Final and prop. regs. amend Circular 230.

• Author: Nevius, Alistair M.

On September 26, 2007, the IRS released final and proposed regulations (TD 9359 and REG-138637-07) amending Circular 230, Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries, and Appraisers Before the Internal Revenue Service.

The Service published proposed Circular 230 regulations in February 2006 (REG-122380-02). The final regulations contain many changes from the proposed regulations, based on practitioner comments received by the Service. In addition, since the 2006 proposed regulations were issued, the Small Business and Work Opportunity Tax Act, P.L. 110-28 (SBWOTA), was enacted, which made significant changes to the return preparer standards and penalties under Sec. 6694. The final regulations do not address those new standards and increased penalties, but the simultaneously issued proposed regulations intend to conform Circular 230 to the SBWOTA changes.

The final regulations are effective September 26, 2007; the proposed regulations are proposed to be effective for returns filed or advice provided no earlier than January 1, 2008.

Giving Written Advice Is Practice

The American Jobs Creation Act of 2004, P.L. 108-357 (AJCA), amended 31 USC Section 330 (which authorizes the regulation of practice before the Service and under which Circular 230 is promulgated) to allow monetary penalties to be imposed on a practitioner who (1) is incompetent, (2) is disreputable, (3) violates any regulation under 31 USC Section 330, or (4) willfully and knowingly misleads or threatens represented parties or a prospective party with an intent to defraud. Consistent with that, the final regulations provide that practice before the IRS includes rendering written advice with respect to any entity, transaction, plan or arrangement, or other plan or arrangement having a potential for tax avoidance or evasion (Circular 230 [section]10.2(a)(4)). Commentators had argued that, 31 USC Section 330 notwithstanding, providing tax advice does not in and of itself constitute practice before the IRS; the Service disagreed and concluded that the rendering of written advice is practice before the IRS subject to Circular 230 when it is provided by a practitioner.

However, the final regulations say that an attorney or CPA is not required to file a Form 2848, Power of Attorney and Declaration of Representative, with the IRS before rendering written advice covered under Circular 230 [section]10.35, Requirements for Covered Opinions, or [section]10.37, Requirements for Other Written Advice (Circular 230 [section][section]10.3(a) and (b)). Any Other practice before the IRS still requires the attorney or CPA to file Form 2848.

Enrolled Retirement Plan Agents

The final regulations create an "enrolled retirement plan agent" designation for individuals who demonstrate their competency to provide technical services to plan sponsors to maintain the tax-qualified status of their retirement plans (Circular 230 [section]10.3(e)). The regulations generally limit the practice of enrolled...