Circular 230 conflicts of interest.

• Author: Emilian, James

On September 26, 2007, the IRS issued final and proposed regulations (TD 9359) pertaining to Circular 230 (31 CFR Part 10), establishing rules governing standards of practice for those representing clients before the Service. The final and proposed regulations address a number of Circular 230 provisions, but this item focuses on [section]10.29, which generally prohibits a practitioner from representing a client before the IRS if the representation involves a conflict of interest. The final regulations modify the required client consent provision of [section]10.29(b). This item highlights the requirements of Circular 230 [section]10.29 and the new client consent standard and addresses how the new standard may affect practitioners and clients.

Circular 230 [section]10.29

Under Circular 230 [section]10.29(a), which is unchanged by the final regulations effective September 26, 2007, 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.

Former Circular 230 [section]10.29(b) provided an exception to the rule under [section]10.29(a) in situations in which the following three elements are established:

1. The practitioner reasonably believes that he or she will be able to provide competent and diligent representation to each client;

2. Such representation is not prohibited, by law; and

3. Each client gives informed consent, confirmed in writing.

The new final regulations do not modify the reasonable belief or prohibition elements listed above but, as discussed in greater detail below, make a slight modification to the requirement that each client give informed consent to the representation. Previously the client consent could be obtained orally and documented by the practitioner in its files. Now, signed written consent waiving a conflict must be obtained from clients.

New Client Consent Provision

Circular 230 [section]10.29(b)(3) is amended to require a practitioner representing conflicting interests to obtain signed written consent from each affected client. The final regulations allow the required written consent to be made within a reasonable period after the informed consent, but not later than 30 days after the date on which the conflict...