Circular 230 changes: suitability to practice, quality control among proposed revisions.

• Author: Dellinger, Kip
• Position: Regulatoryupdate

In mid-September. the Treasury released proposed revisions to Circular 230 regulations governing conduct of tax practitioners before the IRS (REG-138367-06, 2012-40 MB 426).

The proposals address a number of areas that generally may be categorized as enhanced "suitability to practice" matters, i.e. a specific requirement of "competency" and a virtual mandate that practitioners, firms and firm tax leadership initiate and document quality control processes and procedures within a practice of any size (proposed secs. 10.35, 10.22 and 10.36), and including a specific prohibition of tax practitioner's receipt of a taxpayer's refund by any means--including electronic payment (proposed Sec. 10.31).

In addition, significant Circular 230 changes are proposed that govern written tax advice provided to clients--and others--who might rely on the advice.

The Covered Opinion provisions of Sec. 10.35 in Circular 230 will be repealed and the other written advice provisions of Sec. 10.37 revised and expanded to address the entirety of standards for written advice to clients. This will eliminate a need for the branding of an emails that inform clients, friend and family that they may not rely upon any aspect of an email communication for protection from penalties assessed under the Internal Revenue Code.

The proposals also provide for expedited suspension or disbarment procedures where practitioners are repeatedly noncompliant with their own tax filing obligations [proposed Sec. 10.82(b)(5)]. Essentially, based on an order to show cause, the IRS can promptly proceed to suspend tax practitioners when they have not timely filed a return and have been similarly noncompliant for at least four of the five years preceding the initiation of the expedited procedures process.

Finally, proposed Circular 230, Sec. 10.2 provides that the IRS Office of Professional Responsibility has "exclusive responsibility for discipline" of practitioners. This clarifies the sole authority of the Office of Planning and Research to engage in actual discipline of practitioners and should end the concerns of some tax practitioners that the Return Preparer Office might share jurisdiction with OPR concerning disciplinary authority.

Written Advice

A primary focus of the attorney-CPA practitioner community has been on the proposals to remove the oft-criticized written advice requirements for "penalty protection" tax advice with regard to certain categories of transactions defined in the...