2.1 Practice Before the IRS under Circular 230

2.1 Practice Before the IRS under Circular 230

The AICPA REG blueprint (Area I, Group A, Topic 1) tests whether a newly licensed CPA can recall and apply the regulations governing practice before the Internal Revenue Service. Those regulations are Treasury Department Circular No. 230, officially Regulations Governing Practice before the Internal Revenue Service, published as 31 CFR Part 10 (Rev. 6-2014). Circular 230 is not an AICPA ethics code and it is not a state accountancy statute. It is a Treasury regulation issued under 31 U.S.C. §330, which authorizes the Secretary of the Treasury to regulate representatives who appear before the Department, to require good character, reputation, qualifications, and competency, and to censure, suspend, or disbar a representative after notice and an opportunity for a proceeding.

Circular 230 is organized into five subparts that REG candidates should be able to place:

The Office of Professional Responsibility (OPR), established under §10.1, generally has exclusive IRS responsibility for practitioner discipline. A separate office handles enrollment and competency testing. Discipline under Circular 230 is an IRS proceeding; it is not a substitute for a state board action against a CPA license, and it is not a substitute for assessable Internal Revenue Code preparer penalties under §§6694 and 6695 (those Code penalties are the next section of this chapter).

Who may practice (§10.3)

§10.3 lists the categories of persons who may practice. For REG, memorize the full-practice group, the limited-subject group, and the limited-relationship group.

Full (unlimited subject-matter) practice, if the person is not currently under suspension or disbarment from IRS practice:

• Attorneys (§10.3(a)): members in good standing of the bar of the highest court of any state, territory, possession, commonwealth, or the District of Columbia. They practice by filing a written declaration that they are currently qualified and authorized to represent the party. Rendering written advice covered by §10.37 is itself practice even if no declaration has been filed.
• Certified public accountants (§10.3(b)): persons duly qualified to practice as CPAs in any state, territory, possession, commonwealth, or the District of Columbia. The same written-declaration rule applies. Form 2848, Power of Attorney and Declaration of Representative, designation b, is the everyday vehicle for that declaration.
• Enrolled agents (§10.3(c)): individuals enrolled under Circular 230. Enrollment is a Treasury status, not a state license. An EA’s practice rights before the IRS are comprehensive as to federal tax matters.

Limited-subject practice:

• Enrolled actuaries (§10.3(d)): enrollment by the Joint Board for the Enrollment of Actuaries. Practice is limited to specified Internal Revenue Code employee-plan provisions (qualification, funding, certain excise taxes, and related determination-letter issues listed in §10.3(d)(2)). An enrolled actuary is not a general tax representative.
• Enrolled retirement plan agents (ERPAs) (§10.3(e)): practice is limited to the Employee Plans Determination Letter program, EPCRS, the Master and Prototype/Volume Submitter program, and generally Forms 5300 and 5500 series (not actuarial forms or schedules).
• Registered tax return preparers (§10.3(f)): Circular 230 still describes this category. Practice is limited to preparing and signing returns and claims for refund and to representing the taxpayer during an examination of a return the preparer signed, and only before revenue agents, customer service representatives, or similar IRS employees (including TAS). That limited right does not extend to Appeals officers, revenue officers, or Counsel. After Loving v. IRS, the IRS does not require unenrolled paid preparers to pass a special enrollment examination merely to prepare returns; the Annual Filing Season Program (AFSP) is the current voluntary path to the limited examination-level representation that Form 2848 designation h contemplates. REG still tests the Circular 230 text: unenrolled representation is narrow.

Limited-relationship practice (§10.7) allows a non-practitioner to represent a taxpayer in the circumstances listed below, even if the taxpayer is not present, if the individual presents satisfactory identification and proof of authority. A person under IRS suspension or disbarment may not use §10.7 as a back door.

• An individual may represent a member of his or her immediate family.
• A regular full-time employee may represent an individual employer.
• A general partner or regular full-time employee may represent the partnership.
• A bona fide officer or regular full-time employee may represent a corporation, association, or organized group.
• A regular full-time employee may represent a trust, receivership, guardianship, or estate.
• An officer or employee of a governmental unit may represent that unit.
• An individual may represent a person or entity who is outside the United States, before IRS personnel, when the representation occurs outside the United States.
• Individuals may always represent themselves (§10.7(a)). A fiduciary (trustee, executor, administrator) is treated as the taxpayer, not as a representative (§10.7(e)).
• The Commissioner may authorize a special appearance in a particular matter (§10.7(d)).

+---------------------------+     +------------------------------+
|  STATE BOARD OF           |     |  TREASURY / IRS OPR          |
|  ACCOUNTANCY              |     |  Circular 230, 31 CFR Part 10|
|  Issues/suspends CPA      |     |  Grants/suspends IRS         |
|  LICENSE                  |     |  PRACTICE RIGHTS             |
+---------------------------+     +------------------------------+
            |                                  |
            v                                  v
   May hold oneself out as CPA        May file Form 2848 and
   under state law                    represent before the IRS

What “practice before the IRS” includes

§10.2(a)(4) defines practice as all matters connected with a presentation to the IRS or any of its officers or employees relating to a taxpayer’s rights, privileges, or liabilities under laws or regulations administered by the IRS. Presentations include, but are not limited to:

• preparing documents;
• filing documents;
• corresponding and communicating with the IRS;
• rendering written advice with respect to any entity, transaction, plan, or arrangement having a potential for tax avoidance or evasion; and
• representing a client at conferences, hearings, and meetings.

Preparing a return for compensation can therefore be practice, corresponding with a revenue agent is practice, and giving covered written advice is practice even if the CPA never walks into an IRS office. §10.32 cautions that nothing in Circular 230 authorizes a non-lawyer to practice law.

CPA license versus IRS practice rights

A newly licensed CPA often conflates two independent credentials. The CPA license is a state-board credential. It authorizes the holder to use the CPA title and to perform attest and other services under that state’s accountancy act. IRS practice rights come from Circular 230 §10.3(b): a CPA who is not currently under IRS suspension or disbarment may practice by filing the written declaration. Consequences REG tests:

• Passing the Uniform CPA Examination and receiving a state license does not enroll the person as an enrolled agent and does not immunize the person from OPR discipline.
• If OPR suspends or disbars the CPA from IRS practice, the CPA may not represent taxpayers before the IRS even though the state license remains active, unless and until IRS practice rights are restored. State-board suspension of the CPA license can itself be disreputable conduct under §10.51(a)(10).
• Conversely, OPR censure does not, by itself, revoke the state CPA license; the state board makes that decision under its own statute. A REG candidate who is asked which body suspends IRS practice rights should answer the Secretary of the Treasury or delegate (OPR), not the AICPA and not the state board.

Attorneys and CPAs rendering §10.37 written advice are practicing even without a Form 2848 on file. Representation at an interview, however, requires a power of attorney (typically Form 2848) under the Statement of Procedural Rules. Form 8821, Tax Information Authorization, lets a designee inspect and receive information; it does not authorize representation.

Sanctions under Subpart C (§10.50)

After notice and an opportunity for a proceeding, the Secretary of the Treasury, or delegate, may censure, suspend, or disbar any practitioner from practice before the IRS if the practitioner is shown to be incompetent or disreputable (see §10.51), fails to comply with Circular 230 (§10.52), or, with intent to defraud, willfully and knowingly misleads or threatens a client or prospective client. Censure is a public reprimand. Suspension and disbarment strip IRS practice rights for a period or indefinitely; §10.81 addresses petitions for reinstatement.

A monetary penalty may be imposed on the practitioner, and also on the employer, firm, or entity if it knew or reasonably should have known of the conduct. The amount shall not exceed the gross income derived (or to be derived) from the conduct giving rise to the penalty. The monetary penalty may be in addition to or in lieu of censure, suspension, or disbarment. Sanctions take into account all relevant facts and circumstances (§10.50(e)). Appraisers may be disqualified so that their appraisals have no probative effect in Treasury or IRS administrative proceedings (§10.50(b)).

§10.51’s catalogue of incompetence and disreputable conduct is tested at a teaching level: conviction of a federal tax crime or of a crime involving dishonesty; willful failure to file the practitioner’s own federal return; giving false information to the Treasury; misappropriating client tax payments; contemptuous conduct; willfully preparing or signing a return without a current PTIN; and willfully representing a taxpayer without Circular 230 authority. §10.52 provides that a practitioner may be sanctioned for a willful violation of any Circular 230 regulation other than the aspirational best-practices of §10.33, and for reckless or grossly incompetent violations of §§10.34, 10.35, 10.36, or 10.37.

Worked scenario: CPA versus unenrolled preparer at an IRS interview

Facts. Jordan, a calendar-year individual, filed Form 1040 showing a large charitable contribution and a refund. The return was prepared and signed by Pat, an unenrolled paid preparer who holds a current PTIN and an AFSP Record of Completion. The IRS selects the return for examination and schedules an in-person interview with a revenue agent. Jordan also retains Alex, a licensed CPA in good standing who is not under Circular 230 suspension. Jordan asks who should attend, what each person is allowed to do, and whether anyone can handle a later protest if the agent issues a 30-day letter. (The audit, protest, and Tax Court path is developed in /study-guides/cpa-reg/tax-procedure/audits-appeals-judicial.)

Analysis.

1. Alex (CPA). Under §10.3(b), Alex may practice before the IRS by filing Form 2848 with designation b. At the interview Alex may present facts, argue law, receive confidential tax information, and, if the Form 2848 so authorizes, sign consents to extend the assessment period, sign waivers, and sign closing agreements. If the case moves to Appeals or to Counsel, Alex may continue to represent Jordan. Rendering written advice on the contribution issue is practice even before Form 2848 is filed.
2. Pat (unenrolled AFSP preparer). Pat may prepare and sign returns and, because Pat signed this return and holds AFSP status, may represent Jordan during the examination of that return before a revenue agent, customer service representative, or TAS. Pat may not represent Jordan before Appeals, a revenue officer, or IRS Counsel. Pat may not sign a closing agreement or a consent to extend the statute merely by virtue of having prepared the return. If Jordan wants continuing representation after a 30-day letter, Jordan needs a practitioner described in §10.3(a)–(c) (or another authorized practitioner), typically Alex.
3. Jordan. Jordan may always appear on Jordan’s own behalf (§10.7(a)). Jordan’s presence does not expand Pat’s authority into Appeals.
4. Form 8821. Giving Pat or a bookkeeper Form 8821 would allow inspection of transcripts; it would not authorize either of them to argue the case.
5. Sanctions overlay. If Pat purported to appear at Appeals, that is willfully representing a taxpayer without authority — disreputable conduct under §10.51(a)(18). If Alex, after receiving a Form 2848, ignored a known incomplete Form 8283 package and made false statements to the agent, Alex risks both Circular 230 sanctions and Code preparer penalties.

/practice/cpa-regPractice questions with detailed explanations