hose who wish to represent taxpayers (other than themselves) before the IRS—that is, enrolled agents and actuaries, attorneys and CPAs—are subject to specific rules and procedures, embodied in Treasury Circular 230. This past January, the Treasury Department proposed changes to those rules.
Tax practice includes all matters connected with a presentation before the IRS (or any of its officers or employees) relating to a taxpayer’s rights, privileges or liabilities under laws or regulations administered by the service. This includes corresponding and communicating with the IRS, preparing and filing documents, and representing clients at hearings, conferences and meetings.
Circular 230 covers all aspects of practice—among which are information that must be furnished to the IRS, charging contingent fees, practitioner advertising and returning a client’s records.
CHANGES TO THE RULES
The proposed changes include the following:
Information to be furnished to the IRS. After a proper and lawful request, a tax practitioner must submit information and records on any matter before the service. Even if neither the practitioner nor the client possesses or controls the requested documents or information, there is no exception. Practitioners who have “reasonable grounds” to believe “in good faith” that the information is privileged, however, may refuse to submit it. In addition, practitioners can refuse to comply if they believe “in good faith and on reasonable grounds” that the information or records requested are of “doubtful legality.”
The current rules would be modified to clarify that a practitioner is required to promptly respond to a proper request by either submitting the requested information or advising the service why it cannot be provided. If neither the practitioner nor his or her client controls the documents, the practitioner would be required, to the extent possible, to identify any persons who may have the requested documents in their control.
Under the new rules, assertion of privilege would become the only justification for refusing to provide the actual records or their location. Tax practitioners could be denied any right to challenge even “doubtfully legal” IRS summonses.
Knowledge of client’s omission. While performing services for a taxpayer, a practitioner may become aware of an error in a previously filed return or that the taxpayer failed to file a required return. Currently, practitioners must inform clients promptly of any noncompliance, including errors and omissions.
Under the changes, practitioners also must advise clients about corrective action that could be taken, as well as all conceivable consequences (however remote) of not taking it.
Return of client’s records. Under the proposed rules, a practitioner would be required to promptly return all records to a client on request (although the practitioner may keep copies of any records returned). A dispute between the practitioner and client over fees would not justify refusing to return these records.
In addition, the proposed rules do not define “client’s records” and, in fact, could be interpreted to include the practitioner’s workpapers. If so, a situation could arise in which a client hires a practitioner to prepare workpapers and refuses to make payment, but still is permitted to demand the return of the records furnished and the prepared workpapers “free of charge.”
For a discussion of these possible changes in the rules governing tax practice, see “Proposed Amendments to Circular 230 (Part I),” by Susan Willey, John Gardner and William Cress, in the November 2001 issue of The Tax Adviser.
—Nicholas Fiore, editor
The Tax Adviser