The Treasury Department and the Internal Revenue Service have proposed amendments to Circular 230, which governs practice before the IRS. The amendments are the most extensive since 2014 and cover significant developments that have affected practice before the service since that time.
The proposed regulations would remove or update the parts of Circular 230 that related to registered tax return preparers and tax return preparation, as well as contingent fees to reflect changes in the law since the prior amendments to Circular 230 in 2011 and 2014. The regs would also revise or eliminate other provisions that are out of date.
The proposed regulations would incorporate new provisions that better align Circular 230 with the current practice environment, such as requiring practitioners to maintain technological competency as part of their practice before the IRS. They would also clarify some provisions, such as confirming that the IRS Office of Professional Responsibility retains jurisdiction over practitioners who have been suspended or disbarred from practice. (The OPR generally is in charge of matters related to practitioner conduct, and is exclusively responsible for discipline, including disciplinary proceedings and sanctions.) And finally, they would provide rules related to appraisers, including the standards for disqualification.
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The provisions regarding tax return preparation and registered tax return preparers are in response to the IRS loss in Loving v. IRS, according to John Sheeley, founder of Tax Practice Pro. The Loving court denied the IRS the authority to regulate tax return preparers. The provisions in Circular 230 eliminate provisions related to registered tax return preparers, and revise standards for tax return preparation tied to IRS representation, while updating the definition of “practice before the IRS.”
The proposed revision to Circular 230 establishes that charging contingent fees for preparing returns or refund claims constitutes disreputable conduct. This language, which removes the ability of practitioners to charge contingency fees, will likely generate some opposition, according to Bill Nemeth, trustee and immediate past chair of the National Association of Enrolled Agents’ NAEA Education Foundation.
“If a client gives me a return to do and I discover that their previous year’s return was incorrect and they may be able to get a larger refund, I should be able to amend their previous return for a percentage of the refund,” he said. “I don’t want to do the work for free, and the client has no guarantee that they will collect. So they have nothing to lose, and I can do the additional work knowing that I might get an additional reward.”
“As for contingency fees on first-time abatement, the language in the proposed revision is so murky that I’m not smart enough to figure out if it’s allowed or not,” Nemeth said.
The revisions to Circular 230 create a new Subpart D specifically addressing appraiser standards. It establishes a new framework for appraiser disqualification and eliminates the prerequisite of penalty assessment for appraiser disqualification.
The revisions add a requirement for practitioners to maintain technological competence, and require data security policies and incident response plans. They also mandate business continuity and succession planning, and they update written advice standards.
The revision expands the grounds for expedited suspension, clarifying procedures for reinstatement and maintaining IRS jurisdiction over suspended practitioners, said Tax Practice Pro’s Sheeley.
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