2007 Circular 230 Revisions
2007 Circular 230 Revisions
Robert E. McKenzie, Esq. ©2008
The IRS Sept. 26 issued final rules making a host of changes to controversial regulations governing tax practice under Circular 230, among them allowing contingent fees under limited circumstances and slightly modifying rules requiring disclosure of conflicts of interest.
Practice Before the IRS
§10.2(d) has been modified to clarify that the rendering of this written advice is practice before the IRS subject to Circular 230 when it is provided by a practitioner.
Contingent Fees 10.27
IRS said it will now allow contingency fees for services in connection with an original tax return, or an amended return or claim for refund or credit filed within 120 days after the taxpayer receives written notice of an audit or a written challenge to the original return. Contingent fees also will be permitted for interest and penalty reviews "because there is no exploitation of the audit lottery in these situations as they are generally completed on a post-audit basis," IRS said. The contingent fee exception for interest and penalty reviews also revolved around timing, since these reviews are usually completed after an audit. Finally, the final regulations allows a practitioner to charge a contingent fee for services rendered in connection with any judicial proceeding arising under the Internal Revenue Code. Effective date: March 27, 2008.
Conflicting Interests 10.29
§10.29 of the revised regulations clarifies that a practitioner is required to obtain consents in writing from each affected client in order to represent the conflicting interests. The written consent may vary in form. One option is a letter to the client outlining the conflict, as well as the possible implications of the conflict, and submit the letter to the client for the client to countersign. A verbal consent followed by a confirming letter written by the practitioner will suffice if the client also signs the letter. Confirmation must be made no later than 30 days.
Standards With Respect to Tax Returns and Documents, Affidavits and Other Papers 10.34
§10.34 sets forth standards applicable to advice with respect to tax return positions and applicable to preparing or signing returns. §10.34 of the proposed regulations sets forth standards applicable to practitioners who advise clients with respect to documents, affidavits and other papers submitted to the IRS. There are separate standards for papers that take a position with respect to Federal tax matters and standards for advising a client to file papers involving procedural or factual matters. Under the regulations, a practitioner may not advise a client to take a position on a submission to the IRS unless the position is not frivolous. A practitioner also may not advise a client to submit a document to the IRS that is meant primarily for delay; is frivolous or groundless; or contains or omits information in a manner that demonstrates an intentional disregard of a rule or regulation. With regard to factual matters, a practitioner advising a client to take a position on a tax return, document, affidavit or other paper submitted to the IRS, or preparing or signing a tax return as a preparer, generally may rely in good faith without verification upon information furnished by the client. The practitioner may not, however, ignore the implications of information furnished to, or actually known by, the practitioner, and must make reasonable inquiries if the information as furnished appears to be incorrect, inconsistent with an important fact or another factual assumption, or incomplete. These standards supplement the existing requirement in §10.22 that practitioners exercise due diligence in preparing, or assisting in the preparation of, tax returns and other documents relating to IRS matters. §10.34 became effective September 27, 2007.
Sanctions 10.50
§10.50 authorizes the Secretary to impose a monetary penalty against a practitioner if the practitioner is shown to be incompetent or disreputable, fails to comply with any regulation in part 10, or with intent to defraud, willfully and knowingly misleads or threatens a client or prospective client. A monetary penalty may be imposed in addition to, or in lieu of, any other sanction. If a practitioner acts on behalf of the practitioner’s employer, firm or other entity and the employer, firm or other entity knew or should have known of the practitioner’s conduct, the Secretary may impose a monetary penalty on the employer, firm or other entity. The Treasury Department and the IRS have issued procedures relating to the imposition of the monetary penalty through separate published guidance. Amount of penalty. The amount of the penalty shall not exceed the gross income derived (or to be derived) from the conduct giving rise to the penalty. Any monetary penalty imposed on a practitioner under this paragraph may be in addition to or in lieu of any suspension, disbarment or censure and may be in addition to a penalty imposed on an employer, firm or other entity. Any monetary penalty imposed on an employer, firm or other entity may be in addition to or in lieu of penalties imposed under this §.
Incompetence and Disreputable Conduct 10.51
§10.51 of the regulations defines disreputable conduct for which a practitioner may be sanctioned. §10.51 of the final regulations modifies the definition of disreputable conduct to include willful failure to sign a tax return prepared by the practitioner. The definition of disreputable conduct also includes the disclosure or use of returns or return information by practitioners in a manner not authorized by the Code, a court of competent jurisdiction, or an administrative law judge in a proceeding instituted under §10.60.
Violations Subject to Sanction 10.52
A practitioner may be sanctioned under §10.50 if the practitioner--
(1) Willfully violates any of the regulations contained in this part; or
(2) Recklessly or through gross incompetence (within the meaning of §10.51(a)(13)) violates §§10.34, 10.35, 10.36 or 10.37.
Publicity of Disciplinary Proceedings 10.72
The final regulations amend §10.72(d) to provide that all reports and decisions including any reports and decisions of the Administrative Law Judge, under are public and open to inspection within 30 days after the agency’s decision becomes final.
Expedited Suspension 10.82
§10.82 of the regulations authorizes the Director of the Office of Professional Responsibility to suspend immediately a practitioner who has engaged in certain conduct. The regulations extend the expedited process to practitioners who, within five years of the date a complaint instituting a proceeding:
(1) Has had a license to practice as an attorney, certified public accountant, or actuary suspended or revoked for cause by any authority or court, agency, body, or board.
(2) Has, irrespective of whether an appeal has been taken, been convicted of any crime under title 26 of the USC, any crime involving dishonesty or breach of trust, or any felony for which the conduct involved renders the practitioner unfit to practice before the IRS.
(3) Has violated conditions imposed on the practitioner pursuant to §10.79(d).
(4) Has been sanctioned by a court of competent jurisdiction, whether in a civil or criminal proceeding (including suits for injunctive relief), relating to any taxpayer’s tax liability or relating to the practitioner’s own tax liability, for--
(i) Instituting or maintaining proceedings primarily for delay;
(ii) Advancing frivolous or groundless arguments; or
(iii) Failing to pursue available administrative remedies.
2007 Circular 230 Revisions - To learn more about this author, visit Robert E. McKenzie's Website.
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2007 Circular 230 Revisions
Robert E. McKenzie, Esq. ©2008
The IRS Sept. 26 issued final rules making a host of changes to controversial regulations governing tax practice under Circular 230, among them allowing contingent fees under limited circumstances and slightly modifying rules requiring disclosure of conflicts of interest.
Practice Before the IRS
§10.2(d) has been modified to clarify that the rendering of this written advice is practice before the IRS subject to Circular 230 when it is provided by a practitioner.
Contingent Fees 10.27
IRS said it will now allow contingency fees for services in connection with an original tax return, or an amended return or claim for refund or credit filed within 120 days after the taxpayer receives written notice of an audit or a written challenge to the original return. Contingent fees also will be permitted for interest and penalty reviews "because there is no exploitation of the audit lottery in these situations as they are generally completed on a post-audit basis," IRS said. The contingent fee exception for interest and penalty reviews also revolved around timing, since these reviews are usually completed after an audit. Finally, the final regulations allows a practitioner to charge a contingent fee for services rendered in connection with any judicial proceeding arising under the Internal Revenue Code. Effective date: March 27, 2008.
Conflicting Interests 10.29
§10.29 of the revised regulations clarifies that a practitioner is required to obtain consents in writing from each affected client in order to represent the conflicting interests. The written consent may vary in form. One option is a letter to the client outlining the conflict, as well as the possible implications of the conflict, and submit the letter to the client for the client to countersign. A verbal consent followed by a confirming letter written by the practitioner will suffice if the client also signs the letter. Confirmation must be made no later than 30 days.
Standards With Respect to Tax Returns and Documents, Affidavits and Other Papers 10.34
§10.34 sets forth standards applicable to advice with respect to tax return positions and applicable to preparing or signing returns. §10.34 of the proposed regulations sets forth standards applicable to practitioners who advise clients with respect to documents, affidavits and other papers submitted to the IRS. There are separate standards for papers that take a position with respect to Federal tax matters and standards for advising a client to file papers involving procedural or factual matters. Under the regulations, a practitioner may not advise a client to take a position on a submission to the IRS unless the position is not frivolous. A practitioner also may not advise a client to submit a document to the IRS that is meant primarily for delay; is frivolous or groundless; or contains or omits information in a manner that demonstrates an intentional disregard of a rule or regulation. With regard to factual matters, a practitioner advising a client to take a position on a tax return, document, affidavit or other paper submitted to the IRS, or preparing or signing a tax return as a preparer, generally may rely in good faith without verification upon information furnished by the client. The practitioner may not, however, ignore the implications of information furnished to, or actually known by, the practitioner, and must make reasonable inquiries if the information as furnished appears to be incorrect, inconsistent with an important fact or another factual assumption, or incomplete. These standards supplement the existing requirement in §10.22 that practitioners exercise due diligence in preparing, or assisting in the preparation of, tax returns and other documents relating to IRS matters. §10.34 became effective September 27, 2007.
Sanctions 10.50
§10.50 authorizes the Secretary to impose a monetary penalty against a practitioner if the practitioner is shown to be incompetent or disreputable, fails to comply with any regulation in part 10, or with intent to defraud, willfully and knowingly misleads or threatens a client or prospective client. A monetary penalty may be imposed in addition to, or in lieu of, any other sanction. If a practitioner acts on behalf of the practitioner’s employer, firm or other entity and the employer, firm or other entity knew or should have known of the practitioner’s conduct, the Secretary may impose a monetary penalty on the employer, firm or other entity. The Treasury Department and the IRS have issued procedures relating to the imposition of the monetary penalty through separate published guidance. Amount of penalty. The amount of the penalty shall not exceed the gross income derived (or to be derived) from the conduct giving rise to the penalty. Any monetary penalty imposed on a practitioner under this paragraph may be in addition to or in lieu of any suspension, disbarment or censure and may be in addition to a penalty imposed on an employer, firm or other entity. Any monetary penalty imposed on an employer, firm or other entity may be in addition to or in lieu of penalties imposed under this §.
Incompetence and Disreputable Conduct 10.51
§10.51 of the regulations defines disreputable conduct for which a practitioner may be sanctioned. §10.51 of the final regulations modifies the definition of disreputable conduct to include willful failure to sign a tax return prepared by the practitioner. The definition of disreputable conduct also includes the disclosure or use of returns or return information by practitioners in a manner not authorized by the Code, a court of competent jurisdiction, or an administrative law judge in a proceeding instituted under §10.60.
Violations Subject to Sanction 10.52
A practitioner may be sanctioned under §10.50 if the practitioner--
(1) Willfully violates any of the regulations contained in this part; or
(2) Recklessly or through gross incompetence (within the meaning of §10.51(a)(13)) violates §§10.34, 10.35, 10.36 or 10.37.
Publicity of Disciplinary Proceedings 10.72
The final regulations amend §10.72(d) to provide that all reports and decisions including any reports and decisions of the Administrative Law Judge, under are public and open to inspection within 30 days after the agency’s decision becomes final.
Expedited Suspension 10.82
§10.82 of the regulations authorizes the Director of the Office of Professional Responsibility to suspend immediately a practitioner who has engaged in certain conduct. The regulations extend the expedited process to practitioners who, within five years of the date a complaint instituting a proceeding:
(1) Has had a license to practice as an attorney, certified public accountant, or actuary suspended or revoked for cause by any authority or court, agency, body, or board.
(2) Has, irrespective of whether an appeal has been taken, been convicted of any crime under title 26 of the USC, any crime involving dishonesty or breach of trust, or any felony for which the conduct involved renders the practitioner unfit to practice before the IRS.
(3) Has violated conditions imposed on the practitioner pursuant to §10.79(d).
(4) Has been sanctioned by a court of competent jurisdiction, whether in a civil or criminal proceeding (including suits for injunctive relief), relating to any taxpayer’s tax liability or relating to the practitioner’s own tax liability, for--
(i) Instituting or maintaining proceedings primarily for delay;
(ii) Advancing frivolous or groundless arguments; or
(iii) Failing to pursue available administrative remedies.
2007 Circular 230 Revisions - To learn more about this author, visit Robert E. McKenzie's Website.
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