Recent guidance under Circular 230 raises questions for signing preparers.

• Author: Elgin, Evelyn

The Office of the Director of Practice (ODP) recently published scenarios of conduct that may result in discipline under Circular 230. Although the guidance is helpful, it raises important questions about the relationship between the "due diligence" and return preparation standards for signing preparers under Sections 10.22(a) and 10.34 of Circular 230, respectively, as well as about the ODP's understanding of the substantiation requirements for return positions.

Circular 230 governs the practice of CPAs, attorneys, enrolled agents and enrolled actuaries ("practitioners") before the Treasury, including the IRS. Circular 230 is especially significant because the sanctions for violating it can be severe. These include suspension or disbarment from practice before the Service. "Practice before the Service" is a broad concept, encompassing most aspects of Federal tax practice.

Scenarios of Practitioner Misconduct

The ODP guidance consists of four scenarios or examples of practitioner: conduct that, according to the ODP, violated one or more of the provisions of Circular 230. Although this guidance is not technically precedent, it is a useful indicator of the ODP's views The scenarios represent composites of actual fact patterns that have come to the attention of that office.

In the first example, a practitioner was considered to have knowingly made a false statement on the taxpayer's return in violation of Section 10.51(b) by improperly deducting a physician's commuting expenses. In the second example, a practitioner was considered to have engaged in contemptuous conduct in violation of Section 10.51(i) by losing his temper and shouting abusive language at a revenue officer. In the third example, practitioner was considered to have violated Section 10.22(a) by signing a return as a preparer that improperly treated personal trips as business trips. In the fourth example, a practitioner was considered to have violated Section 10.21 by failing to inform his client that there was an error in the filing status checked on the client's previously filed return. The Relationship Between Section 10.22(a) and Section 10.34 Although the ODP has issued scenarios of practitioner misconduct in the past, this is the first set of examples that raises questions about the relationship between the "due diligence" standard for tax practitioners in Section 10.22(a) of Circular 230 and the relatively recent (1994) return preparation standards in Section 10.34...