Tax News

CCH (cch.taxgroup.com) reports:

Final Circular 230 regulations governing unenrolled practice, eligibility for enrollment, practice by former government employees, contingent fees, conflicts of interest, sanctions and disciplinary proceedings, and proposed preparer penalty regulations, have been issued. The final Circular 230 regulations are effective September 26, 2007. The proposed preparer penalty regulations apply to returns filed, or advice provided, on or after final regulations are published in the Federal Register, but no earlier than January 1, 2009.
Proposed Circular 230 regulations were published in the Federal Register on February 8, 2006 (NPRM REG-122380-02). The final Circular 230 regulations make a number changes to the proposed regulations, based primarily on practitioner comments, as follows:
Definition of Practice Before the IRS
The final regulations provide that practice includes rendering written advice with respect to any entity, transaction, plan or arrangement, or other plan or arrangement having a potential for tax avoidance or evasion. This is consistent with title 31, sec. 330 of the American Jobs Creation Act of 2004 (P.L.108-357). The final regulations clarify that although such written advice constitutes practice before the IRS, attorneys and CPAs do not need to file a Form 2848, Power of Attorney, to issue such advice.
Who May Practice
The final regulations establish an enrolled retirement plan agent designation. These individuals will be entitled to represent taxpayers with respect to specified qualified retirement plan issues. Enrolled retirement plan agents will be subject to examination and continuing education requirements. Both enrolled retirement agents and enrolled agents will have to follow the applicable procedures, and pay the user fees, for enrollment and renewal of enrollment.
Limited Practice by Non-Practitioners
Unenrolled return preparers will continue to be allowed to represent taxpayers during examination of returns they prepared, negotiate with the IRS, and bind taxpayers to a position. However, they cannot represent taxpayers before Appeals or in any other capacity before the IRS, or execute closing agreements, claims for refund or waivers.
Contingent Fees
Because of concern about contingent fee arrangements, which may encourage taxpayers to file refund claims and take advantage of the "audit lottery," the final regulations limit such arrangements entered into after March 26, 2008, to representation in connection with the IRS examination of an original return, representation with respect to an amended return or claim for refund or credit filed within 120 days of the taxpayer receiving written notification of an examination or written challenge to the original return, or representation in certain interest and penalty reviews.
Conflicts of Interest
If a practitioner represents two or more clients with conflicting interests, the final regulations require the signed, written consent to such representation by each affected client within 30 days after the client expresses such consent to the practitioner. The requirement of signed consent is designed to protect settlements from future collateral attack. Furthermore, for a period of one year after their employment ends, government employees will be prohibited from appearing before, or communicating with the intent to influence, a Treasury employee with respect to a rule they were involved in developing.
Sanctions, Misconduct and Disciplinary Proceedings
The proposed regulations conform preparer penalties to those imposed under the Small Business and Work Opportunity Tax Act of 2007 (P.L.110-28). Under the proposed regulations a practitioner may not sign a return unless the practitioner either has a reasonable belief that the tax treatment of each position satisfies the "more likely than not" standard (greater than fifty percent likelihood that the tax treatment will be upheld if challenged by the IRS), or has a reasonable basis for each position, and each position is disclosed to the IRS.
The final regulations permit the Secretary of the Treasury to disqualify appraisers who violate Circular 230, in addition to imposing penalties against them. Practitioners can also be sanctioned for disreputable conduct. The final regulations clarify that failure to sign a return is not disreputable conduct if the failure is due to reasonable cause and not willful neglect.
In instances of alleged misconduct the Director of the Office of Professional Responsibility (OPR) is permitted to confer with a practitioner, employer, firm or other entity, by phone or in person, although the final regulations do not make such conference a right. If a complaint is served, the final regulations adopt the proposed regulation requirement that within 10 days thereafter copies of evidence in support of the complaint be served on the respondent. Upon notice, supplemental charges against the practitioner may be filed. In response to practitioner concerns that premature public disclosure of disciplinary proceedings might unfairly damage a practitioner's reputation, the final regulations require that public disclosure of such proceedings be delayed until after the decision in such proceedings becomes final, although the regulations contain a provision for expedited suspension against practitioners who advance frivolous or obstructionist positions, which does not include noncompliance with their own filing obligations.
Practitioner Reaction
"The National Association of Enrolled Agents (NAEA) is asking for consistency between the paid preparer standard and the self-preparer standard," Robert Kerr, senior director of government relations for NAEA, told CCH. The NAEA has urged Congress to equalize the more-likely-than-not standard for paid preparers and the substantial authority standard for self-preparers. The standard for tax avoidance items should remain more-likely-than not, the NAEA told Congress.
Frank Degen, EA, past president of the National Association of Enrolled Agents (NAEA), told CCH that he was disappointed the IRS did not eliminate limited practice. "We agreed with the IRS that it was inconsistent with the requirement that all individuals permitted to practice before the IRS demonstrate their qualifications to advise and assist persons in presenting their cases before the IRS." Degen also urged the IRS Office of Professional Responsibility to create an electronic database where a taxpayer could check if his or her Circular 230 tax professional is in good standing with the IRS.
By Sherri Morris and George L. Yaksick, CCH News Staff
T.D. 9359, 2007FED ¶47,067
T.D. 9359, FINH ¶43,114
Proposed Regulations, NPRM REG-138637-07, 2007FED ¶49,765
Proposed Regulations, NPRM REG-138637-07, FINH ¶41,128
Other References:
31 CFR Part 10
CCH Reference - 2007FED ¶43,504
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Tax Research Consultant
CCH Reference - TRC IRS: 3,200
CCH Reference - TRC IRS: 3,204.10
CCH Reference - TRC IRS: 3,206.05