Ripped circuLar: circular 230 regulation of cpas upended by court cases.

• Author: Dellinger, Kip
• Position: Regulatory update

to say that the scope and breadth of Circular 230 has been thrown into a state of flux by the courts would be an understatement.

Some Background

Circular 230 is a set of Treasury regulations under Title 31 that "regulates" the conduct of persons who "practice" that is, "represeru" taxpayers--belbre the IRS. Circular 230 has loIlg. governed certain aspects of the conduct CPAs, attorneys and enrolled agents with regard to their interactions with the IRS. Only tangentially did it reach unlicensed persons, in that it allowed a return preparer to "represent" a taxpayer with regard to, and only with regard to, the return he or she specifically prepared.

Otherwise, the unlicensed preparer statutory provisions in We Internal Revenue Code include preparer penalties tsee, IRC secs. 6694, 6695 and 6695A) under certain circumstances, and a "death sentence" where the IRS could seek injunctive relief to prohibit a person from preparing returns see IRC S. 7407).

Regarding Circular 230 CPA practitioners, it. was commonly believed that their return preparation activities were subject to oversight and discipline under the regulations because they described their reach as including "documents filed with IRS," and that would seemingly include income tax returns.

Including Unlicensed Preparers

In 2010. the U.S. Treasury issued pi., pos. to -regulate- previousl unlicensed tax preparers by adding return preparation to what constitutes "practice beli we We IRS" under Circular 230. and imposing on previously unlicettsed preparers a testing and continuing educational requirement with respect: to their tax knowledge when the person prepared an individual km' I 040 series; returns. Ali exception was provided for employees clrnevs and enrolled agents.

It should be noted that a provision in Circular 230. Sec. 10.36, which origimally appeared in June 2005 to require "supervisory" responsibility by management over members, assiwiates and employees of. firms It tr written advice, was expanded to impose on management supervisory responsibility Nvith regard to die preparation or tax niurns. amencled returns and claims for refund

Note: The American jObs Creation Act of 200-I. Pub. L. 108-357) added Sec. 330tdi of the LS. Code, which authorizes the Treasury to "regulate" written tax advice of a type described in language similar to the IRC See. 6662(d)(2)(C)(ii) definition of the characteristics of a "tax shelter".

Prior to the proposals, unlicensed tax preparers were prohibited from representing a taxpayer with respect to a return prepared allV...