Integrating Circular 230 into the Tax Curriculum

Circular 230 is a guidance document from the Internal Revenue Service that provides general principles for incorporating circular information into your tax-related communications. In this blog post, we’ll explore why understanding Circular 230 is important, how to incorporate it into your studies, and the benefits of doing so for both clients and practitioners.

To start with, one has to understand that Circular 230 is important for tax education as it forms the basis of the ethical standards of tax practice. It is also important for the students of taxation to grow well acquainted with Circular 230 along with the various underlying laws and regulations that govern the tax practice. Most times, Accounting Majors intend to become CPAs. The attorneys and CPAs are governed or bound by the set of licensing bodies which in some cases are more stringent as compared to the Circular 230 requirements for those preparing for taxes. So, it is safe to state that Circular 230 is a piece of comprehensive information about ethical guidelines for all those preparing for taxes. It is suggested that the CPAs, enrolled agents-EAs and attorneys understand the various tax-related guidelines as they usually have a good standing with the IRS. This is because these bodies are associated with providing tax-related services to clients, assuming that the attorney, CPA or EA is skilled enough to provide such services. 

It is also necessary for the CPAs, EA and attorneys to sign a certain declaration stating that their professional status is current and also to state that they are authorized to represent the client in front of the IRS. The required status is granted to the EA based on a three-part examination and the subsequently continued education requirements. 

Likewise, Accounting majors who do not wish to become CPAs but want to engage in tax-related work are advised to choose to become EAs. Likewise, the Accounting Major also has the option to choose to obtain the new registered tax return preparer-RTRP designation.

Circular 230: The New Regulations to Check out for

Those regulations that govern the practice of representatives before the IRS has been included in Circular 230. It was in the year 2010 and 2011, that the Treasury decision-TDs that affect Circular 230 have to become on or before August 2, 2011:

• It is required by the preparers, according to the T.D 9501 to furnish a preparer tax identification number-PTIN on the tax returns and claims for the refund of tax filed after December 31st, 2010. The requirement has been designed to help ensure that the preparers are trustworthy and competent enough. Also, RTRP has been introduced by this TD which is a new category of the preparer. This TD has been supplemented by the IRS with the notice 2011-45, which comprises additional information on the RTRP designation. Likewise, additional guidance on PTIN eligibility in Notice 2011-6 comprises limited exceptions to the rules of who can acquire the PTINs that are relevant to this column. It also further extends the PTIN eligibility to the persons who are employed by a law firm, certified public accounting firm or any other recognised firm of the tax return preparers who have signed the tax return or claim for the refund that the person is working on. However, it is required that the person needs to pass the requisite tax compliance check and suitability check as and when such checks are available
• A fee of $64. 25 is imposed by the T.D 9503 to apply for the PTIN along with an annual renewal fee of $63. In this case, the person is liable to apply for the renewal or the application fee for the individual applying for the and also renewal of a PTIN. 
• A piece of supplemental information is also provided by the T.D 9523 about the PTIN fee requirements in response to the comments from the practitioner community. 
• A wide range of revisions to the Circular 230 is also included in the TD 9527 to the Circular 230 to the latest PTIN and the RTPR statuary and rules of changes that have been made in the last few years to the standards for the return preparers.

Despite all the above-stated revisions being relevant and important, the main focus remains on a few crucial changes. Likewise, Tax educators who need to explore the Circular 230 revisions in further detail might find it quite relevant to dive deeper into the details.

Read More-: Tax Form 2848

The Circular 230: Its Effect on Student Interns

The compensated student interns and preparers have a great impact by the revisions to Circular 230. This is all the more relevant for those people, who are preparing for all or subsequently all of a tax return or claim or refund. This is applicable despite the intern not being the person who signs as a preparer-a supervised preparer. Likewise, the supervised preparer needs to provide a supervisor’s PTIN when they are applying for a renewal of their PTIN. The current IRS guidelines are clear about the fact that a person might have only one PTIN. This is about the fact whether the PTIN that has once been acquired is portable has not been addressed. It has also been confirmed by reliable sources that the PTIN goes with the person who acquired it if that person has changed employers also.

The Practise: Before the IRS

The students must gain important exposure and knowledge about the preparer’s penalties, tax practice, and the other sanctions that come in place for violating the laws and regulations. Likewise, the tax preparers need to serve some serious functions that are addressed in Circular 230. This comprises: preparing and filing documents, corresponding and communicating with the IRS, representing the taxpayer in front of the IRS, and rendering oral and written advice to the taxpayers on the various tax positions, entities, plans, and arrangements with the tax potential or the tax-avoidance potential. 

Similarly, the CPAs, Attorneys, and EAs are permitted to perform all the tax services for the clients as long as the practitioner enjoys good standing. This is required along with being actively licensed and professionally competent in order to perform the services, and hence do not need to become an RTRP. However, in order to become an RTRP one needs to clear the IRS competency examination and also meet the continuing education requirements. However, the tax practice by the persons with the RTRP designation is restricted, the RTRP may represent the clients before the IRS only in case of the examination matter and the RTRP has prepared the requirements for the above said classification as stated on the IRS website. Additional information regarding the various categories of return preparers and links to the required guidance can also be found in various reliable sources like ‘AICPA Tax Insider’.

The Accuracy

In Circular 230, section 10.22, certain requirements have been imposed on the practitioner regarding accuracy-related diligence. This is in the effect of preparing and assisting, approving or filing any IRS-related documents regarding IRS matters. This is also in effect to determine the accuracy of either written or oral representation by the practitioners to his or her clients related to the IRS matters of the client. However, it has been presumed, except as mentioned in Sections 10.34, 10.35, and 10.37 that the practitioner will be required to exercise due diligence, in case the practitioner relies on the work of the other person. In order to fulfil this presumption it is required that the practitioner needs to exercise a good amount of care in being able to engage, supervise, and evaluate the individual in question. This also needs to be taken into consideration by the relationship between the person in question and the practitioner. 

It is worth a mention that in October 2010, in the article ‘The Tax Advisor’ the authors suggested the case of due diligence in tax preparation is diligence or care that a reasonable preparer would use for similar circumstances. Here are the four crucial questions posed by the article that depicts the due diligence in the tax preparer:

• Were the laws applied appropriately to the facts by the preparer?
• Were all the relevant facts available with the preparer?
• What are the efforts required of the reasonable and prudent preparer to acquire the pertinent facts?
• As for the preparer, what should be documented in the client’s file?

The Tax Positions and the Related Compliance Standards

Every position acquired or recommended by the practitioner needs to be met with the relevant threshold within Circular 230 when a practitioner is preparing a tax return or needs to render advice to the tax client. According to the expectations the tax preparer who has already documented the evidence of compliance with every relevant standard needs to successfully prevent penalties and other sanctions within Circular 230. It is expected that the tax preparer who has documented the evidence of compliance with every relevant standard needs to successfully avoid penalties and other such sanctions within Circular 230. Here are the major outlines regarding the same:

• Not file a required tax return or any other tax return tax document or submit returns or documents to delay or impede the IRS.
• To file a frivolous tax return or any other required tax return document in order to take any other frivolous tax position.

There are certain penalties and other sanctions that he or she is advised to take the position on a return of a document that does not meet the applicable tax reporting standard. These standards, as ranked from lowest to highest are:

Substantial Authority

this exists only if the weight of the tax authorities that support the treatment is substantial to the weight of the authorities that support the contrary treatment. All the authorities that are relevant to the tax treatment of a certain item, including the authorities contrary to the treatment are also taken into account in being able to determine if the substantial authority is in the picture. This standard measures more than 40% likelihood of being sustained on the merits. 

Reasonable Basis: This is the minimum standard for all tax advice and also for the preparation of all tax returns and other required tax documents in order to avoid a penalty under Section 6694. In case the return position is reasonably based on a minimum of one relevant and persuasive authority cited, then the return position will satisfy the standard. Regs. Sec. 1.6662-4(d)(3)(iii) includes a lengthy list of such authorities.

Also Read-: Tax Form 9465

Conclusion

A new requirement was released by the IRS for individuals who wish to assist or prepare for assistance in the tax returns for compensation. For this, various basics of the new IRS return preparer program and the related changes to the rules of conduct, need to be covered within the accounting major’s required tax courses. This was introduced by the IRS in the year 2010 and 2011. For this purpose, Circular 230 was introduced as a part of the initiative from the IRS. It includes the rules of conduct for people who practice before the IRS. This comprises return preparations, along with assisting the clients with the various IRS-related examinations, collection matters and appeals. However, for further details and information regarding the topic, you can easily reach out to our team of experts and we will be more than happy to help you out.

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