The Reach of Circular 230

Article excerpt

While discussions about Circular 230 usually focus on the standards it imposes relating to tax returns and opinions, the breadth and scope of Circular 230 also affects day-to-day business operations of tax practitioners relating to fees, client solicitations, marketing and advertising, and the management of client files and records. A violation of these provisions may subject a practitioner to sanctions, including censure, suspension or disbarment from practice before the IRS. Therefore, it is important that tax practitioners implement policies and procedures to ensure compliance.

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The standards in Circular 230 apply to practitioners who prepare tax returns; correspond and communicate with the IRS relating to a taxpayer's rights, privileges or liabilities under laws or regulations administered by the Service; and render written advice regarding the tax treatment of a transaction, plan or arrangement. Circular 230 imposes an obligation on practitioners to exercise due diligence in preparing returns or other documents relating to a federal tax matter and in determining the correctness of oral or written representations made by the practitioner to the IRS.

In addition, Circular 230 prohibits a tax return preparer from signing a tax return or claim for refund that the practitioner knows or reasonably should know contains a position that lacks a reasonable basis or is an unreasonable position as described in Sec. 6694(a)(2) relating to preparer penalties for understatements due to unreasonable positions. Circular 230 also prohibits a tax practitioner from signing a tax return that constitutes a willful attempt to understate the tax liability or a reckless or intentional disregard for the rules and regulations described in Sec. 6694(b)(2) relating to preparer penalties for understatements due to willful or reckless conduct. …

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