Taxing Definitions

Definition — Loving Your Preparer

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Image source: Free Picture: Palm5ID: 60278 © Yanik Chauvin Dreamstime Stock Photos
Image source: Free Picture: Palm5ID: 60278 © Yanik Chauvin Dreamstime Stock Photos

Circular 230 is the Treasury department document that governs practice before the IRS. The rules apply to attorneys, CPAs, enrolled agents and others such as enrolled actuaries, and the publication includes duties and restrictions as well as ethical standards, penalties, and disciplinary actions.

Circular 230 is based on chapter 31, section 330 of the code of federal regulations.

In 2011, the IRS wanted to extend Circular 230 to include tax return preparers whose only “appearance” before the IRS was the preparation and submission of tax returns. The IRS said these tax-return preparers were “representatives” who “practice” before the IRS.

Three of these formerly unregulated tax preparers sued, saying the IRS didn’t have the authority to regulate them.

In January 2013, the US District Court for the District Of Columbia agreed with the preparers.

The IRS appealed, but in February 2014 the US Court of Appeals for the District Of Columbia Circuit agreed with the first court’s ruling. The IRS did not take the case any further.

If you’re an attorney, a CPA, an enrolled agent or other professional covered by Circular 230, the decision doesn’t change the rules applicable to you.

However a new suit may have an impact. In 2010, as part of its effort to regulate preparers, the IRS began requiring preparers to obtain “preparer tax identification numbers” and charging an annual fee for issuing the number.

In September of this year, two CPAs filed suit to stop these fees. Their argument: The IRS does not have the legal authority to impose the fees. The case is pending.

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31 U.S.C. Section 330 – Practice before the Department

(a) Subject to section 500 of title 5, the Secretary of the Treasury may —

(1) regulate the practice of representatives of persons before the Department of the Treasury; and

(2) before admitting a representative to practice, require that the representative demonstrate —

(A) good character;
(B) good reputation;
(C) necessary qualifications to enable the representative to provide to persons valuable service; and
(D) competency to advise and assist persons in presenting their cases.

The General Deficiency Appropriation Bill was passed by Congress and signed by President Chester A. Arthur in 1884. It was part of a War Department appropriation for “horses and other property lost in the military service.”

The statute covers practice before the IRS even though the Sixteenth Amendment authorizing the modern federal income tax was not ratified until 1913 because it applies to the Treasury Department and the IRS is a bureau of the Treasury Department.

Loving vs. the IRS.
The Covered Opinion Rules are no longer necessary and have been replaced with new standards for issuing written tax advice. You no longer have to include a Circular 230 legend at the bottom of your emails.

The Office of Professional Responsibility issued a statement making it clear that if tax practitioners continue using disclaimers referencing “Circular 230” they will receive a “cease and desist” letter.