DC currents: amendments to Circular 230 to remove "covered opinion" rules.

• Author: Goldstein, Benson S.

THE IRS OFFICE OF PROFESSIONAL RESPONSIbility (OPR) should expect a busy year in 2013. One of its major activities for the year will likely involve issuing final regulations amending Circular 230, Regulations Governing Practice Before the Internal Revenue Service (31 C.F.R. Part 10). These modifications were proposed in REG-138367-06 in September 2012, and are available at tinyurl.com/97z5oh.5.

When issued in final form in 2013, these Circular 230 amendments are likely to have an important impact on CPAs and other tax representatives. This column provides a general overview of some of the major provisions of REG-13836706. For further background, CPAs are encouraged to review the AICPA's comment letter on the proposed regulations submitted to the IRS in November 2012, available at tinyurl.com/ar6enfu.

Major provisions of the proposed regulations include written advice, disclaimers, the general standard of competence, and expedited suspension procedures.

Written Advice

REG-138367-06 eliminates the complicated "covered opinion" rules in current Circular 230, Section 10.35, and expands the written-advice requirements of Section 10.37. Since the IRS's adoption of Section 10.35 in 2004, tax professionals have found the rules difficult and costly to comply with, without necessarily improving the quality of tax advice.

The proposed regulations eliminate the existing covered-opinion rules and replace them with proposed Section 10.37, which establishes basic principles for all practitioners when rendering tax advice. Proposed Section 10.37 would establish one standard for all written tax advice by providing that practitioners must (1) base all written advice on reasonable factual and legal assumptions; (2) exercise reasonable reliance; and (3) consider all relevant facts the practitioner knows or should know.

Similar to current Circular 230 standards, the proposed regulations continue the requirement that when evaluating a federal tax matter, a practitioner should not take into account the possibility that an issue or a tax return will not be audited. However, proposed Section 10.37 permits a practitioner to take into account the possibility that an issue will be resolved through settlement "if raised when giving written advice evaluating a Federal tax matter" (Preamble, Explanation of Provisions, 1.B.).

Proposed Section 10.37(b) incorporates certain reliance concepts of current Circular 230, Sections 10.22 and 10.35(d). This proposed provision...