Mastering Circular 230: The Rules Tax Practitioners Must Know
Overview: Circular 230 is the backbone of ethical practice before the IRS. It sets rules for who can represent taxpayers, what duties practitioners have, and what happens when those rules are broken. This guide summarizes the essentials for tax professionals.
✅ What is Circular 230?
- Formally titled “Regulations Governing Practice before the IRS.”
- Applies to attorneys, CPAs, enrolled agents, enrolled actuaries, registered tax return preparers, and certain others.
- Organized into subparts: Authority to Practice, Duties & Restrictions, Sanctions, Disciplinary Proceedings, and General Provisions.
✅ Core Practitioner Duties
- Information Requests (10.20): Must provide requested info unless privileged. If you don’t have it, you must tell the IRS who does.
- Knowledge of Client Omissions (10.21): You must tell your client if you know they’ve made an error or omission.
- Diligence as to Accuracy (10.22): Always exercise due diligence when preparing or filing returns, making representations to clients or the IRS.
- Prompt Disposition (10.23): Don’t unreasonably delay matters before the IRS.
- Return of Client Records (10.28): Promptly return records needed for the client’s tax compliance. Keep copies as needed.
- Conflict of Interest (10.29): Must avoid conflicts unless you believe you can represent each client competently, no law forbids it, and each client gives informed written consent within 30 days.
- Advertising (10.30): No false, misleading, or coercive ads. Maintain documentation of broadcast or direct mail for at least 36 months.
✅ Special Rules & Restrictions
- Former IRS Employees (10.25): Strict limits on practice if you were involved with a matter while working for the IRS.
- Fees (10.27): No unconscionable fees. Contingent fees only allowed in limited cases (e.g., IRS exam challenge, refund claim).
- Negotiation of Refund Checks (10.31): Can’t endorse or cash client refund checks.
- Competence (10.35): Must possess and maintain necessary competence, consulting with experts or studying law as needed.
- Standards for Tax Returns (10.34): No reckless or unreasonable positions. Must inform clients of potential penalties and how to avoid them.
- Written Advice (10.37): Base on reasonable facts and assumptions. Must not rely unreasonably on others’ representations.
✅ Sanctions & Reinstatement
- Practitioners can be publicly reprimanded, suspended, or disbarred for incompetence, disreputable conduct, or willful violations.
- Examples: Conviction of tax crimes, fraud, false info to Treasury, willfully evading tax, aiding in evasion, misleading ads, or unauthorized practice of law.
- Petition for reinstatement possible after five years if the IRS is convinced you won’t re-offend and it’s in the public interest.
✅ Best Practices for Advisors
- Communicate clearly about engagement terms and risks.
- Establish facts and conclusions supported by law.
- Advise on penalties and compliance steps.
- Act fairly and ensure firm-wide adherence to ethical standards.
🔗 Helpful References
👉 Follow Circular 230 — Protect your license, your clients, and your reputation!
