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Doing the Right Thing: Tax Practitioners, Are You Up-to-Date on These Rule Changes?

P. Gerard Sokolski, CPA
Published Date:
Dec 1, 2014
NYSSCPA members who provide tax services to clients, including tax return preparation, and represent clients before the IRS and New York state, are subject to various rules from a variety of sources. These include the AICPA Code of Professional Conduct, which the NYSSCPA adopted as its own conduct code in May 2013; the AICPA Statements on Standards for Tax Practice; the New York State Board of Regents (NYS Accountancy Regulations); and Circular 230, which describes rules governing practice before the IRS for CPAs and other authorized practitioners, including attorneys and enrolled agents.

Recently, there have been several rule changes that NYSSCPA members should take note of:

•A revised AICPA/NYSSCPA Code of Professional Conduct will take effect on Dec. 15. The most significant difference between the old and new code is mainly in how it’s organized. (Members of the NYSSCPA’s Professional Ethics Committee (PEC) give a detailed take on the changes here.) The code itself can be viewed on the
NYSSCPA’s website.

•Circular 230 was revised, with changes effective as of June 12, 2014. As one of the biggest developments for tax practitioners this past year, this requires special attention; see below for an overview of the most important revisions. 

Circular 230: what you need to know

First, to clear up any confusion, neither the IRS nor its Office of Professional Responsibility (OPR) has been designated as a standards-setting body by the
AICPA Council. Moreover, the rules in Circular 230 are not directly addressed in the Code of Professional Conduct. Still, this does not mean that failure to comply with the regulations listed in 230 will not create problems for you; unlike the many pamphlets that the IRS publishes offering guidance or helpful suggestions, Circular 230 is actual law, and not following the rules can bring serious penalties. For one, should a practitioner be suspended from practice before the IRS by the OPR, it is likely that the AICPA will open an investigation.

At the end of the day, Circular 230 is a good source of guidance for maintaining integrity, using due diligence and managing conflicts of interest, and practitioners providing tax services to clients are strongly urged to become familiar with it. 

Here are the major changes to the regulations:

•Before this year’s overhaul, Circular 230’s Section 10.35 included “covered opinions” rules, a series of complicated edicts governing tax advice that the IRS implemented a decade ago to cut down on abusive practices. As a result of the rules, many practitioners began overusing what became known as the Circular 230 disclaimer in emails. The disclaimer stated that “any tax advice contained herein is not intended . . . to be used for avoiding tax related penalties . . . .” 

In the newly revised Section 10.35, however, the covered opinions rules have been stamped out, a move championed by Karen L. Hawkins, director of the OPR. Hawkins maintained that the rules were burdensome and hard to enforce, and, with their elimination, she has also called for practitioners to stop using the Circular 230 disclaimers. She has repeatedly stated that failure to do so may result in a cease and desist letter from the OPR. 

•Section 10.35 now includes a new competency standard, which states that “a practitioner must possess the necessary competence to engage in practice before the IRS” and that “competent practice requires the appropriate level of knowledge, skill, thoroughness and preparation necessary for the matter for which the practitioner is engaged.” A practitioner may become competent through various methods, which include consulting with experts in the relevant area or studying the relevant law.

•Revisions to Section 10.36, “Procedures to Ensure Compliance,” expand the methods that are designed to ensure compliance with Circular 230. The regulations state, in part, that any individuals who have or share responsibility for overseeing a firm’s tax practice take reasonable steps to ensure that the firm has adequate compliance procedures in place for all members, associates and employees. The individual(s) having principal authority will be subject to discipline for failing to ensure compliance with this Section. What’s more, if a firm does not identify someone as having the principal authority, the IRS may do so itself. A word to the wise: Be thoroughly familiar with the requirements of Section 10.36 in order to protect yourself from noncompliance. 

•The old rules under Section 10.35 have been replaced with Section 10.37, “Requirements for Written Advice,” which provide much simpler requirements for all written advice. (Written advice can mean anything put in writing, including emails, handwritten notes—including those on Post-it notes—and so forth.) Performing due diligence should ensure that you have relied on reasonable factual and legal assumptions, reasonably considered all relevant facts and expended reasonable efforts to identify and ascertain those facts. Additionally, do not rely on representations, statements and findings, if you know or should know that they are incomplete, inconsistent or incorrect.

In closing, best practices suggest a complete understanding of all the rules in Circular 230. But, at a minimum, members should read and be familiar with these changes to Sections 10.35, 10.36, 10.37 and 10.51.  

P. Gerard Sokolski, CPA, is a past president of both the NYSSCPA and its Foundation for Accounting Education. A retired tax partner of Mengel, Metzger, Barr & Co. LLP, he currently has a tax practice in the Las Vegas area and resides in Summerlin, Nevada.

This article is for informational purposes only. For further guidance on professional issues, please see the AICPA Code of Professional Conduct

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