Circular 230 and conflicts of interest.

• Author: Ely, Mark H.

Treasury issued Circular 230 final regulations in July 2002, governing practice before the IRS. Treasury Circular 230, Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents and Appraisers Before the Internal Revenue Service, imposes duties and restrictions on practitioners, including in Section 10.29 a ban on representing conflicting interests before the IRS.

Overview

Section 10.29(a) bars practitioners from representing a client before the IRS if this involves an actual (not merely potential) conflict of interest. "A conflict of interest exists if: (1)The representation of one client will be directly adverse to another client; or (2) There is a significant risk that the representation of one or more clients will be materially limited by the practitioner's responsibilities to another client, a former client or a third person or by a personal interest of the practitioner." Under Section 10.29(b), such representation can nevertheless occur if (1) it is not prohibited by law, (2) the practitioner reasonably believes that he or she can diligently and competently represent each affected client and (3) each affected client gives informed written consent. Under Section 10.29(c), a practitioner must retain copies of the client's informed consent for a minimum of 36 months from the date the representation is concluded, and furnish it to the IRS on request. There have been no authoritative pronouncements on this issue since the final regulations were published.

Practice Before the IRS

IRS Pub. 947, Practice Before the IRS and Power of Attorney, defines practice before the IRS as all matters relating to any of the following: communicating with the IRS for a taxpayer regarding the taxpayer's rights, privileges or liabilities under IRS-administered laws and regulations; representing a taxpayer at conferences, hearings or meetings with the IRS; and preparing and filing necessary IRS documents for a taxpayer. Because this definition is broad, it may, for example, include a variety of engagements, such as estate planning, resolving marital disputes and representing passthrough entities.

Just preparing a tax return, furnishing information at the IRS's request or appearing as a witness for the taxpayer, is not practice before the IRS. These acts can be performed by anyone to the extent provided by the regulations governing practice before the IRS.

Conflicts

Section 10.29(a) prohibits a practitioner from representing a...