Circular 230 final regs. .

• Author: Gardner, John C.
• Position: Governing practice before the IRS by enrolled agents and actuaries, attorneys and CPAs - Part 1

EXECUTIVE SUMMARY

* The final regulations amend most of the existing Circular 230 rules, except for tax shelter matters (Section 10.33).

* Practitioners should be aware of the Circular's content and formulate detailed procedures to safeguard against its sanctions.

* The IRS intends to issue more proposed rules on contingent fee arrangements.

For more information about this article, contact Dr. Gardner at eide.barb@uwlax.edu.

In July 2002, Treasury published final regulations amending most of the existing Circular 230 rules governing practice before the IRS. This two-part article reviews selected final regulations that most affect practitioners. Part I examines IRS requests for client information, practitioner knowledge of client errors, diligence as to accuracy, fee arrangements and return of client records.

In July 2002, the IRS published final Circular 230 (1) regulations (2) governing practice before the IRS by enrolled agents and actuaries, attorneys and CPAs (collectively referred to as practitioners). These final regulations amend most of the existing Circular 230 rules, except for tax shelter matters (Section 10.33), which Treasury plans to replace in the near future. For tax-shelter practice rules, practitioners continue to be governed by current Section 10.33 (issued in 1984 and last amended in 1994). The IRS also intends to issue another advance notice of proposed rulemaking to revisit contingent fees and other IRS practice matters.

The IRS had published proposed Circular 230 regulations in January 2001, (3) that were commented on by professional organizations such as the AICPA and the American Bar Association (ABA). (4) The AICPA Tax Executive Committee's Circular 230 Task Force submitted written comments and testified; the AICPA Tax Division submitted comments, primarily on the proposed tax-shelter-opinion provisions.

After a brief introduction to Circular 230, this article reviews selected final regulations that most affect practitioners. (5) Part I, below, covers IRS requests for client information, practitioner knowledge of client errors and omissions, diligence as to accuracy, assistance from disbarred and suspended persons, fee arrangements and return of client records. Part II, in the next issue, will examine conflicts of interest, solicitation, sanctions and disciplinary procedures.

Circular 230

Circular 230 regulates practice before the IRS by attorneys, CPAs, enrolled agents and actuaries. Subpart A of Circular 230 governs authority to practice before the IRS. Section 10.3(b) requires a CPA who is not currently under suspension or disbarment from such practice to file a written declaration that he or she is currently qualified as a CPA and authorized to represent the designated party or parties. Section 10.2(d) defines "practice" broadly as all matters connected with a presentation to the IRS, its officers or employees, relating to a taxpayer's rights, privileges or liabilities under laws or regulations administered by the IRS. These presentations include corresponding and communicating with the IRS; representing a client at hearings, conferences and meetings; and preparing and filing documents (including tax returns), even though individuals not subject to Circular 230 can also prepare returns. (6)

Subpart B sets out the duties and restrictions of practice before the IRS, including the regulations examined below. Subpart C specifies the sanctions for violating Circular 230; Subpart D explains the rules that apply in disciplinary hearings.

Circular 230 is a potent weapon in the IRS arsenal of potential sanctions against tax practitioners. The recent amendments to Circular 230 contain both favorable and adverse changes. It is essential for CPAs in tax practice to be aware of the Circular's content and to formulate detailed procedures ensuring that they (or their firms) are not sanctioned. (7)

Amendments

Section 10.20--Information to be Furnished

On a proper and lawful request from an IRS officer or employee, revised Section 10.20(a)(1) requires a practitioner to promptly submit information or records in any matter before the IRS, unless the practitioner has reasonable grounds for believing in good faith that the requested material is privileged. If neither the practitioner nor the client has possession or control of such...