Paragraph 1: Introduction and Background of Circular 230
The Internal Revenue Service (IRS) is proposing significant revisions to Circular 230, the regulations governing practice before the IRS. These regulations dictate who can represent taxpayers before the agency and establish a framework of professional conduct for authorized representatives, including attorneys, Certified Public Accountants (CPAs), and Enrolled Agents (EAs). Circular 230, officially titled "Regulations Governing Practice before the Internal Revenue Service," has a long history, dating back to 1884, and has undergone several revisions over the years, most notably in 2005 and 2014. The proposed changes aim to modernize the regulations, reflecting legal and technological developments since the last amendment. The core purpose of Circular 230 remains to ensure ethical and competent representation of taxpayers during interactions with the IRS. These regulations are crucial for maintaining public trust in the tax system and protecting taxpayer rights. The proposed changes address a range of issues, from contingent fees and continuing education requirements to technological competence and data security.
Paragraph 2: Addressing Tax Return Preparer Regulations and Contingent Fees
The proposed revisions to Circular 230 address the legal challenges to the IRS’s authority to regulate non-credentialed tax return preparers. Following the 2013 Loving v. IRS court decision, which effectively barred the IRS from regulating these preparers, the proposed regulations remove provisions related to registered tax return preparers. This aligns Circular 230 with the current legal landscape and clarifies the scope of the IRS’s regulatory authority. Another key area of revision concerns contingent fees. The proposed changes would eliminate the explicit prohibition on contingent fees for specific services but introduce a broader concept of "disreputable conduct" that encompasses charging unconscionable fees or contingent fees for preparing original, amended returns, or claims for refund or credit. This approach seeks to balance the taxpayer’s right to representation with the need to prevent abusive practices driven by financial incentives.
Paragraph 3: Updates to Enrolled Agent and Annual Filing Season Program Procedures
The proposed regulations also update procedures for Enrolled Retirement Plan Agents (ERPAs) and participants in the Annual Filing Season Program (AFSP). Due to the discontinuation of the ERPA Special Enrollment Examination, the proposed changes clarify the status of existing ERPAs while removing provisions related to becoming an ERPA through examination. Furthermore, the proposed regulations eliminate the waiver process that allowed former IRS employees to bypass enrollment requirements for EA or ERPA status, citing administrative burden. For AFSP participants, the revisions grant limited practice rights, allowing them to represent taxpayers before the IRS for returns or claims they prepared and signed during the year they received an AFSP Record of Completion. This recognizes the role of AFSP participants in providing tax preparation services while maintaining appropriate limitations on their practice rights.
Paragraph 4: Enhanced Continuing Education, Client Communication, and Technological Competence
The proposed changes introduce several provisions aimed at strengthening professional standards for tax practitioners. While currently the IRS doesn’t charge a separate user fee for continuing education provider approval, the proposed regulations introduce the possibility of a user fee to cover potential future costs. Furthermore, the regulations enhance the practitioner’s duty to inform clients of errors or omissions, requiring them not only to notify clients but also to advise them on corrective actions. In response to the growing use of technology in tax practice, the proposed regulations emphasize the importance of technological competence. This includes understanding the risks and benefits of technology used for client services and data security, a requirement aligned with evolving professional standards in other fields like law.
Paragraph 5: Addressing Professional Conduct, Appraiser Standards, and Disciplinary Procedures
The proposed revisions expand the scope of "incompetence or disreputable conduct," allowing the IRS to sanction practitioners for actions beyond direct client representation, including conduct related to their overall fitness to practice. The regulations also introduce a new section focusing on appraiser standards, requiring appraisals submitted to the IRS to conform to recognized appraisal standards like USPAP or IVS. This addresses concerns about potentially misleading or inaccurate appraisals used in tax proceedings. The proposed changes also strengthen the IRS’s authority to investigate and discipline suspended practitioners, clarifying their continuing jurisdiction over these individuals. Furthermore, the proposed regulations expand expedited disciplinary proceedings to include appraisers and address situations involving voluntary forfeiture of licenses or certifications.
Paragraph 6: Public Comment and Hearing Information
The IRS is actively soliciting feedback on the proposed regulations. The public has until February 24, 2025, to submit electronic or written comments. A public hearing is scheduled for March 6, 2025, providing an opportunity for stakeholders to voice their opinions and concerns directly. Requests to speak at the hearing and outlines of the topics to be discussed must also be submitted by February 24, 2025. The IRS encourages all interested parties to review the proposed regulations published in the Federal Register and participate in the comment process, contributing to the development of regulations that effectively govern the practice of tax professionals and protect taxpayer interests. This public input will be crucial for shaping the final version of the revised Circular 230.
