subpart A: Rules Governing Authority to Practice

  • Subpart B: Duties and Restrictions in Practice before the IRS

  • Subpart C: Sanctions for Violating the Regulations

  • Subpart D: Rules Applicable to Disciplinary Proceedings

  • Subpart E: General Provisions

• Practice before the IRS includes:

  • Communicating with the IRS for a taxpayer.

  • Representing a taxpayer.

  • Preparing and filing necessary documents with the IRS for a taxpayer.

Authority to Practice (Subpart A)

• Anyone who prepares or assists in preparing federal tax returns for compensation must register with the IRS.

• The rules governing practice apply to attorneys, certified public accountants, enrolled agents, enrolled actuaries, enrolled retirement plan agents, registered tax return preparers, and limited representatives (e.g., officers or full-time employees of a corporation or trust).

Practice Duties and Restrictions (Subpart B)

• Information Requests (Section 10.20): Must inform the IRS if aware of anyone who possesses requested information; good-faith privileged information may be withheld.

• Client Noncompliance or Error (Section 10.21): A practitioner who knows of a client's noncompliance, error, or omission must advise the client of the law's consequences and penalties. There is no duty to inform the IRS or immediately withdraw.

• Diligence as to Accuracy (Section 10.22): Practitioners must exercise due diligence in preparing, approving, and filing IRS documents and representations. Reasonable reliance on the work product of others is permitted.

• Prompt Disposition (Section 10.23): Practitioners may not unreasonably delay any matter before the IRS.

• Disbarred or Suspended Persons (Section 10.24): Practitioners cannot accept assistance from or assist anyone disbarred or suspended from IRS practice.

• Former Government Employees (Section 10.25):

  • Personal and substantial participation in a matter: Permanent ban on representing or assisting those parties.

  • Official responsibility for a matter: $2\text{ years}$ ban on representing those parties.

  • Participation in rule development: $1\text{ year}$ ban on appearing before the IRS regarding that rule.

  • Firms must isolate former government employees to prevent conflict issues.

• Notary Restrictions (Section 10.26): Practitioners may not act as a notary public for client tax matters.

• Fees (Section 10.27): Unconscionable fees are prohibited. Contingent fees are allowed only for:

  • IRS examination of an original tax return.

  • Claim for refund of interest and/or penalties.

  • Judicial proceedings.

• Return of Client Records (Section 10.28): Must promptly return client records necessary to comply with federal tax obligations upon request, even in fee disputes. If state law allows withholding during fee disputes, return-attached records must still be provided, and access/copying must be allowed for other records.

• Conflict of Interest (Section 10.29): Representation with a conflict is prohibited unless the practitioner reasonably believes competent representation can be provided, no law prohibits it, and each client waives the conflict in writing within $30\text{ days}$ of informed consent.

• Solicitation and Advertising (Section 10.30): False, fraudulent, or misleading statements are prohibited. Published fee schedules must be honored for $30\text{ days}$ after publication. Retention of direct fee communication copies is required for $36\text{ months}$.

• Negotiation of Checks (Section 10.31): Practitioners may not endorse or negotiate any client refund check.

• Competence & Best Practices (Sections 10.33 & 10.35): Practitioners must maintain requisite knowledge, skill, thoroughness, and preparation, and advise clients on the significance of tax conclusions reached.

Tax Returns & Written Advice Standards

• Return Positions (Section 10.34): Practitioners cannot sign returns or advise positions lacking a reasonable basis, willfully understating liability, or recklessly/intentionally disregarding rules.

• Advising on Penalties: Practitioners must inform clients of penalties reasonably likely to apply to return positions or submitted documents.

• Written Advice (Section 10.37): Must be reasonable, supported by facts and law, and formulated without considering audit probability.

• Standard of Review: Compliance with Circular 230 advice standards is evaluated using a reasonable practitioner standard acting in good faith.

Compliance, Sanctions, & Reinstatement

• Sanctions: The Secretary of the Treasury may publicly reprimand, suspend, or disbar practitioners for incompetence, Circular 230 noncompliance, or intentional fraud/deception.

• Incompetence and Disreputable Conduct: Sanctions apply to tax crime convictions, giving false information to Treasury, tax evasion, threatening IRS staff, recklessly giving false opinions, failing to sign returns, unauthorized disclosure, missing tax preparer IDs, or unauthorized taxpayer representation.

• Petition for Reinstatement: Disbarred or suspended practitioners may petition for reinstatement after $5\text{ years}$ from suspension or disbarment upon showing non-recurrence and compatibility with public interest.