Circular 230 should be amended to better reflect current tax practice

The AICPA has recommended revisions to clarify certain aspects of Circular 230, Regulations Governing Practice Before the Internal Revenue Service (31 C.F.R. Part 10), and allow a better understanding of the rules for tax practitioners when they are representing taxpayers before the IRS. The recommendations include clarification of the IRS Office of Professional Responsibility’s (OPR’s) current jurisdiction; updates to reflect the elimination of the registered tax return preparer program; and amendments to reflect current e-filing and e-signature practices. The AICPA also recommends new sections addressing confidentiality, privacy, data protection, and record retention.

The recommendations came in a letter dated March 4, 2021, sent by the AICPA Tax Executive Committee (TEC), addressed to Sharon M. Fisk, director of OPR, and are in response to a request for the AICPA’s comments and guidance on upcoming revisions to Circular 230, which has not been updated since 2014. (For prior coverage, see Strausfeld, “Circular 230 Update Planned for 2021,” The Tax Adviser (Dec. 22, 2020).

Circular 230 contains the rules governing the practice of attorneys, CPAs, enrolled agents, enrolled retirement plan agents, registered tax return preparers, and other persons representing taxpayers before the IRS.

The AICPA noted that recent court decisions limiting the IRS’s ability to sanction tax preparers, Loving, 742 F.3d 1013 (D.C. Cir. 2014), and Ridgely v. Lew, 55 F. Supp. 3d (D.D.C. 2014), necessitate changes to Circular 230, including eliminating reference to the registered tax return preparer program, among other changes and clarifications.

Another suggestion was a revision of Section 10.28, Return of Client’s Records, to reflect current filing practices, which usually involve electronic, not paper, files.

In another clarification in response to a court decision, the AICPA recommended amending Section 10.51(a)(18),which prohibits “[w]illfully representing a taxpayer before an officer or employee of the Internal Revenue Service unless the practitioner is authorized to do so pursuant to this part,” to describe how a person who is not authorized to practice under this part can be subject to sanctions in light of the decision in Sexton v. Hawkins,2:13-cv-00893-RFB-VCF (D. Nev. 3/17/17), in which a federal district court held that OPR had no authority or jurisdiction over a disbarred attorney/tax preparer or his tax preparation practice and could not regulate his provision of tax advice.

The AICPA also recommended provisions addressing confidentiality, privacy, data protection, and record retention be added to Circular 230. These new provisions should be broadly stated and refer tax preparers to other authority for more details. These could be illustrated by frequently asked questions, detailing specific rules and how they apply to practitioners.

In a final comment, the AICPA commended OPR’s effort to publish agency disciplinary decisions to the extent that privacy permits and suggested the agency seek congressional authority to continue to do so.