Posts Tagged ‘Circular230’

Major Court Decision Extends Loving; IRS Enjoined from a Circular 230 Regulation

Saturday, July 19th, 2014

Thus, what Ridgley challenges here is the IRS’s proclaimed authority to regulate fee arrangements entered into by CPAs for preparing and filing Ordinary Refund Claims before the commencement of any adversarial proceedings with the IRS or any formal legal representation by the CPA.

That’s the gist of Ridgely v. Lew, a major court decision announced earlier this week. Gerald Ridgely is a CPA who wanted to charge a contingency fee when filing an “Ordinary Refund Claim.”

Let’s say you file your tax return for 2013 and you realize you left out a major deduction. When you file an amended return noting the additional deduction, what you’re really doing is filing an ordinary refund claim–a claim for refund prior to the IRS instituting examination (audit) proceedings.

Enrolled tax professionals (attorneys, CPAs, and Enrolled Agents) are regulated under Circular 230 (31 CFR § 10.3). In 2007, the IRS prohibited contingent fees for Ordinary Claim for Refunds. Mr. Ridgely claimed he lost business and that the IRS didn’t have the authority to make this regulation.

At Chevron step one, then, this case boils down to the following question: does Section 330 unambiguously foreclose the IRS’s interpretation that CPAs act as “representatives” who “practice” before the IRS when they prepare and file Ordinary Refund Claims?

This may sound familiar to readers who followed the Loving decision. In Loving, courts held that the IRS does not have authority to regulate unenrolled preparers of tax returns; that preparing a tax return is not practice before the IRS.

But Loving also expressly addressed two key questions that the Court faces here: who are “representatives” and what is “practice” under Section 330? In the Court’s view, Loving is controlling precedent that must guide the Court’s examination of Section 330’s text, context, and history with respect to the claims at issue in this case…

Loving also sheds light on the meaning of the term “practice” in Section 330. As the Court explained, “practice . . . before the Department of the Treasury,” like practice before any agency or court, “ordinarily refers to practice during an investigation, adversarial hearing, or other adjudicative proceeding.” Id. at 1018. The process of filing an Ordinary Refund Claim— again, before any back-and-forth with the IRS—is similar to the process of filing a tax return in that both take place prior to any type of adversarial assessment of the taxpayer’s liability. If a “tax-return preparer do[es] not practice before the IRS when [he] simply assist[s] in the preparation of someone else’s tax return,” then a CPA hardly “practices” before the IRS when he simply prepares and files a taxpayer’s refund claim, before being designated as the taxpayer’s representative and before the commencement of an audit or appeal. Id. at 1018. Following Loving, the Court therefore concludes that the plain text of Section 330 excludes preparers and filers of Ordinary Refund Claims from the ambit of the IRS’s regulatory authority.

The IRS could appeal the decision but unless or until they do, tax professionals can charge contingent fees for Ordinary Claims for Refund.

What Happened to the Circular 230 Notice?

Sunday, July 13th, 2014

I sent a client an email today (responding to her query) and she wrote back, “What happened to the Circular 230 Notice?” What happened is that last week the IRS added the new revisions to Circular 230 on their webpage dealing with Circular 230. Thus, I (and every other tax professional) can remove the Circular 230 verbiage from the bottom of their emails.

Think of all the electrons we’re saving!

On a serious note, the Circular 230 Notice had to appear on every email. It was basically ignored by everyone who saw it and did not serve much (if any) purpose. The elimination of it is, overall, a good thing.

Soon: No More Circular 230 Notices

Sunday, June 15th, 2014

When I attended the annual CSEA SuperSeminar, Karen Hawkins, Director of the Office of Professional Responsibility (of the IRS), told a luncheon crowd that a new version of Circular 230 will be released within two weeks. Well, that didn’t happen. However, it’s about to happen. The new version is out there so sometime really soon (now, probably within two weeks) enrolled tax professionals (EAs, CPAs, and attorneys) will have a new Circular 230.

The one thing that all my clients will notice is the elimination of the Circular 230 notice. You know, this:

CIRCULAR 230 NOTICE: This opinion is limited to the one or more Federal tax issues addressed in the opinion. Additional issues may exist that could affect the Federal tax treatment of the transaction or matter that is the subject of this opinion and the opinion does not consider or provide a conclusion with respect to any additional issues. With respect to any significant Federal tax issues outside the limited scope of this opinion, the article was not written, and cannot be used by the taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.

Once the new version of Circular 230 is effective, those notices are a thing of the past. Since every email has had one of these notices, they’re ignored by every client (the boy who cried wolf syndrome). This change is welcome, and kudos to the IRS on this.

There are other changes, including changes in written advice, procedures to ensure compliance with “covered opinion” rules, general standard of competence, electronic negotiation of taxpayer refunds, expedited suspension procedures, and the scope of the Office of Professional Responsibility.

For tax professionals who provide written advice to clients, a full reading of the new §10.37 is essential. There are numerous other changes, most of which appear to be minor.

New Circular 230 Released: Welcome RTRPs!

Wednesday, June 1st, 2011

Ah, the acronym. In the world of tax preparation there are Enrolled Agents (EAs), Certified Public Accountants (CPAs), Attorneys (the acronym fails me here), and the new Registered Tax Return Preparers (RTRPs).

The IRS regulates tax professionals who practice before the IRS under Circular 230. This mostly involves EAs, CPAs, and attorneys: These groups have full practice rights before the IRS. I’m an Enrolled Agent; I can represent you in any stage of the process from return preparation to appeals.

You will notice that there’s a group that’s missing: the unlicensed tax preparer. The IRS believes that many of these individuals have been doing a poor job; IRS Commissioner Shulman has wanted to expand IRS regulation to cover all tax professionals. (Currently, licenses are required for all tax preparers solely in California and Oregon.)

Last fall a draft of the new Circular 230 was released. Today, the final version was released. (The new regulations do not appear to be available on the IRS website yet. However, you can find them here.)

Here are some highlights:

  1. Anyone preparing a Form 1040 series return will need to be an EA, CPA, attorney, or RTRP.
  2. RTRPs will need to pass a competency exam, a suitability test, and pay a fee to obtain their license.  They will also be required to have a PTIN.
  3. RTRPs will need 15 hours of continuing education each year.
  4. RTRPs will not have full practice rights before the IRS.  They can represent taxpayers in audits, but only for returns they prepare.  They cannot represent taxpayers in appeals.
  5. RTRPs will not have Section 7275 “privilege” with their clients.  This is the limited accountant/client privilege that exists for civil matters (including audits).
  6. The new Circular 230 has dropped the requirement that organizations that provide continuing education have each class pre-approved by the IRS.
  7. Disreputable Conduct includes willfully not filing returns electronically when required to.

What does this mean for the public? Beginning in 2013, everyone who legitimately prepares tax returns for a fee will be licensed. Will this get rid of all the bad apples? Of course not. Today, there are CPAs, EAs, and attorneys who get disbarred. This will get rid of the low-hanging fruit, but there will still be individuals who buy a copy of TurboTax and prepare returns for money and just don’t sign the returns. If such returns are paper filed, it’s difficult (if not impossible) to catch those individuals.

I have been neutral on Commissioner Shulman’s power grab (as Joe Kristan has called it). Licensing should do some good but it will expand a bureaucracy (which I don’t like). The one issue within the new Circular 230 I am very pleased about is the elimination of the requirement that every class offered by a continuing education provider had to be pre-approved. That proposal would not have worked and was likely unconstitutional.

The new Circular 230 goes into effect 60 days following its publication in the Federal Register. That likely makes the implementation date around September 1st.