Treasury Department Circular 230, Regulations Governing Practice before the Internal Revenue Service, establishes the following principles: what practicing before the IRS means; who may practice before the IRS; a tax professional’s duties and obligations; sanctions for violations; and procedures for administrative proceedings for discipline.
The IRS has an Office of Professional Responsibility (OPR), and it is the governing body that interprets and applies Circular 230 rules and regulations. The OPR ensures that tax professionals follow tax practice standards, including implementing disciplinary proceedings and sanctions.
Who is Subject to Circular 230 Regulations?
- State-licensed attorneys and Certified Public Accountants authorized and in good standing with their state licensing boards who interact with tax administration
- Enrolled agents, enrolled retirement plan agents and enrolled actuaries
- Individuals providing appraisals used in connection with federal tax matters
- Individuals who are unenrolled and unlicensed and who represent taxpayers before IRS examination, customer service and Taxpayer Advocate Service in connection with returns they prepared and signed
- Licensed and unlicensed individuals who give written advice which is of a type the IRS determines as having a potential for tax avoidance or evasion
- Any individual submitting a power of attorney in connection with limited representation of a taxpayer before the IRS
Practice Before the IRS
Practice before the IRS encompasses all matters connected with presentations to the IRS and related to a taxpayer’s rights, privileges or liabilities. Such presentations include the following:
- Preparing documents
- Filing documents
- Correspondence with the IRS
- Providing advice
- Representing a client at conferences, hearings and meetings
The practitioner is not to sign a tax return as a preparer if the practitioner determines that the tax return contains a position that doesn’t have a realistic possibility of being sustained on its merits, unless the position is not frivolous and it is adequately disclosed to the IRS.
Other prohibited actions:
- Unreasonably delay a prompt disposition of any matter before the IRS
- Charge a client an unconscionable fee
- Represent clients with conflicting interests
- Solicit business using false statements
- Cash checks issued by the U.S. Treasury to a client for whom the return was prepared
Referrals to the Office of Professional Responsibility
Examples of misconduct referred to the Office of Professional Responsibility include the following:
- Inaccurate or unreasonable entries or omissions on tax returns, financial statements and other documents
- Lack of due diligence exercised by the practitioner
- Willful attempt by the practitioner to evade the payment or assessment of any federal tax
- Cashing, diverting or splitting a taxpayer’s refund by any means, electronic or otherwise
- Patterns of misconduct under Circular 230 involving multiple years, multiple clients or unprofessional conduct demonstrated to multiple IRS employees
- Potential conflict-of-interest situations, such as representation of both spouses who have a joint income tax liability or when representation is affected by competing interests of the practitioner
Penalties that require a referral to the Office of Professional Responsibility include the following:
- Willful attempt to understate a tax liability or reckless conduct
- Promoting abusive tax shelters
- Aiding and abetting understatement of a tax liability
- Injunction of a tax return preparer
- Injunction for specified conduct relating to tax shelters and reportable transactions
Penalties that result in discretionary referrals to the Office of Professional Responsibility include the following:
- Accuracy-related penalty
- Understatement of liability due to unreasonable position
- Failure to furnish a copy of tax return
- Failure to sign a tax return
- Failure to retain a copy of the tax return or a list of taxpayers
- Frivolous tax returns or submissions
Sanctions Authorized by Circular 230
Before any of the following sanctions are imposed, the practitioner is given notice as well as an opportunity for a conference and formal proceeding.
- Censure (public or private reprimand): The OPR may issue a private reprimand or cautionary “soft letter” if a formal discipline is not appropriate.
- Suspension of practice privileges: This can be for a fixed term or indefinitely, and the practitioner must request to be reinstated if the suspension term is indefinite.
- Disbarment: The practitioner may petition for a reinstatement in five years.
- Monetary penalty: This may be imposed on any practitioner engaged in conduct subject to a sanction and can be in addition to censure, suspension or disbarment. The penalty may be up to the amount of gross income derived from the conduct giving rise to the penalty.
Representing Clients Before the IRS by Disciplined Practitioners
Practitioners who have been suspended or disbarred are not allowed to represent clients before the IRS until they are reinstated by the Office of Professional Responsibility. If a state-based licensing authority, such as a State Board of Accountancy, or an attorney-based discipline authority reinstates a suspended or disbarred practitioner, this is not sufficient to allow for practice before the IRS. The same holds true when a suspension is based on a criminal conviction, as the practitioner would still need to apply for reinstatement by the OPR.
A suspended or disbarred practitioner is allowed to submit a Form 8821, Tax Information Authorization, to authorize a suspended or disbarred practitioner to obtain copies of the taxpayer’s tax returns and transcripts of account from the IRS. The disciplined practitioner is allowed to accompany the taxpayer at an IRS conference or meeting, but only to respond to questions and provide factual information and documents.
- Excerpts from OPR Frequently Asked Questions
- Circular 230, Regulations Governing Practice before the Internal Revenue Service