Know Your New Duties for Representing Clients Under IRS Circular 230

Avoid ethical violations: Even the unintentional can land you in hot water

Tax pros naturally try to do the right thing, but, in reality, offering tax preparation services and counsel is complicated. Even with the strictest compliance protocols in place, you may find yourself facing an ethical problem. And, if so, you’d best be aware of the latest revisions the Internal Revenue Service (IRS) has made to its Circular 230—which imposes new duties and responsibilities on those who represent taxpayers before the agency.

These new agency requirements may indeed have an impact on you, your business, and your client interactions, stresses tax attorney Robert E. McKenzie. In his upcoming Eli Financial webinar, “Avoid Ethical Violations When Representing Taxpayers,” McKenzie details IRS standards and penalties for tax preparers, the due diligence you’ll want to follow, and how to comply with the new Circular 230.

The 5 tenets of IRS Circular 230

IRS Circular 230, “Regulations Governing Practices Before the Internal Revenue Service,” was first published in 1921 and is a sort of catch-all for pros who practice before the IRS, including attorneys, enrolled agents, certified public accountants, and others who prepare tax returns and provide some forms of tax advice, noted Juan F. Vasquez, Jr. and Jaime Vasquez in the Houston Business and Tax Journal.

Standards and ethics rules are handled by the U.S. Department of Justice’s Office of Professional Responsibility.

The IRS tweaks Circular 230 every few years and in response to trial law. Its five subparts address:

  • Rules of practice before the IRS
  • Duties and restrictions relating to that practice
  • Sanctions for violations
  • Rules applicable to disciplinary proceedings
  • General provisions, including those relating to the availability of official records

Updates for 2018: The Tax Law Certification Test

The update for 2018, according to the agency, includes renaming the tax law certification test, which is now known as the “Federal Tax Law Update Test for Circular 230 Professionals.” The name change, the agency states, better reflects what is covered in the exam.

In 2017, the agency also clarified requirements for those who volunteer to practice before the IRS.

Don’t Do This: False Advertising & Conflicts of Interest

It’s hard to avoid ethical violations if you don’t know exactly what the IRS is looking for. Turn to recent enforcement actions for clues.

The agency announced this summer that it reached a settlement, including a monetary penalty, against a tax pro who violated Circular 230 conduct rules by falsely advertising its capabilities.

In another recent announcement, the agency said a tax practitioner was censured for violating conflict of interest rules by knowingly providing misleading information to a third party which was relied upon and which caused harm.

“Persons censured by the IRS are listed in the Internal Revenue Bulletin,” the agency noted in a press release. “Censure is a public reprimand. Unlike disbarment or suspension, censure does not affect an individual’s eligibility to practice before the IRS.”

IRS Circular 230 rules are not to be taken lightly, explains McKenzie—make sure you know what they entail before engaging with clients.

To join the conference or see a replay, order a DVD or transcript, or read more

Jeff Schmerker

Jeff has extensive professional experience writing on a variety of topics, from pharmaceutical research to environmental history. He has published more than a half-dozen books, and he has worked as a newspaper reporter, magazine editor and restaurant reviewer. He lives in Missoula, Montana with his wife and son.

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