Treasury Issues Changes to Circular 230 (Treasury Decision 9668)

31 USC §330 authorizes the Treasury Department to regulate tax practitioners and their representation before the Internal Revenue Service.  Individuals subject to the Regulations Governing Practice before the Internal Revenue Service, 31 C.F.R. Part 10 (Circular 230), must meet certain standards of conduct in connection with the practice of tax law.  Several sections of Circular 230 have been revised, updated or in some cases eliminated.  The final rules (T.D. 9668, RIN 1545-BF96), released June 9, 2014, are designed to ease Circular 230 requirements that (according to the Treasury) have become onerous for tax professionals, as well as sometimes misleading for clients. Of particular concern to Treasury was the overuse of disclaimers. The rules go into effect June 12, 2014.

Overall, the new guidance makes small changes to terminology and some broad changes, such as the new Competence area where a new standard has been set as to the skill practitioners have to possess to provide competent service to their clients. It stops short of stating you need continuing professional education to keep up on the ever changing tax law landscape.

A terminology change from a “practitioner” to an “individual” will have a broad impact on individuals who are owners of firms but may not be practicing tax law.  This may be directed more at franchise type firms but will have an impact on all firms whose owners may have retired or have limited their practice.  Now they must ensure that reasonable steps are taken to ensure compliance is met. 

The new Standard of Review implies that more care needs to be taken in gathering the facts and circumstances and determining the scope, type and specificity of the information the client needs. Bottom line, practitioners need to spend more time with their clients and ask more questions to get a better picture of the issue.  In addition, the new addition to section in §10.37 states that practitioners need to “base written advice on reasonable legal and factual assumptions.”

Tax practitioners will no longer need to follow a separate set of standards regarding “covered opinions” when providing written advice to their clients.

Many individuals currently use a Circular 230 disclaimer at the conclusion of every e-mail or other writing.  Often the disclaimers are inserted without regard to whether the disclaimer is necessary or appropriate.

Treasury said they anticipate that the removal of the requirement will eliminate the use of a Circular 230 disclaimer in e-mail and other writings because Section 10.37 rules on written opinions don't include the disclosure provisions in the covered opinion rules.

The final regulations state that presentations made for the purpose of continuing education, such as those made at conferences or comment letters sent to a government entity on behalf of a client, won't be considered written advice for purposes of Section 10.37.

Regulators also say that including contact information on a continuing education presentation provided solely for the purpose of enhancing professional knowledge, without more, doesn't convert an educational presentation into an item of written tax advice governed by the final regulations.

The regulations also modify the consequences for failing to meet minimum standards for practicing before the IRS.

Circular 230 Section 10.82 already authorizes the immediate suspension of a practitioner engaged in certain prohibited conduct, but the final regulations extend the expedited disciplinary proceedings against practitioners who have “willfully failed to comply with their Federal tax filing obligations.”

The regulations state that a pattern of willful disreputable conduct would be defined as failing to file an annual federal tax return in four of the five tax years immediately before an expedited suspension proceeding or failing to file a return required more frequently than annually in five of seven tax periods immediately before a suspension proceeding.

Finally, §10.82 has been expanded as to the categories where an expedited proceeding would apply.

Summary of Circular 230 Changes 

The following sections have some wording changes, expanding of authority or they clarify an issue.

§10.1     Offices

The Office of Professional Responsibility now has “exclusive” responsibility for discipline Effective August 2, 2013

§10.3    Who May Practice and §10.22 Diligence to Accuracy

Eliminated the reference to §10.35 of the Circular 230 which has been eliminated in the regulations.

§10.31 Negotiation of Taxpayer Checks

This area has expanded.  A practitioner may not endorse or otherwise negotiate any check (including directing or accepting payment by any means, electronic or otherwise into an account owned or controlled by the practitioner or any firm or other entity with whom the practitioner is associated) issued to a client by the government in respect to a Federal tax liability.

§10.35 Previously titled Covered Opinions

Has been Eliminated – a complete new section has been added

§10.35 Competence

A practitioner must possess the necessary competence to engage in practice before the Internal Revenue Service.  Competent practice requires the appropriate level of knowledge, skill, thoroughness and preparation necessary for the matter for which the practitioner is engaged.  A practitioner may become competent for the matter for which the practitioner has been engaged through various methods, such as consulting with experts in the relevant area or studying the relevant law.

§10.36 Procedures to Ensure Compliance

Extensive changes to the wording and terminology is reflected in this section. An individual who has the principal authority and responsibility for overseeing the firm’s practice must now take reasonable steps to ensure that adequate procedures are in place for all members, associates or employees of the firm to comply with Circular 230.  The term “individual” has replaced the term practitioner. 

§10.37 Requirements for Written Advice

Requirements for written advice, has been extensively revised.  Keys areas of change include a definition of a “federal tax matter” – as any matter concerning the application or interpretation of a revenue provision or law impacting a person’s obligation to comply with the federal tax law in addition to the obligation to file federal tax returns and comply with any other law or regulation under the IRS umbrella.

Also a new section on a Standard of Review  - a reasonable practitioner standard based on facts and circumstances to include the scope of the engagement and the type and specificity of the advice sought by the client.

§10.81 Petition for Reinstatement

A practitioner can petition for reinstatement after the expiration of 5 years following such disbarment, suspension or disqualification (or immediately following the expiration of the suspension or disqualification period, if shorter than 5 years).

§10.82 Expedited Suspension

The categories of violations subject to the expedited procedures have been expanded to include failure to comply with personal filing requirements that demonstrate a pattern of willful and disreputable conduct.

§10.91 Saving Provision

An area reserved to add additional rules established after the date of this ruling.