Blogging Employee Benefits

February 3, 2006

IRS Proposes Changes to Circular 230

Filed under: IRS, Regulations — Fuguerre @ 8:20 pm

The Treasury Department and IRS have proposed amendments to Circular 230, the regulations that govern professional standards for practice before the IRS. [IR-2006-22; 31 CFR Part 10, REG-122380-02] The proposed revisions relate to –

  • Definition of practice
  • Enrolled Retirement Plan Agents
  • Enrollment procedures
  • Unenrolled practice
  • Practice by former government employees
  • Rules concerning –
    • Contingent fees
    • Conflicts of interest
    • Standards with respect to tax returns and documents, affidavits, and other papers
    • Sanctions
    • Incompetence and disreputable conduct
    • Supplemental charges
    • Hearings and discovery
    • Publicity of disciplinary proceedings
    • Decision of Administrative Law Judge
    • Expedited suspension

The proposed regulations include conforming amendments to reflect final regulations that were recently published (69 FR 75839 on 12/20/04 and 70 FR 28824 on 5/19/05) relating to covered opinions, other written advice, and best practices, but do not otherwise address those final regulations. Moreover, the proposed regulations pertain solely to tax practice before the IRS, without addressing ethical standards otherwise applicable to practitioners.

Definition of Practice – The definition of practice before the IRS would be revised to include written advice rendered by a practitioner regarding any entity, transaction plan or arrangement, or other plan or arrangement having a potential for tax avoidance or evasion. [10.2(d)]

Enrolled Retirement Plan Agents – An IRS advisory committee recently recommended authorizing practice before the IRS by certain professionals, such as retirement plan administrators. See, for example, pages 45-98, “Establishing the Enrolled Retirement Plan Agent Under Circular 230” in the Report of Recommendations of the Advisory Committee on Tax Exempt and Government Entities (ACT), 6/8/05. Practice by ERPAs would be limited to filing applications for determination letters, Forms 5500, employee plan audits, and negotiating with the IRS regarding voluntary compliance matters. Enrollment procedures would be similar to those currently applicable to Enrolled Agents, including an enrollment examination, a renewal process, and continuing education requirements. Today’s proposed regulations include no regulatory text on ERPAs, but invites comments on the recommendation.

Enrollment Procedures – The proposed regulations would permit the Office of Professional Responsibility to modify the “Application for Enrollment to Practice Before the IRS” and other enrollment procedural requirements. [10.5] The proposed regulations would clarify the requirements to maintain active enrollment, as well as requirements for sponsors of continuing education courses to renew status as qualified sponsors. [10.6]

Unenrolled Practice – Current 10.7(c)(1)(viii), which permits an unenrolled individual to represent a taxpayer if the individual prepared the taxpayer’s tax return, would be revoked. An unenrolled return preparer would not be permitted to represent a taxpayer unless otherwise authorized under 10.7(c)(1)(i)-(vii), although limited activities – such as assisting in exchange of information with the IRS – would remain permitted.

Practice by Former Government Employees – The 10.25(b)(3) prohibition against assisting in matters in which the former employee had official responsibility during that individual’s last year of service would be eliminated.

Contingent Fees – The proposed rules would preclude a practitioner from charging a contingent fee for services rendered in any matter before the IRS, including preparation or filing a tax return, amended tax return, or claim for refund or credit. Contingent fees could be charged, however, for services rendered in connection with IRS examination of or challenge to an original tax return or – if filed before IRS notice of examination or challenge with respect to an original tax return – services rendered in connection with examination or challenge relating to an amended return or claim for refund or credit. [10.27]

Conflicts of Interest – A practitioner would be required to obtain written consents from each affected party in order to represent conflicting interests. An oral consent followed by a confirmation letter would not satisfy the rules unless countersigned by the client. [10.29]

Standards with respect to Tax Returns and Documents, Affidavits, and Other Papers – Standards would be established regarding advice with respect to documents, affidavits, and other papers submitted to the IRS. A practitioner would be prohibited from advising a client to take a position on a submission to the IRS unless the position is not frivolous. [10.34]

Sanctions – A monetary penalty against a practitioner or practitioner’s employer would be authorized if the practitioner is shown to be incompetent or disreputable, fails to comply with any part of Circular 230, or knowingly and willfully misleads or threatens a client or prospective client with intent to defraud. [10.50]

Incompetence and Disreputable Conduct – The definition of disreputable conduct would be modified to include willful failure to sign a tax return prepared by the practitioner. [10.51]

Supplemental Charges – The Director of the Office of Professional Responsibility would be authorized to file supplemental charges against a practitioner by amending a complaint to reflect additional charges, provided the practitioner is given notice and an opportunity to prepare a defense to the supplemental charges. [10.65]

Hearings and Discovery – Rules relating to expanded discovery and greater procedural protections in disciplinary proceedings would be provided. [10.68; 10.71; 10.72; 10.73]

Publicity of Disciplinary Proceedings – All hearings, reports, evidence, and decisions in a disciplinary proceeding would be available for public inspection. [10.72(d)]

Decision of Administrative Law Judge – Procedural rules relating to decisions of an Administrative Law Judge would be revised. [10.76]

Expedited Suspension – The process for expedited suspension would be extended to practitioners who are in egregious noncompliance with their own tax obligations. [10.82]

Effective Date; Comment; Public Hearing – The revised Circular 230 would apply on the date that final regulations are published in the Federal Register. Comments on the proposed regulations should be submitted by April 7, 2006. A public hearing on the proposed rules is scheduled for June 21, 2006.

1 Comment »

  1. § 10.53 relating to receipt by Treasury of information concerning practitioners for which there is reason to believe there to be a violation of Circular 230, inadvertantly dropped from the regulation, is reinstated. [71 FR 13018]

    Comment by Fuguerre — March 14, 2006 @ 9:12 am

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