MODULE XI
CIRCULAR 230 AND AMT

By Norma Wahnon

Copyright 2012 Norma Wahnon

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A. CIRCULAR 230: SUB–PARTS A, B, AND C

Treasury Department Circular 230 (Rev. 8–2011) ” Regulations Governing Practice before the Internal Revenue Service” sets forth stringent standards of practice and disciplinary sanctions for violations of those standards. The new scope introduced by the 2011 IRS and Treasury Department amendment to Circular 230 extended the applicability of the standards and sanctions in this circular to registered tax return preparers. Therefore, 15% of the questions in the competency examination necessary to become a registered tax return preparer are on these topics.

Circular 230’s complete text is in a short 48 page booklet (PDF file) you can find in the IRS website. For your preparation for the IRS competency examination, you will be tested on just the content of sub–parts A, B, and C, which are included in the exam outline as testable topics.

In the introduction to Circular 230, the legal source of authority to set rules for practice before the IRS and Treasury Department it is stated that the Secretary of the Treasury may:

– “regulate the practice of representatives of persons before the Department of the Treasury; and

– Before admitting a representative to practice, require that the representative demonstrate: a) good character; b) good reputation; c) necessary qualifications to enable the representative to provide to persons valuable service; and d) competency to advise and assist persons in presenting their cases.”

In addition, it establishes as a faculty of the Secretary, the authority to suspend, disbar, or censure a representative who is incompetent; disreputable; violates regulations prescribed under this section; or with intent to defraud, willfully and knowingly misleads or threatens the person being represented or a prospective person to be represented.

Imposition of monetary penalty on any representative practicing before the IRA and the Treasury Department is also a faculty of the Secretary. Penalty must not exceed the gross income derived (or to be derived) from the conduct giving rise to the penalty and may be in addition to, or in lieu of, any suspension, disbarment, or censure of the representative.

Following is a summary of the sub–parts of Circular 230 that explain how the Secretary of the Treasury exercises the authority and faculties referred to above to set the rules that govern practice before the Internal Revenue Service.

1. Sub–Part A of Circular 230 Contains Rules Related To

– Authority to practice before the IRS (eligibility, terms and conditions, definitions, renewals, continuing education requirement, etc.), and

– Recognition of attorneys, certified public accountants, enrolled agents, enrolled retirement plan agents, registered tax return preparers, and other persons representing taxpayers before the Internal Revenue Service.

The IRS exam outline contains three topics from Circular 230 Subpart A. The rules established in this sub–part are discussed next following as presented in the exam outline:

Topic 1: Preparer’s due diligence for accuracy of representations made to clients and the IRS; and reliance on third party work products.

All practitioners, attorneys, certified public accountants, enrolled agents, enrolled actuaries, enrolled retirement plan agents, and registered tax return preparers, have the duty to exercise due diligence. Due diligence as presented in Subpart B of Circular 230 is related to all of the following:

– “In preparing or assisting in the preparation of, approving, and filing tax returns, documents, affidavits, and other papers relating to Internal Revenue Service matters;

– In determining the correctness of oral or written representations made by the practitioner to the Department of the Treasury; and

– In determining the correctness of oral or written representations made by the practitioner to clients with reference to any matter administered by the Internal Revenue Service.

Exercise of due diligence by practitioners is specifically required when relying on others’ work. Others’ work requires “reasonable care in engaging, supervising, training, and evaluating the person.”

Topic 2: What constitutes practice before the IRS and categories of individuals who may practice

From the definitions in section 10.2 of Subpart A of Circular 230, practice before the Internal Revenue Service “….comprehends all matters connected with a presentation to the Internal Revenue Service or any of its officers or employees relating to a taxpayer’s rights, privileges, or liabilities under laws or regulations administered by the Internal Revenue Service. Such presentations include, but are not limited to, preparing documents; filing documents; corresponding and communicating with the Internal Revenue Service; rendering written advice with respect to any entity, transaction, plan or arrangement, or other plan or arrangement having a potential for tax avoidance or evasion; and representing a client at conferences, hearings, and meetings.”

Section 10.3 presents the categories of individual professionals who may practice before the IRS. In general, any of the following professionals who are not currently under suspension or disbarment and are currently qualified and authorized by their respective professional Boards may practice before the IRS. Listed practitioners are:

– Attorneys;

– Certified public accountants;

– Enrolled agents;

– Enrolled actuaries;

– Enrolled retirement plan agents;

– Registered tax return preparer.

In addition to the above classified practitioners, Section 10.3 mentions the following categories of individuals that may or may not practice before the IRS:

– Others: Any individuals qualifying under the “temporary recognition” provision for – enrolled agent, enrolled retirement plan agent, or registered tax return preparer; and individual representing themselves.

– Government officers and employees;

– State officers and employees.

Other useful definitions related to this section include:

Matter before the Internal Revenue Service “…includes tax planning and advice, preparing or filing or assisting in preparing or filing returns or claims for refund or credit, and all matters connected with a presentation to the Internal Revenue Service or any of its officers or employees relating to a taxpayer’s rights, privileges, or liabilities under laws or regulations administered by the Internal Revenue Service. Such presentations include, but are not limited to, preparing and filing documents, corresponding and communicating with the Internal Revenue Service, rendering written advice with respect to any entity, transaction, plan or arrangement, and representing a client at conferences, hearings, and meetings.”

A law firm is a law partnership, Professional Corporation, a sole proprietorship, or any other association authorized to practice law in any state, territory, or possession of the United States, including a Commonwealth, or the District of Columbia.

A certified public accounting firm: is a partnership, Professional Corporation, sole proprietorship, or any other association that is registered, permitted, or licensed to practice as a certified public accounting firm in any state, territory, or possession of the United States, including a Commonwealth, or the District of Columbia.

An enrolled agent is a tax professional, who has demonstrated special competence in tax matters, who applied for enrollment, has been issued an enrollment card and has kept an active status.

A supervised individual who is supervised by an attorney, CPA or an enrolled agent, and the supervised preparer is employed by a law firm, CPA firm or other recognized firm (a firm that is at least 80 percent owned by attorneys, CPAs, or enrolled agents). The supervised preparers may not sign any tax returns they prepare or execute any other functions registered tax return preparers are allowed to execute.

Non–Form 1040 series preparers are individuals who do not prepare, or assist in the preparation of, any Form 1040 series tax return or claim for refund, for a fee, except a Form 1040–PR or Form 1040–SS.

Topic 3: Limits on practice by a registered tax return preparer.

A RTRP may prepare all, or substantially all, of a tax return or claim for refund of tax, sign those tax return and claims of refund and other documents for submission to the IRS. These functions are limited to the guidance provided by the IRS to prepare and submit tax return or claims.

Circular 230 establishes the following limits on the practice before the IRS for individuals designated as registered tax return preparer (RTRP):

– A RTRP may represent taxpayers before the IRS at the level of revenue agents, customer services representatives, or similar officers. A RTRP is not allowed to represent taxpayers before”…appeals officers, revenue officers, Counsel or similar officers or employees of the Internal Revenue Service or the Treasury Department.”