Circular 230 final Regs.

• Author: Gardner, John C.
• Position: Practice before the IRS - Part 2

EXECUTIVE SUMMARY

* The final regulations ease restrictions on advertising and solicitation, making them more consistent with court decisions.

* Revised Section 10.50(a) adds censure (public reprimand) to the list of potential sanctions for Circular 230 violations.

* Disciplinary proceedings may lead to censure, disbarment or suspension.

In July 2002, the IRS published final Circular 230 (15) regulations, (16) governing practice before the IRS by enrolled agents and actuaries, attorneys and CPAs (collectively referred to as "practitioners"). This two-part article reviews selected final regulations that most affect practitioners. Part I, in last month's issue, covered regulations on 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, below, examines amendments to Circular 230 regulations on conflicts of interest, solicitation, sanctions and disciplinary procedures.

Amendments

Section 10.29--Conflicting Interests

As finalized, Section 10.29(a) prohibits practitioners from representing a client before the IRS if this involves an actual (not merely potential) conflict of interest. Under Section 10.29(b), such representation can occur, however, 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) such clients give informed written consent. The 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 the written consents to the IRS on request.

Under Section 10.29(a)(2), a conflict of interest exists if representing one client will be directly adverse (17) to another or if there is a significant risk that one or more of the practitioner's clients will be materially limited by the practitioner's responsibilities to another former or current client, a third person or by the practitioner's own personal interest.

Under Section 10.2(d), the definition of "practice before the Service" is quite broad, raising the possibility that a conflict of interest can occur in many areas of tax practice, including sales of property, estate planning, marital disputes, representations of clients before the IRS and situations involving passthrough entities and their owners.

CPA tax practitioners should consult an attorney about their potential obligations under Section 10.29. They should also be careful about using information drawn from the AICPA's Code of Professional Conduct Rule 102-2 on conflicts of interest, because Section 10.29 is patterned after ABA Model Rule 1.7 and is more comprehensive than AICPA Rule 102-2.

Practitioners may need to increase training so their staffs will be able to identify the existence of conflicts of interest before beginning an engagement. Additionally, they should implement systems (such as computer software programs) that will enable them to determine whether conflicts exist in more complex situations that may arise in a firm with multiple offices.

Practitioners may also need to examine state law to see whether it conflicts with Section 10.29; if so, they should seek legal advice on how to resolve differences in legal standards among...