Question

which of the following is not part of disciplinary proceeding under Circular 230?

Answer 1

• Circular 230 outlines the duties and restrictions relating to practice before the IRS and the rules regarding disciplinary proceedings for violations. Final regulations issued in 2007 made many changes to Circular 230.

• A practitioner charged by the Office of Professional Responsibility with a violation of Circular 230 is entitled to a hearing before an administrative law judge; if the practitioner or the OPR is not satisfied with the decision, it can be appealed to the Secretary of the Treasury and subsequently to the federal courts.

• A practitioner who has been found guilty of violating Circular 230 may be censured, suspended, or disbarred from practice before the IRS. Monetary penalties can be assessed in addition to or instead of these sanctions.

• A disbarred practitioner may petition for reinstatement to practice before the IRS five years after the date of his or her disbarment.

Tax practice in the United States and internationally by CPAs has become one of the most complicated and ambiguous areas of accounting in the past 25 years. CPA tax practitioners have had to confront numerous tax law changes ranging from the estate and gift area to complex new provisions regulating tax evasion and avoidance transactions. Tax practitioners have also seen major revisions in tax penalty legislation and increases in other enforcement efforts due to a tax gap of approximately $345 billion annually.¹

Of note are recent changes to regulations found in Circular 230,² which regulates tax practice before the IRS for attorneys, CPAs, and enrolled agents. Circular 230 outlines the duties and restrictions relating to practice before the IRS and the rules regarding disciplinary proceedings for Circular 230 violations. In the American Jobs Creation Act of 2004, P.L. 108-357 (AJCA), Congress granted the IRS’s Office of Professional Responsibility (OPR) the authority to impose monetary penalties on tax practitioners, their employers, or entities for which they act.³

Further complexity in tax practice responsibilities occurred throughout 2007. Final Circular 230 regulations became effective September 27, 2007 (TD 9359). (Proposed regulations had been released in February 2006.)⁴ These final regulations, discussed below, contain not only revisions to the procedural and penalty sections of Circular 230 but also revisions to the duties section, including new provisions on contingency fees and conflict-of-interest requirements.

Other major changes occurred in federal law that also will affect tax practitioners. Under the Small Business and Work Opportunity Tax Act of 2007, P.L. 110-28 (SBWOTA), enacted on May 25, 2007, a new level of return preparer penalties under Sec. 6694(a) was established for tax returns prepared after that date. The new penalties cover both signing and nonsigning preparers (under Sec. 7701(a)(36)) of all tax returns (including claims for refunds and amended returns) such as gift and estate tax returns, employment and excise tax returns, and generation-skipping transfer tax returns. Sec. 6694(a), as amended, increases the penalty from $250 to the greater of $1,000 or 50% of the income that the preparer would derive (or to be derived) from the claim or tax return for which the penalty was imposed.

In addition, the tax return preparation standard for nondisclosed tax return positions was increased from the “realistic possibility of being sustained on the merits” under prior Sec. 6694(a) to “more likely than not to be sustained on its merits.” Further, disclosed tax return positions under Sec. 6694(a) will now have to meet a “reasonable basis” standard for the position rather than the “non-frivolous” standard under prior Sec. 6694(a). In Notice 2007-54 the Service has issued some transitional relief from the new provisions.