Who is covered by circular 230

Circular contains the regulations governing practice before the Internal Revenue Service. Practice includes, but is not limited to, preparing or filing documents, corresponding and communicating with the IRS, rendering written tax advice and representing a client at conferences, hearings and meetings. Circular is a publication that provides guidance on practicing before the IRS.

Examples of practice before the IRS include:. Under Circular , power of attorney authorizations Form authorization are reserved for individuals authorized to practice before the IRS. These professionals mainly fall into these categories:.

In the words of the preamble for the proposed revisions in September , the covered opinion rules were "more rigid and cumbersome in application than generally applicable ethical standards," requiring that each covered opinion include certain information and requiring specific language in certain circumstances.

Of the old covered opinion rules, the one that was perhaps most pervasively applied was the opt-out language. The opt-out rule provided that a tax adviser could elect not to follow the rigid rules for certain advice that would otherwise require a covered opinion by including in the advice a specific disclaimer that it could not be used to protect against penalties. To eliminate the risk of unintentionally violating the covered opinion rules, many law firms and accounting firms added the opt-out disclaimer as a footer or notice at the bottom of every email as a matter of course.

With the revisions, the government has conceded that the prescriptive rules of former Section The revision eliminated the covered opinion rules in their entirety; and with the elimination, the need for practitioners to use the Circular opt-out language was also eliminated. The revision to Circular does not eliminate all of Treasury's standards for written tax advice, however.

Before it was revised, Section Former Section With the repeal of the covered opinion rules, the revised Section New Section To comply when providing tax advice in written communications including those provided electronically , the practitioner must:. The former rules prohibited a practitioner from taking into account the possibility that an issue would be resolved through settlement. The new rules, however, have no such prohibition. The preamble explains that.

Treasury and the IRS concluded that the former rule may have unduly restricted the ability of a practitioner to provide comprehensive written advice because the existence or nonexistence of legitimate hazards that may make settlement more or less likely may be a material issue for which the practitioner has an obligation to inform the client.

These rules replace the more prescriptive covered opinion rules. Before repeal, Section The preamble to T.

The preamble notes, however, that "Treasury and the IRS encourage practitioners to describe all relevant facts, law, analysis, and assumptions in appropriate circumstances. Both the former and the new rules on written tax advice expressly apply to advice provided electronically.

Thus, the rules apply to email advice and even less formal advice, such as a text message. The new regulations apply to a "Federal tax matter," which is defined broadly to include any matter concerning the application or interpretation of:. The regulations provide three instances when reliance on another is not reasonable:. The first two situations are similar to factors for reasonable reliance found in the due-diligence requirements in Section The third point, a conflict of interest under Circular , is not found in either, but the importance of objectivity underlying advice is well-established.

The preamble states that an adviser can rely on the advice of another person who has a conflict of interest if 1 the other person's conflict has been properly waived by all affected clients, and 2 all concerned reasonably believe that the practitioner with the conflict can provide competent advice.

With the elimination of the covered opinion rules, there are few bright-line or objective criteria with which to judge compliance with the revised written tax advice rules.

Section The new regulations again point out that the scope of the engagement and the type and specificity of the advice the client seeks are all relevant factors. Before it was amended, Section But the elements of this heightened review were not stated.

Under the revisions, this standard of review is clarified, and the government's investigation will focus on the reasonableness of the adviser's actions with emphasis given to the additional risk caused by the adviser's lack of knowledge of the taxpayer's particular circumstances. The new rules on written tax advice relax the rigid rules that applied to covered opinions, but other rules that govern tax advice continue unchanged.

For instance, standards for tax return positions under Section Unreasonable positions include 1 disclosed positions without a reasonable basis; 2 undisclosed positions without substantial authority; and 3 positions relating to tax shelters and reportable tax avoidance transactions not satisfying the more-likely-than-not standard.

Also unaffected by the revisions is the practitioner's due-diligence obligation under Section The revisions to Circular also do not change the general maxim that tax advisers are not required to audit or verify information clients, other third parties, and advisers provide, unless there is a reason to do so.

Nonetheless, recognizing situations requiring more diligence will be instrumental to satisfying the Circular , Section Knowing when to dig further will also be important for satisfying the new Circular , Section If taxpayers wish to use written advice as a basis for a reasonable-cause defense under Sec. The advice must be based on "all pertinent facts and circumstances and the law as it relates to those facts and circumstances," must not be based on "unreasonable factual or legal assumptions," and must not "unreasonably rely on representations, statements, findings, or agreements of the taxpayer or any other person.

It is questionable whether advice provided in one or two paragraphs sent via email would be sufficient to meet the minimal requirements for a reasonable-cause defense under the regulations. All these rules and standards, along with the new Section The authors recall conversations that began with another practitioner saying, "We're only issuing a memo," implying that the professional obligations governing that advice are somewhat reduced.

What Penalties are discretionary referrals to the OPR? Back to Top Q2. Back to Top Q3. Back to Top Q4.

State-licensed Attorneys and Certified Public Accountants CPAs authorized and in good standing with their state licensing authority who interact with tax administration at any level.

Individuals providing appraisals used in connection with federal tax matters e. Individuals who are unenrolled and unlicensed as attorneys or CPAs and who represent taxpayers before IRS examination, customer service, and similar personnel, including the Taxpayer Advocate Service, in connection with returns they prepared and signed.

For more information, go to IRS. Licensed and unlicensed individuals who give written advice with respect to any entity, transaction, plan or arrangement, or other plan or arrangement, which is of a type the IRS determines as having a potential for tax avoidance or evasion.

Any individual submitting a power of attorney in connection with limited representation of a taxpayer before the IRS with respect to a specific matter before the Agency. Back to Top Q5. Back to Top Q6. Back to Top Q7. Back to Top Q8.

Back to Top Q9. The OPR will accept: A Form Power of Attorney and Declaration of Representative with an appropriate description of the scope of the representation; or A letter of representation containing the essential elements of a Form The letter of representation must include the following: An affirmation that the representative is authorized to represent persons before the IRS; An affirmation that the representative has the appropriate state or federal license, such as that of an attorney, CPA, or EA; A statement that the representative has been authorized by you to represent you before the OPR; and A statement of where to send correspondence, i.

Note that in some instances the OPR will send certain correspondence directly to you with a copy to your representative regardless of any other instruction, because doing so is legally required. Back to Top Q The proposed regulations withdraw earlier proposed regulations governing requirements for state or local bond opinions.

The earlier proposals are no longer necessary because of the proposed elimination of the covered opinion rules. Practitioners rendering opinions concerning the tax treatment of municipal bonds would be subject to the same professional standards that apply to all written tax advice under proposed section The proposed regulations generally apply on the date that final regulations are published in the Federal Register.

Any proceedings instituted under Circular prior to the date that final regulations are published in the Federal Register will not be affected by these revisions.

The proposals also provide that if a proceeding is instituted after the effective date, and the proceeding concerns practitioner conduct that occurred before the effective date, the conduct will be judged by the rules in effect when the conduct occurred. Until these revisions become effective, current Circular , including the rules on covered opinions, will continue to apply.

It is contained in 31 Code of Federal Regulations Part Currently there are 34 listed transactions. Tax avoidance can be the principal purpose even if all other purposes combined are greater in importance than the tax avoidance purpose, provided no other purpose is greater in importance than the tax avoidance purpose. Limited scope opinions are not permitted if the transaction is a listed transaction or has as its principal purpose tax avoidance or evasion, or if the opinion is a marketed opinion.

The limited scope opinion under the current rules must include a section that identifies all the issues for which the practitioner assumed a favorable outcome. The opinion must also prominently disclose that it is a limited scope opinion. Second, under certain conditions the practitioner may rely on the opinion of another practitioner regarding one or more significant tax issues.

Practitioners commonly rely on this exception to ensure that an opinion is not treated as a reliance opinion or marketed opinion for purposes of the Circular regime. Notwithstanding any such conflict of interest, a practitioner may represent a client if the practitioner reasonably believes that he or she will be able to apply competent and diligent representation to each client, the representation is not prohibited by law, and each affected client waives the conflict and gives informed written consent to the representation.

The conduct includes any of these offenses committed within 5 years of the date the IRS commences a proceeding for expedited sanction. The same holds true for a taxpayer who is accused of failure to file annual returns if at the time the notice of suspension is issued, he or she is derelict in any periodic filings.

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