CPAs and tax attorneys are hoping for substantial updates to the set of rules governing the tax profession, which they say no longer reflects what their work really looks like.
The IRS is planning to update Circular 230, Sharyn M. Fisk, the new director of the agency’s Office of Professional Responsibility, said late last month. The rules, which outline the ethical conduct of tax professionals practicing before the agency, were last revamped in 2014.
Tax pros argue that Circular 230 is outdated, overly complex, and doesn’t reflect the outcomes of two landmark court cases that have scaled back the IRS’s regulatory authority—Loving v. IRS and Ridgely v. Lew. Revisions to the rules would help professionals ensure that their bases are covered when representing clients before the IRS, they said.
As written, Circular 230 is a “no-man’s land” when it comes to practical guidance, said James Creech, a CPA based in Burlingame, Calif.
“It’s too dense and legal for anyone aside from an attorney to really try and get into what their responsibilities are,” he said.
The IRS confirmed in a statement that officials are considering changes to Circular 230, among its many regulatory projects, some of which are needed following the 2017 tax law and an agency reform law (Pub. L. 116-25) that was enacted last summer.
The OPR declined to comment on “matters such as timing, prioritization, or any specifics of changes to the Circular that might be part of a project to revise the regulations.”
Confusion for Tax Pros
Outdated elements of Circular 230 create confusion, professionals said. For example, Loving said the IRS couldn’t enforce a program that required tax preparers to register with the agency. Yet Circular 230 makes dozens of references to “registered tax return preparers.”
“There are a lot of mundane changes needed just because the Loving case left everything hanging,” said Jeff Trinca, legislative counsel at the National Association of Enrolled Agents and vice president of Van Scoyoc Associates in Washington.
The rules also don’t reflect the ways tax professionals have to protect taxpayer data online and within their computer networks.
Enrolled agent Claudia Hill of Tax Mam Inc. in Cupertino, Calif., said references to data security, which protected her firm from hackers, would make the rules “more current in terms of the reality of the practice.”
Kip Dellinger, a tax partner at Cooper, Moss, Resnick, Klein & Co. in Los Angeles, pointed to the American Institute of CPAs’ Statements on Standards for Tax Services as a potential model for Circular 230 revisions.
Dellinger revised the AICPA standards in 2010 as the former chair of the AICPA Tax Practice Responsibilities Committee.
The revisions should “look at the activities that practitioners actually engage in rather than just having some blanket ethical rules,” he said.
Any revision should also define “significant purpose,” a term in the circular that Treasury has never provided guidance on, he said.
The OPR has made previous attempts to update Circular 230, said Karen L. Hawkins, who was director of the office from 2009 to 2015. Without changes, the circular is difficult “if not impossible for someone to understand well enough to follow it properly,” she said.
During her tenure, the OPR worked with the IRS Advisory Council (IRSAC) on three sets—in 2014, 2015, and 2016—of recommended changes to the rules. Hawkins said the findings still could be a useful blueprint for the OPR’s next steps.
“Somebody needs to decide what they want Circular 230 to be when it grows up,” Hawkins said.