IRS Treasury Department Circular 230 – Tax Advisors

Effective August 2011, the Treasury Department issued Circular No. 230 (Title 31 Code of Federal Regulations, Subtitle A, Part 10): Regulations Governing Practice before the IRS. Tax advisors must comply with the requirements (of Circular 230) or face IRS disbarment, censure or sanctions.

Under Circular 230 the following rules apply:

1. Sec. 1021: A practitioner with knowledge of a client’s non-compliance with U.S. revenue laws, or omission/error on tax returns, must:
a. Advise client promptly of fact of client’s non-compliance/error;
b Advise client of consequences of client’s non-compliance/error.

2. Sec. 1022: A practitioner must exercise due diligence and accurately prepare and file returns, and determine the correctness of oral or written representations made by the practitioner to the Department of the Treasury.

3. Sec. 1033: Best Practices for Tax Advisors: Practitioners should provide clients with highest quality representation concerning federal tax issues. Practitioner should communicate clearly with clients to determine client’s expected purpose. Practitioners should establish the facts, determine which facts are relevant, including the reasonableness of any assumptions or representations, relating the applicable law to the relevant facts, and arriving at a conclusion supported by the law and the facts.

4. Sec. 1034: Practitioner and Tax Advisors: Under Sec. 1034(d), practitioner may not sign a tax return that lacks a reasonable basis, or is an unreasonable position (IRC Sec. 6694(a)(2), or understate tax liability (IRC Sec. 6694(b)(2), or advise a client to take an unreasonable position or understate a tax liability.

Under Sec. 1034(b), practitioner may not submit documents to the IRS to impede tax in frivolous or intentional disregard of tax rules.

Under Sec. 1034(c), practitioner must advise clients of potential penalties re: tax return position.

Under Sec. 1034(d), practitioner must not ignore implications of client information which is incorrect/inconsistent with an important fact, or is incomplete.

Under Sec. 1034(e), this section applies to tax returns, documents or affidavits after 9/26/07.

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