IRS Circular 230 – Standards with Respect to Tax Returns, Affidavits, Documents and Other Papers

Sec. 10.34 Standards with Respect to Tax Returns and Documents, Affidavits and Other Papers

Tax Returns

A practitioner may not willfully, recklessly or through gross incompetence:

(i) Sign a tax return or claim for refund that the practitioner knows or reasonably should know contains a position that, or:

(ii) Advises a client to take a position on a tax return or claim for refund, containing a position that:

(A) Lacks a reasonable basis;

(B) Is an unreasonable position as described in IRC Sec. 6694(a)(2);

(C) Is a willful attempt by the practitioner to understate the liability for tax or a reckless or intentional disregard of rules or regulations by the practitioner as described in IRC Sec. 6694(b)(2).

Documents, Affidavits and Other Papers

1. A practitioner may not advise a client to take a position on a document, affidavit or other paper submitted to the IRS, unless the position is not frivolous.

2. A practitioner may not advise a client to submit a document, affidavit or other paper to the IRS:

(i) The purpose of which is to delay or impede the administration of the federal tax laws;

(ii) That is frivolous;

(iii) That contains or omits information in a manner that demonstrates an intentional disregard of a rule or regulation, unless the practitioner also advises the client to submit a document that evidences a good faith challenge to the rule or regulation.

(c) Advising Clients on Potential Penalties.

1. A practitioner must inform a client of any penalties that are reasonably likely to apply to the client with respect to:

(i) A position taken on a tax return if:

(A) The practitioner advised the client with respect to the position, or

(B) The practitioner prepared or signed the tax return.

(ii) The practitioner also must inform the client of any opportunity to avoid any such penalties by disclosure.

(d) Relying on Information Furnished by Clients.

A practitioner advising a client to take a position on a tax return or preparing or signing a tax return as a preparer, generally may rely in good faith without verification upon information furnished by the client.

The practitioner may not ignore the implications of information furnished to, or actually known by the practitioner, and must make reasonable inquiries if the information as furnished appears to be incorrect, inconsistent with an important fact or incomplete (emphasis added).

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