IRS Proposed Regulations Modifying Circular 230 Practice Standards

Circular 230 contains disciplinary rules addressing standards of practice before the IRS. Generally, IRS takes the position that these standards of practice should conform to the civil penalty standards for return preparers under IRC §6694.

Substantial revisions were made to §10.34 of Circular 230 in 2007 to account for amendments in other areas of Circular 230. Proposed regulations were issued amending §10.34 which became final on January 1, 2008. Further revisions to the §10.34 regulations will be required to conform preparer standards under Circular 230 and §10.34 to those contained in IRC §6694 after revisions made by the Emergency Economic Stabilization Act of 2008. Tax preparers will be subject to penalty under both provisions.

The final regulations modified §10.34 slightly, changing lettering on subsections, etc. A new paragraph (b) was added, dealing with documents, affidavits, and other papers, expanding the IRS’ reach beyond just tax returns. In Circular 230, the IRS now takes the position that a practitioner may notadvise a client to take a position on any document submitted to IRS unless the position is not frivolous. The purpose of the document may not be to delay administration of the tax laws; and it may not omit or contain information that “demonstrates an intentional disregard of a rule or regulation unless the practitioner also advises the client to submit a document that evidences a good faith challenge to the rule or regulation.”

The current final regulations also modify subsection (c) regarding penalty advice to encompass the IRS’ expanded reach beyond tax returns. Thus, the practitioner must inform a client of penalties that are “reasonably likely” to apply to them with respect to a position taken on a tax return or on any document, affidavit or other paper submitted to IRS.

****************************************************

Click below to download a summary of current Circular 230 rules and disclosure requirements as those rules apply to reliance opinions, covered opinions and exceptions to covered opinion status. Also below is a current summary of transactional topics determined to be “listed transactions”, thereby subjecting those transactions to the covered opinion standards of Circular 230.

Download summaries here.