Treasury circular 230 lays down the rules.

From the Tax Adviser:

Practicing Before the IRS

C PAs play an important role in the U.S. tax system, providing a variety of tax services to their clients. In addition to advice on the proper treatment of the tax laws and tax return preparation and review, one of a CPA's major roles is representing a taxpayer's interests in disputes with the Internal

Revenue Service. Therefore, CPAs must be aware of the rules and regulations that govern and limit this conduct.

Practice before the IRS includes all matters connected with a presentation to the service or to any of its officers or employees relating to a client's rights, privileges or liabilities under the laws or regulations the IRS administers. This process is not limited to tax return preparation; it includes most aspects of federal tax practice, including the preparation and filing of documents, communications with the service and representation at conferences, hearings and meetings.

The actions of all individuals representing taxpayers before the IRS are governed by various rules promulgated by the service; the most important of these is Treasury Department Circular no. 230, Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries and Appraisers Before the Internal Revenue Service .

Circular 230 is especially significant because it imposes numerous duties and restrictions on practitioners, as well as providing for sanctions for those who violate its provisions. ( Note : Individuals involved only in return preparation are not subject to the circular 230 disciplinary rules; however, they are subject to various duties, restrictions and penalties under the Internal Revenue Code.)

Attorneys, CPAs and enrolled agents are entitled to represent taxpayers before the IRS; certain actuaries also are eligible regarding some employee plan issues. An attorney or CPA licensed to practice in one state is allowed to practice before the IRS in any state.

Following are some of the duties circular 230 imposes on practitioners:

  • Furnishing information . A taxpayer's representative must furnish records or information the IRS requests and not interfere if the service attempts to obtain such information (unless the representative has a reasonable good-faith belief the information is privileged or the request is of doubtful legality).
  • Knowledge of client's omission . The representative must advise a client (but not the IRS) promptly if he or she learns the client has not complied with the tax laws or has made an error in or omission from any return or other tax document.
  • Due diligence . The representative must use due diligence in preparing returns (or other documents) for the IRS and in determining the correctness of oral or written representations made to the IRS or to clients.
  • Promptness . The representative must not unreasonably delay the disposition of any matter before the IRS.
  • Determining the return preparation standard . The representative cannot advise a client to take a position on a return unless he or she determines that (1) there is a "realistic possibility" the position can stand on its merits or (2) the position is not frivolous and is adequately disclosed. The representative may rely in good faith and without verification on information provided by a client but cannot ignore the implications of information furnished to (or actually known by) him or her; the practitioner must make reasonable inquiries if that information seems to be incorrect, inconsistent or incomplete. (A practitioner is subject to discipline only if the failure to comply with the realistic possibility standard is willful, reckless or the result of gross incompetence.)

The Office of the IRS Director of Practice administers and enforces the regulations, including circular 230, that govern individuals who represent taxpayers before the IRS. To help practitioners, it occasionally publishes guidance (in the form of "scenarios" of conduct that may result in disciplinary action) and the director's reasoning and conclusions regarding the conduct.

For a discussion of the Office of the Director of Practice's recent guidance, see the Tax Clinic, edited by Philip Wiesner, in the June 1997 issue of The Tax Adviser.

— Nicholas Fiore , editor
The Tax Adviser


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