Practitioners’ role in the continuing evolution of Circular 230

By Conrad Davis, CPA, Sacramento, Calif.

Editor: Howard Wagner, CPA

Treasury Circular 230, Regulations Governing Practice Before the Internal Revenue Service (31 C.F.R. Part 10), had its origin in what was known as the Horse Act of 1884 (Act of July 7, 1884, 23 Stat. 258). Individuals were claiming losses from the Civil War. Their representatives were inflating claims, and it was said the claims for lost horses amounted to more than the total value of horses lost in the war. Congress authorized Treasury to regulate those representatives. Treasury agents were given guidance in this new role in the form of circulars, which in 1921 were consolidated into one document, Circular 230 (available at This document includes the rules, regulations, provisions, and procedures governing the ethical conduct and discipline of those who practice before the IRS.

A lot has changed since then. Circular 230 continues to evolve to address changes in the world and in professional practices. Circular 230 was last revised in 2014, and it is time again to update it to address the many changes in the profession since then.

The IRS Office of Professional Responsibility (OPR) is charged with overseeing and enforcing the elements of Circular 230. OPR is responsible for interpreting and applying the regulations in Circular 230 governing practice before the IRS. OPR is solely responsible for overseeing practitioner conduct and discipline and is independent from other IRS functions.

In November 2020, Treasury's 2020-2021 priority guidance plan included updating Circular 230. The director of OPR, Sharyn Fisk, asked for comments from the professional community regarding suggested changes to Circular 230. In a December 2020 meeting of the AICPA Tax Practice Responsibilities Committee, Fisk indicated that OPR's recommendations will carry greater weight with Treasury if tax practitioners comment on and ultimately support them (see Strausfeld, "News Notes: Treasury Asks for Comments on Planned Circular 230 Update," 52 The Tax Adviser 150 (March 2021)).

This is an opportunity for practitioners and the organizations they are involved with to participate in facilitating the ongoing applicability and effectiveness of Circular 230. Tax professionals have a responsibility to maintain practice standards. While Circular 230 does not contain the depth of guidance provided by the AICPA or American Bar Association, it is often considered in the determination of ethical behavior of tax practitioners. With that in mind, your comments will not only add to OPR's efforts, but they may also affect the standards applied to you.

A good place to start is with the March 4, 2021, comment letter that the AICPA Tax Executive Committee submitted in response to Fisk's request (see AICPA Comments on the Request for Guidance on Changes to Treasury Department Circular No. 230, available at It contains a significant amount of background information about and insight into changes needed to update Circular 230. Reading the entire letter is recommended, but a summary of a few of the high points follows:

Scope of OPR's authority: In 2014, the rulings in Loving, 742 F.3d 1013 (D.C. Cir. 2014), and Ridgely v. Lew, 55 F. Supp. 3d 89 (D.D.C. 2014), determined that Treasury did not have the authority to apply Circular 230 to tax return preparation. The result is that several sections need to be updated or modified to be consistent with this finding.

However, Treasury should continue to evaluate federally authorized tax practitioners' (FATPs') tax preparation and planning when determining their suitability to practice before the IRS.

Section 10.20, Information to Be Furnished: The digital age has increased the volume of scanned and electronic documents. This section should be updated to address practitioners' conduct regarding documents they receive that are the property of their client. While documents received in tax compliance and tax consulting engagements are generally not subject to privilege from disclosure, the comment recommends considering that practitioners would not have the authority to provide those documents to the IRS without the taxpayer's permission unless they are legally compelled to do so.

Section 10.21, Knowledge of Client's Omission: The AICPA recommends Circular 230 clarify a practitioner's duty to a former client regarding subsequent events or changes in laws after termination of the client engagement.

Section 10.22, Diligence as to Accuracy: The recommendation is to make Sections 10.22, Diligence as to Accuracy; 10.34, Standards With Respect to Tax Returns and Documents, Affidavits and Other Papers; and 10.37, Requirements for Written Advice, mutually consistent regarding reliance on third parties. In many situations, the third party is independent and therefore beyond the reach of the practitioner's supervision and training.

Section 10.28, Return of Client's Records: The letter recommends updating this section to reflect electronic filing, versus paper filing, of tax documents. Additionally, the circular should better define client records and distinguish them from practitioner workpapers and specify a time limit to comply after receiving a request to return client records.

Section 10.29, Conflicting Interests: The letter recommends providing a de minimis exemption for owners of less than 5% or 10% of a passthrough entity from being considered an adverse party in a conflict of interest. The increasing popularity of using tiered passthrough entities as investment structures makes identification and resolution of conflicts too difficult in such instances.

Another recommendation is to limit the lookback period used to determine who is a client affected by a conflict.

Sections 10.50, Sanctions, and 10.51, Incompetence and Disreputable Conduct: The recommendation is to evaluate Sections 10.50 and 10.51 for consistency of terminology and application and to clarify when a monetary penalty applies.

Additionally, the AICPA recommends addressing how the decision in Sexton v. Hawkins, 2:13-cv-00893-RFB-VCF (D. Nev. 3/17/17), affects practitioner sanctions.

Section 10.64, Answer; Default: The recommendation is to update this section to include electronic signatures.

Other areas to consider

Circular 230 does not currently directly address confidentiality, privacy, data protection, or record retention. It should include broad general requirements for ethical conduct in these areas.

Another recommendation is to include frequently asked questions to broadly address ethical conduct.

In addition, OPR should continue to publish disciplinary actions while recognizing the need to protect the privacy of FATPs.

Read up on Circular 230

Practitioners should consider engaging in this opportunity as professionals to add their insight and comments to this next iteration of Circular 230. If they are not familiar with it, then it is worthwhile for them to spend the time to review it, in particular, Subpart B.


Howard Wagner, CPA, is a partner with Crowe LLP in Louisville, Ky.

For additional information about these items, contact Mr. Wagner at 502-420-4567 or

Contributors are members of or associated with Crowe LLP.

Tax Insider Articles


Business meal deductions after the TCJA

This article discusses the history of the deduction of business meal expenses and the new rules under the TCJA and the regulations and provides a framework for documenting and substantiating the deduction.


Quirks spurred by COVID-19 tax relief

This article discusses some procedural and administrative quirks that have emerged with the new tax legislative, regulatory, and procedural guidance related to COVID-19.