Supervisory obligations under Circular 230.

• Author: Wilson, Peter S.

New rules place greater obligations on supervising practitioners in a CPA firm to take steps to ensure all members, associates, and employees in the firm's federal tax practice comply with Circular 230.

When Circular 230 was amended in June 2014 (T.D. 9668), a major change dealt with the standards for written advice (see Blatch, et al., "New Rules on Written Tax Advice and Other Revisions to Circular 230 and Their Effect on CPAs," 45 The Tax Adviser 890 (December 2014)). Much of the commentary addressed the repeal of the "covered opinion" rules of former Section 10.35, the imposition of the competence standard of new Section 10.35, Competence, and the modifications to the provisions governing written tax advice in Section 10.37, Requirements for Written Advice. Another change that received less publicity should also be of significant interest to CPAs who oversee their firm's tax practice--the expansion of supervisory obligations under Circular 230, Section 10.36, Procedures to Ensure Compliance.

History

For many years, Circular 230, Regulations Governing Practice Before the Internal Revenue Service (31 C.F.R. Part 10), focused almost exclusively on the conduct of the individual practitioner. But that began to change in 2004, when Congress amended the statutory authority for Circular 230 (31 U.S.C. [section]330) to permit the imposition of a monetary penalty on the practitioner's employer if the practitioner was acting on behalf of the employer and the employer knew, or should have known, that the covered practitioner's conduct violated Circular 230.

Responding to the statutory change, the IRS adopted Circular 230, Section 10.36, in 2005. It required practitioners who had or shared principal authority and responsibility for a firm's federal tax advice practice to take reasonable steps to ensure that the firm had adequate procedures for compliance with the (now repealed) covered-opinion rules by the firm's members, associates, and employees. In 2011, Section 10.36 was modified to extend similar obligations to those practitioners who had or shared principal authority and responsibility for overseeing a firm's federal tax return preparation practice. Section 10.36 was amended again in 2014 to impose obligations on practitioners who oversee their firm's federal tax practice to take reasonable steps to ensure adequate procedures for its members, associates, and employees to comply with their obligations under subparts A, B, and C of Circular 230.

Obligations Under Section 10.36

The supervisory obligations under Section 10.36 extend to any individual subject to Circular 230 who has or shares principal...