Circular 230 duties every representative should know: the subpart B rules in practice

Who Circular 230 covers

The regulation applies to “practice before the Internal Revenue Service,” which section 10.2(a)(4) defines broadly: it “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.” The definition lists preparing and filing documents, “corresponding and communicating with the Internal Revenue Service,” written advice and representing a client at conferences, hearings and meetings.

Section 10.3 identifies the practitioners: attorneys, CPAs, enrolled agents, enrolled actuaries, enrolled retirement plan agents and others allowed by sections 10.5(e) and 10.7 (see who can represent a taxpayer). Section 10.8 extends subpart B to anyone who for compensation prepares all or substantially all of a return, and Annual Filing Season Program participants consent to subpart B and section 10.51 as a condition of the program, according to the IRS AFSP page. The Form 2848 declaration ties it together: by signing Part II you declare you are aware of Circular 230.

The subpart B duties at a glance

10.20: responding to IRS requests

Section 10.20(a)(1) says a practitioner “must, on a proper and lawful request by a duly authorized officer or employee of the Internal Revenue Service, promptly submit records or information in any matter before the Internal Revenue Service unless the practitioner believes in good faith and on reasonable grounds that the records or information are privileged.” If the records are not in your or the client's control, you must say so promptly and identify who you believe has them, after reasonable inquiry of the client. Section 10.20(b) adds that a practitioner “may not interfere, or attempt to interfere, with any proper and lawful effort” by the IRS to obtain records, again subject to good-faith privilege.

The privilege carve-out is the reason the IRM sends some disputes to a summons rather than a bypass: IRM 4.11.55.4.3 calls for a summons when the representative “refuses to provide the requested documentation when they believe this documentation is privileged,” so a court can decide. See information document requests and IRS summons in exams.

10.21: knowledge of a client's omission

Section 10.21 applies when a practitioner retained on a matter “knows that the client has not complied with the revenue laws of the United States or has made an error in or omission from any return.” The duty is to “advise the client promptly of the fact of such noncompliance, error, or omission” and of the consequences under the Code and regulations. It does not require you to correct the error or tell the IRS; it requires you to tell the client. Typical triggers are finding an unfiled year while working a balance due, or an unreported 1099 while answering a CP2000. Document the advice.

10.22: due diligence

Section 10.22(a) requires due diligence in preparing, approving and filing returns and other papers, “In determining the correctness of oral or written representations made by the practitioner to the Department of the Treasury,” and in representations to clients. In representation work the second clause matters most: what you tell an examiner or revenue officer, including on a collection information statement, must be checked. Section 10.22(b) presumes diligence when you rely on another person's work product and used “reasonable care in engaging, supervising, training, and evaluating the person.” That presumption is how a firm relying on staff or offshore preparers shows diligence, and it is limited by sections 10.34 and 10.37.

10.23: prompt disposition

Section 10.23 is one sentence: “A practitioner may not unreasonably delay the prompt disposition of any matter before the Internal Revenue Service.” It is the Circular 230 hook behind the IRS's bypass procedures. IRM 5.1.23.6 notes that unreasonable delay “may constitute a violation of a provision(s) of Circular 230” but only OPR can decide that, and says a referral to OPR for delay should not be made “without having first exercised the by-pass procedure.” Exam procedures list failing to submit records, failing to keep appointments and failing to return calls and letters as the conduct to document (IRM 4.11.55.4.1). See when the IRS bypasses the representative.

10.29: conflicting interests

Section 10.29(a) prohibits representation involving a conflict of interest, which exists if “The representation of one client will be directly adverse to another client” or there is “a significant risk that the representation of one or more clients will be materially limited” by responsibilities to another client, a former client, a third person or the practitioner's own interest. You may still proceed under 10.29(b) if you reasonably believe you can represent each client competently and diligently, the representation is not prohibited by law, and each affected client gives informed consent confirmed in writing. The written confirmation may follow the consent “but in no event later than 30 days,” and copies must be kept “for at least 36 months from the date of the conclusion of the representation.”

Representation matters where this comes up: spouses where one may seek innocent spouse relief, co-owners facing the trust fund recovery penalty, partnerships and their partners, and preparer-client situations where the return you prepared is the one under exam.

10.34: returns and other submissions

Section 10.34(a) bars a practitioner from willfully, recklessly or through gross incompetence signing a return or claim that contains a position that “Lacks a reasonable basis,” is an unreasonable position under IRC 6694(a)(2), or reflects willful or reckless conduct under 6694(b)(2), and from advising such positions. Section 10.34(b) covers other papers: a practitioner “may not advise a client to take a position on a document, affidavit or other paper submitted to the Internal Revenue Service unless the position is not frivolous,” and may not advise submitting a paper whose purpose is “to delay or impede the administration of the Federal tax laws.”

Section 10.34(c) imposes an affirmative duty to “inform a client of any penalties that are reasonably likely to apply” for positions you advised on or returns you prepared, and of any chance to avoid them by disclosure. Section 10.34(d) allows good-faith reliance on client information, but you “may not, however, ignore the implications of information furnished to, or actually known by, the practitioner, and must make reasonable inquiries” if it appears incorrect, inconsistent or incomplete. These rules apply to amended returns and claims you file during an exam; see amended returns and claims during an exam.

Records, fees, checks, solicitation and competence

Records (10.28). A practitioner must promptly return client records “necessary for the client to comply with his or her Federal tax obligations” on request; a fee dispute generally does not excuse this, though state law may let you keep records not attached to the return if you give reasonable access to them.

Fees (10.27). “A practitioner may not charge an unconscionable fee in connection with any matter before the Internal Revenue Service.” As published, 10.27(b) also restricts contingent fees except in listed situations, including an IRS examination of or challenge to an original return, claims relating solely to statutory interest or penalties, and judicial proceedings.

Checks (10.31). A practitioner may not endorse or negotiate a client's government refund check, including directing or accepting payment into an account the practitioner or firm controls.

Solicitation (10.30). No false, fraudulent, coercive, misleading or deceptive statements; enrolled agents may not use the term “certified” or imply an employment relationship with the IRS. Published fee schedules must be honored for at least 30 calendar days.

Competence and firm procedures (10.35, 10.36). “A practitioner must possess the necessary competence to engage in practice before the Internal Revenue Service,” which can be acquired by consulting experts or studying the law. Practitioners with principal authority over a firm's tax practice must take reasonable steps to ensure the firm has adequate procedures for compliance.

Sanctions and how they reach the CAF

Under section 10.50 the Secretary, after notice and an opportunity for a proceeding, may censure, suspend or disbar a practitioner who is shown to be incompetent or disreputable, violates the regulations or misleads a client with intent to defraud, and may impose a monetary penalty up to the gross income derived from the conduct. Section 10.51 lists disreputable conduct, including conviction of tax crimes, giving false or misleading information to the IRS, misappropriating client funds meant for taxes, attempting to influence IRS employees through threats or gifts, contemptuous conduct, and “Willfully disclosing or otherwise using a tax return or tax return information” without authorization.

Discipline has an immediate administrative effect. IRM 21.3.7.9.1 says OPR notifies the Memphis CAF point of contact of suspensions, disbarments and ineligibility, which must be processed within two business days, and the CAF then ensures powers of attorney from that practitioner “are rejected from processing.” A suspended or disbarred practitioner may still be named on a Form 8821 to receive information only (IRM 21.3.7.9.2). The Form 2848 instructions also note that former federal employees are subject to 18 U.S.C. 207 and section 10.25.

Questions practitioners ask