Center for Agricultural Law and Taxation

IRS Proposed Regulations Modifying Circular 230 Practice Standards
- By Roger A. McEowen

New IRS proposed regulations modify the Circular 230 standards of practice before IRS and specifically address the tax return preparer penalty provisions under I.R.C. §6694, as amended by the Small Business and Work Opportunity Act of 2007 (Act).  The proposed regulations, when final, would amend section 10.34 of Circular 230.  Changes to the standards of practice were triggered by the Act, which became law in May and effectively extended the application of the return preparer penalties to all tax return preparers, altered the standards of conduct that must be met to avoid imposition of the penalties for preparing a return showing an understatement of liability, and increased applicable penalties.  The IRS issued Notice 2007-54, 2007-27 I.R.B. 1 in June providing guidance and transitional relief for the return preparer provisions.  Under the proposed regulations, IRS says that the standards of practice under Circular 230 should conform to the civil penalty standards for return preparers. That means a practitioner may not sign a tax return as a preparer unless the practitioner has a reasonable belief that the tax treatment of each position on the return would more likely than not be sustained on its merits, or there is a reasonable basis for each position and each position is adequately disclosed.  The proposed regulations say that the definitions of "more likely than not" and "reasonable basis" are to be defined by the way those phrases are defined under I.R.C. §6662.

The proposed regulations would apply to returns filed or advice given after the final regulations are published, but no earlier than January 1, 2008.  Fed. Reg. 138637 (Sept. 24, 2007).

More information available here (pdf).