CHAPTER 3B Ethics and Circular 230 - Benefit Plans Plus ...bpp401k.com/wp-content/uploads/2012/09/3b-Ethics-042412-9AM... · CHAPTER 3B Ethics and Circular 230 ... (AICPA) Code of

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CHAPTER 3BEthics and Circular 230

Disclaimer

• The contents of this communication are not intended to be nor should it be treated as tax, legal, orto be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purpose of avoiding tax penalties.

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Agenda

• Introduction• August 2011 Changes in Circular 230• Overview/Discussion of Key Points for the Case

Studies• Case Studies• ERPA PTIN Update

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ERPA PTIN Update• For Reference: Circular 230, Practice Before the

IRS

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IntroductionIntroduction

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IntroductionEthics Definition

• Definition The basic principals of right action– The basic principals of right action.

– Ethics of a Profession – are the general body of rules, written or unwritten, relative to the conduct of the members of the profession intended to guide them in maintaining certain basic standards of behavior.


• (as defined in The Attorney’s Pocket Dictionary)

IntroductionThere is no one set of rules for all retirement plan professionals; since practitioners from multiple professions operate in the field.

– Attorneys

– Accountants

– Actuaries

– Consultants

– Contract Service P id (TPA )

– Enrolled Retirement Plan Agents

– Fiduciaries– Institutional Trustees– Investment Advisors– Investment Product

Providers (TPAs) Purveyors


Different sets of rules apply depending on individual involved and what industry they are in and if they belong to a professional organization which has a “Code of Professional Conduct”.

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Introduction

• Attorneys are subject to oversight, licensing, and discipline at the state leveland discipline at the state level. – However, the American Bar Association provides the

Model Code of Professional Responsibility and the Model Rules of Professional Conduct.

• Accountants are likewise subject to state oversight. • However they are also expected to adhere to the


• However, they are also expected to adhere to the American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct and Statements on Responsibility in Tax Practice.

Introduction

– Actuaries may belong to several different professional f hi h h d t d C d fgroups, many of which have adopted a Code of

Professional Conduct.

– American Society of Pension Professionals and Actuaries (ASPPA) has a code for actuarial conduct as adopted by the other actuarial societies.

• Since ASPPA’s membership has expanded beyond actuaries, it has its own Code of Conduct for its members


and those holding its certifications.

– The National Institute of Pension Administrators (NIPA) also has its own Code of Ethics, which is similar to ASPPA’s.

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Introduction

• Are individuals subject to government agency oversight where there could be sanctions for behavior outside thewhere there could be sanctions for behavior outside the norm?

• Are individuals subject to professional licensing and oversight?

• An employer adopting a qualified retirement plan may be working with one or more professionals with regard to their plan


their plan.

Introduction

• What is the inter-relationship between the parties?parties?

• How does one professional act with regard to other professionals that are involved with the same plan. – For example, the plan trustee or recordkeeper

interacting with the outside auditor for the Form 5500


interacting with the outside auditor for the Form 5500 annual report? What standards apply?

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Introduction

• Due to changes brought about by the IRS Restructuring and Reform Act of 1998Restructuring and Reform Act of 1998 (IRSRRA) not all industry professionals may represent employers with the Internal Revenue Service. Many industry professionals working closely with employer plans are not attorneys, actuaries or


accountants and therefore there was a gap in representation. The gap was filled with the creation of the Enrolled Retirement Plan Agent (ERPA)

Introduction

• ERPAs (and others who may represent l ith d t th i ti temployers with regard to their retirement

plans before the IRS) must comply with the provisions of Circular 230.

• Circular 230 lays out the duties of those who practice before the IRS.


who practice before the IRS.

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August 2011 Changes inAugust 2011 Changes in Circular 230

Circular 230 Update

• August 2, 2011, Circular 230 updated, effective immediately (48 pages)immediately (48 pages)

– Final regulations for individuals who present before the IRS were in June 3, 2011, federal register

– Effective in Circular 230 on August 2, 2011

S b t ti Ch

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– Substantive Changes

– www.irs.gov/pub/irs-pdf/pcir230.pdf

• Prior update was 2008, introduction of ERPA


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2011 – Circular 230 Revisions

• Expansion of Jurisdiction– Major change: paid tax preparers addedMajor change: paid tax preparers added

• Division of Labor– RPO = Processing– OPR

• Practice Standards Oversight• Independent Investigations

P Di i li• Propose Discipline• Administrative Hearings and Appeals

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§10.8(c) Return Preparation & Application of Rules to Other Individuals (new)

• Any individual who for compensation prepares or• Any individual who for compensation prepares, or assists in the preparation of, all or a substantial portion of a document pertaining to any taxpayer’s tax liability for submission to the Internal Revenue Service is subject to the duties and restrictions relating to practice in subpart B, as well as subject to the sanctions for violation of the regulations in subpart C. Unless otherwise a practitioner however an individual may nototherwise a practitioner, however, an individual may not prepare, or assist in the preparation of, all or substantially all of a tax return or claim for refund, or sign tax returns and claims for refund.


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Procedures to ensure compliance -§10.36(b) (new)

• New (b) Requirements for tax returns and other ( ) qdocuments. Any practitioner who has (or practitioners who have or share) principal authority and responsibility for overseeing a firm’s practice of preparing tax returns, claims for refunds, or other documents for submission to the Internal Revenue Service must take reasonable steps to ensure that the firm has adequate procedures in effect for all members, associates, and employees for purposes of complyingassociates, and employees for purposes of complying with Circular 230. Any practitioner who has (or practitioners who have or share) this principal authority will be subject to discipline for failing to comply with the requirements of this paragraph if--


Procedures to ensure compliance -§10.36(b) (new)

1. The practitioner through willfulness, recklessness or gross incompetence does notrecklessness, or gross incompetence does not take reasonable steps to ensure that the firm has adequate procedures to comply with Circular 230, and one or more individuals who are members of, associated with, or employed by, the firm are, or have, engaged in a pattern or practice in connection with their practiceor practice, in connection with their practice with the firm, of failing to comply with Circular 230; or


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Procedures to ensure compliance –§10.36(b) (cont.)

2. The practitioner knows or should know that one or more individuals who are members ofor more individuals who are members of, associated with, or employed by, the firm are, or have, engaged in a pattern or practice, in connection with their practice with the firm, who does not comply with Circular 230, and the practitioner, through willfulness, recklessness, or gross incompetence fails to take promptor gross incompetence fails to take prompt action to correct the noncompliance.


Overview/Discussion of KeyOverview/Discussion of Key Points for the Case Studies

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Circular 230

– A practitioner must submit records or information promptly upon request by the IRS, unless thepromptly upon request by the IRS, unless the representative believes in good faith and on reasonable grounds that the information is privileged.

– At a client’s request, a practitioner must promptly return records that the client needs to comply with their federal tax obligations.

– The practitioner may retain copies of the returned


– The practitioner may retain copies of the returned records.

Circular 230

– A return, claim for refund, schedule, affidavit, , , , ,appraisal or other document prepared by the practitioner or the practitioner’s firm,employee or agent is not considered a client record if the practitioner is “withholding” the document pending the client’s payment of fees required by “its contractual obligation” to the practitioner.


• A practitioner may not charge an “unconscionable fee” for representing clients before the IRS.

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Section 10.20

• Information to be Furnished– Are you compelled to provide information?

– What if you are not in possession of information?

– What about “privilege”?

– Interference with requests


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Section 10.21Knowledge of Client’s Omissions

• Practitioner: – Retained by client with respect to a matter y p

administered by IRS– Who knows that the client has not complied with

U.S. revenue laws, or made an error in or omissionfrom any

• Return, document, affidavit or other document the client submitted or executed under US revenue laws

– Must advise the client promptly of the fact of such noncompliance, error, or omission and of the

d th C d


consequences under the Code

– What must you do to comply with Circular 230?– Documentation

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10.22(a) Diligence as to AccuracyIn General

• Practitioner must exercise due diligence:

Preparing/assisting preparation of approving– Preparing/assisting preparation of, approving, and filing tax returns, documents, affidavits, and other papers relating to IRS matters

– determining the correctness of oral or written representations made by a practitioner to:

• Department of Treasury, and

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• clients with reference to any matter administered by IRS


10.22(b) Diligence as to AccuracyReliance on Others

– Except as provided in §§10.34, .35 and .37 a practitioner will be presumed to havepractitioner will be presumed to have exercised due diligence, if:

• the practitioner relies on the work product of another person, and

• the practitioner used reasonable care in engaging, supervising, training, and evaluating the person,

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p• taking proper account of the nature of the

relationship between practitioner and the person


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Section 10.23, Prompt Disposition of Pending Matters

• A practitioner may not unreasonably delay th t di iti f ttthe prompt disposition of any matter before the IRS– What is an “unreasonable delay” of pending

matters?

– “By-passing” an otherwise valid Power of


Attorney

Section 10.34

• (1) A practitioner may not advise a client to take a position on a document, affidavit or other paper submitted to the Internal Revenue Service unless the position is not frivolous.

• (2) A practitioner may not advise a client to submit a document, affidavit or other paper to the Internal Revenue Service —

• (i) The purpose of which is to delay or impede the administration of the Federal tax laws;(ii) Th t i f i l


• (ii) That is frivolous; or• (iii) That contains or omits information in a manner that

demonstrates an intentional disregard of a rule or regulation unless the practitioner also advises the client to submit a document that evidences

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Section 10.34

• Standards – Tax Returns, Documents, Affidavits, OtherOther -

– What is “frivolous”?

– Reliance on information furnished by Client

– Advise on potential penalties

– Documentation


Case Studies

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Case Study One

• Client hires you as TPA and during takeover, you learn that the owner borrowed money from the plan, defaulted y pon repaying the loan during the prior year, did not include the loan on Form 5500, and the owner did not pay tax on the defaulted loan.

• What is your responsibility?• What if the owner is willing to repay the loan at that time

but does not want to amend the Form 5500 nor her Form 1040?


1040?

Case Study Two

• Client hires you as TPA and when asked for documents client provides all except thedocuments client provides all except the EGTRRA good faith amendment.– What do you do?– What if the client provide the EGTRRA good faith

amendment but it is not signed. What do you do?– What if the client finds the amendment dated June 30,

2003, and the client tells you that the prior vendor


2003, and the client tells you that the prior vendor prepared the document, but the client just got to signing it. What do you do?

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Case Study Three

• Take Over Plan

F il d ACP– Failed ACP

– Top Heavy, but hasn’t made top heavy contribution

– Partial termination

• Where’s the money??


Case Study Four

• Where’s my money? Retained as TPA for profit sharing plan by employer– Retained as TPA for profit sharing plan by employer

– Former vice President of company calls and says he cannot get a distribution even though he has a distributable event and the plan provides for distributions as soon as administratively possible

– Cousin of owner gets loan even though there are no l i i i th lloan provisions in the plan


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Question

• Question-

What should be done with the records of former clients?

Can you charge for later production of the records?


Question

• Duties as a document sponsor

• Employer’s refusal to restate plan document– Resigning as document sponsor

– Resigning as trustee

• Firing the client


• Firing the client– Duties owed

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ERPA Updates

10.3(e) ERPA Practice Limits

• Scope of ERPA Practice Before the IRS Limited to:to:– Preparing and filing Requests for

• Master, Prototype and Volume Submitter programs

• Determination Letter program

• Compliance Resolution System (EPCRS)

– Representing taxpayers with respect to:


• IRS forms under the 5300 and 5500 series

• Qualified Plan Examinations

– Strictly regarding retirement plan matters

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10.3(e) ERPA Practice Limits

• ERPA Practice Before IRS Does NOT Include:

R ti t ith t t– Representing taxpayers with respect to actuarial forms or schedules

• Form 5500 Schedule SB or MB (or the old schedule B)

– Non-retirement plan matters


IRS Notice 2011-91: Certain ERPAs Not Required to Obtain PTIN

• Treasury and IRS intend to amend Circular 230 to remove the requirement for individuals toto remove the requirement for individuals to have a PTIN prior to applying for enrollment/renewing enrollment as ERPAs.

• Effective immediately, ERPAs and applicants to become ERPAs are not required to have a PTIN to apply for enrollment or renew enrollment as

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to apply for enrollment or renew enrollment as an enrolled retirement plan agent.


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• ERPAs must obtain a PTIN if, for ti th i t icompensation, they prepare, or assist in

the preparation of, all or substantially all of any tax return or claim for refund that is not on the list of forms exempt from the PTIN requirement as provided in section

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1.03 of Notice 2011-6 or any future guidance.



• Thus, ERPAs who prepare only Form 5300 F 5500 i d t i5300 or Form 5500 series do not require a PTIN

• However, PTIN will soon be used for an IRS on-line tracking of CPE

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– PTIN might be good to have for that reason


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For Reference Circular 230Circular 230

Practice Before the IRS

31 U.S.C. §330. (1884)Practice before the Department

a. Subject to section 500 of title 5, the S t f th TSecretary of the Treasury may

(1)regulate the practice of representatives of persons before the Department of the Treasury; and


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31 U.S.C. §330. Practice before the Department

a. before admitting a representative to practice, require that the representative demonstrate:require that the representative demonstrate: A. good character;B. good reputation;C. necessary qualifications to enable the representative to provide to persons valuable service; and

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D. competency to advise and assist persons in presenting their cases.


31 U.S.C. §330. Practice before the Department

b. After notice and opportunity for a proceeding the Secretary may suspend orproceeding, the Secretary may suspend or disbar from practice before the Department, or censure, a representative who:

1. is incompetent;2. is disreputable;3. violates regulations prescribed under this

section; or4 ith i t t t d f d illf ll d k i l

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4. with intent to defraud, willfully and knowingly misleads or threatens the person being represented or a prospective person to be represented.


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Penalties

• Secretary may impose a monetary penalty on any representative p

• If representative acting on behalf of an employer or any firm or other entity in connection with the conduct giving rise to such penalty, the Secretary may impose a monetary penalty on such employer, firm, or entity if it knew, or reasonably should have known, of such conduct.

• Such penalty shall not exceed the gross income derived

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• Such penalty shall not exceed the gross income derived (or to be derived) from the conduct giving rise to the penalty and may be in addition to, or in lieu of, any suspension, disbarment, or censure of the representative.


Circular 230 Oversight

• Enrolled Agents• Enrolled Retirement Plan AgentsEnrolled Retirement Plan Agents • Enrolled Actuaries• Paid Tax Return Preparers, Defined in Treasury

Regulation 1.6109-2• Appraisers who submit appraisals supporting tax

positions• CPAs who practice before the IRS• CPAs who practice before the IRS• Attorneys who practice before the IRS• 10.8(c) Individuals


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The Regulations

• 31 C.F.R. Part 10 (cir. 1986)• Treasury Circular No 230 (cir 1921 Pamphlet)• Treasury Circular No. 230 (cir. 1921 Pamphlet) –

Four subparts– Authority to Practice– Duties and Restrictions Relating to Practice– Sanctions for Violations

Disciplinary Procedures– Disciplinary Procedures
