What is Circular 230, Regulations Governing Practice before the IRS?

Treasury Department Circular No. 230, Regulations Governing Practice before the Internal Revenue Service – This is commonly referred to as Circular 230 and is what you are seeing in many of your emails and letters from your tax preparer. The circular includes the regulations and rules governing practice before the IRS.

 

Who makes Circular 230?

The Office of Professional Responsibility (OPR) is responsible for matters related to practitioner conduct and is responsible for discipline, including disciplinary proceedings and sanctions. The Mission of OPR is to: “Interpret and apply the standards of practice for tax professionals in a fair and equitable manner.”

 

There are four main parts to Circular 230.

  1. who can practice and what that means.
  2. what the practitioner’s duties and responsibilities are.
  3. sanctions that can be imposed for violations.
  4. process for someone subject to a disciplinary proceeding.

Circular 230 is the common name given to the body of regulations promulgated from the enabling statute found at Title 31, United States Code § 330. This statute and the body of regulations are the source of OPR’s authority.

 

Who must abide by Circular 230?

As all individuals who practice before the IRS  ( “tax practitioners”) should already know, they must comply with the IRS Circular 230 rules. As a taxpayer you could bring a complaint against someone for violating this Circular 230 rules. Tax preparers and advisers who violate Circular 230 may be subject to penalties. These include monetary penalties as well as potential suspension from practice before the IRS which would hurt their tax preparation businesses. The rules also provide procedures for disciplinary proceedings.

 

More Information about Circular 230

The Circular and the regulations, themselves, have their foundation in a statute that is found in Title 31 of the United States Code. The first thing that you, and particularly those of you who work in the employee plans area, are a little more familiar with is working with multiple parts of the United States Code. A lot of tax practitioners are not. But as we all know, Title 26 is where the Internal Revenue provisions are contained.

 

History of Circular 230

Circular 230 and, therefore, most everything that governs standards of practice before the IRS,  is found in Title 31 of the U.S. Code. Title 31 of the Code and the regulations promulgated there under have a rich history. The statute dates back to 1884, and the regulations started to be written in 1886.

We are talking about concepts and intentions around supervision and oversight of practitioners that predates the Internal Revenue Service and the Internal Revenue Code. Back in 1884, when the statute was enacted, it authorized The Treasury Department to regulate the representation of persons before The Treasury Department.  It was put in place right after the Civil War in order to ensure that the claims that were being made by the citizens of this country regarding property that was taken for use during the Civil War were submitted in a competent and ethical fashion, so that the claims were truthful and that they were being presented competently.

 

Enforcing Circular 230

That is the underpinning of the statute, itself, that has now evolved into a whole body of our procedures and standards by which people who practice before the Internal Revenue Service are governed. There are a number of ways that the Office of Professional Responsibility functions under the Title 31 provisions. First, OPR’s authority is based primarily in Title 31, but you need to be aware, particularly for those of you who are attorneys, that OPR is specifically given authority to regulate the practice of CPAs and attorneys, but it is subject to section 500 of Title 5 of the United States Code. That effectively says that an attorney can practice before any federal agency in the United States, and another section explicitly says that a CPA can  practice before the Internal Revenue Service with a CPA license in good standing. Those two professions are actually, kind of, if you will, pre-authorized to practice before the Internal Revenue Service.