Ethics for the Tax Professional in 2016 and the Circular 230G) Ethics for...Ethics for the Tax Professional in 2016 and the Circular 230 Paul La Monaca, CPA, MST NSTP Director of Education

Ethics for the Tax Professional in 2016 and the Circular 230

Paul La Monaca, CPA, MSTNSTP Director of Education

©2016 National Society of Tax Professionals 1

What Influences Ethics?

Environment, Expectations, Emotions, Evolution, Education

Trust, Theories, Truth, Trials & Tribulations, Traditions, Tactics, Tragedies, Tolerance, Turning their Back

Home Life, Honor, Heredity, Humor, Humanity & Hatred

Institutions, Intuition, Instinct, Insight, Intelligence, Inhibitions, Insecurity

Class, Conscience, Caution, Cash, Consequences, Cowardness, Confirmation, Cleverness

Status, Spirituality, Sixth Sense, Stubbornness, Scared, Shyness, Seriousness, Sneakiness, Snobiness, Sophistication, Security

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Responsibility of Ethics

Thorndike-Barnhart Junior Dictionary by E.L. Thorndike and Clarence

L. Barnhard defines “ethics” as:

ETHICSThe study of standards of right and wrong

The part of philosophy dealing with moral conduct, duty and judgment

Formal or professional rules of right and wrong

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Responsibility of Ethics

As tax professionals, the ethical standards by which we perform our duties include:

D SP P

Exercise of due diligence

Best Practices Procedures

Standards

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Issues Addressed in Circular 230

Effective August 2, 2011, revised Treasury Department

Regulations Governing the Annual Filing Season, Practice of Attorneys, Certified Public Accountants, Enrolled Agents,

Enrolled Actuaries, Enrolled Retirement Plan Agents, Appraisers and Registered

Tax Return Preparers before the Internal Revenue Service

Circular 230 is Titled

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Scope of Circular 230

‣§10.0 Contains rules governing the recognition of attorneys, CPAs,

EAs, enrolled retirement plan agents, registered tax return

preparers* and other persons “representing” taxpayers before the

IRS.

*No longer recognized as a designation by IRS and should be

removed from Circular 230, but has not, even after the amendment

effective 6/12/2014.

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Scope of Circular 230

OPTION 01

Subpart B

Subpart C

Subpart D

Sets forth rules relating to the authority to practice before IRSPrescribes the duties and restrictions relating to such practice

Contains general provisions, including provisions relating to the availability of official records

Prescribes the sanctions for violating the regulations

Contains the rules applicable to disciplinary proceedings

Subpart A

Subpart E

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Issues Outside of Circular 230: Separating Personal and Business Relationships

‣ Relationship with client should be a professional relationship.

‣ As the professional learns more about the client, human emotion toward client kicks in.

‣When a personal relationship exists and that person becomes a client, the relationship has changed forever.

‣When business relationship exists first, common interests could lead to personal relationship.

‣ Professional cannot get emotionally involved in the amount of the taxpayer’s liability.

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Subpart A: Rules Governing Authority to Practice

‣ OPR also responsible for establishing otheroffices with responsibility for matters

related to practice before the IRS

‣ §10.1 Establishment of the Director of theOffice of Professional Responsibility (OPR)

‣ Director: Stephen A. Whitlock, newlyappointed July 2015

‣ Commissioner of IRS can appoint any otherIRS official(s) to enforce Circular 230

‣ OPR responsible for practitionerconduct and discipline

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‣New office created is the IRS Return Preparer Office (RPO)

‣Director: Carol Campbell

‣Jurisdiction of RPO is processing W-12 forms for obtaining and renewing PTINs and administration of CPE

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‣§10.2 provides definitions of Attorney, CPA, Commissioner,

Practitioner, tax return, practice before IRS and the Service

‣§10.2(a)(4) “Practice before the IRS” comprehends all matters

connected with presentation to the IRS, such as:

Preparing and filing documentsCorresponding with the IRS

Rendering written advice

Representing a client at conferences, hearing and meetings

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‣§10.3 defines that those who may practice now includes registered tax return preparers

‣§10.3(f)(1) defines a registered tax return preparer as any individual designated as a registered tax return preparer who is not currently under suspension or disbarment before the IRS under §10.4(c)

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‣ §10.3(f)(2) states that practice as a registered tax return preparer is limited to preparing

and signing tax returns, claims for refunds, and other documents for submission to IRS*

‣ §10.3(f)(3) states a registered tax return preparer may represent taxpayers before revenue

agents, customer service representatives, or similar officers of the IRS during an

examination if they signed the tax return **

*Since the RTRP designation no longer exists, the unenrolled preparer is in the same

status as they were prior to August 2, 2011

**Note this is no different than rights prescribed prior to August 2, 2011, so even with

the removal of the designation an unenrolled preparer can still represent their client

if they signed the return.

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Does not permit representation before appeals officers, revenue officers, Counsel or similar officers or employees of IRS or TreasuryRegistered tax return preparer’s authorization to practice does notinclude the authority to provide tax advice except as necessary to prepare a tax return claim for refund or other document intended to be submitted to the IRS§10.4 Eligibility for enrollment as EA or enrolled retirement plans agent

Applicant must pay application fee

§10.5 Application for enrollment as an EA, enrolled retirement plans agent and registered return preparer

01

02

030405

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§10.6 Requirements to retain EA, and enrolled retirement plan agent:

Term of enrollment or registration

Enrollment card or certificate

Change of address

Renewal periodof enrollment

Fees and required forms

Conditions of enrollment

Qualifying continuing education

Sponsor who present qualifying education

programs15


§10.6 Requirements to retain EA, and enrolled retirement plan agent:

Record keeping requirements for renewal

Waivers from CE requirements for a given period

Failure to comply with eligibility for renewal of enrollment

Inactive retirement status

Renewal while under suspensions or disbarment

Verification to review CE records of an EA, registered tax

return preparer or qualified sponsor

Measurement of continuing education course

work16


‣ §10.7(c)(1) Addresses issues dealing with limited practice before the IRS by an individual who is not a practitioner‣ Individual may represent if taxpayer is:

Immediate family

The employer

Partnership

Bona fide officer

Regular full-time employee of a trust

Officer or full-time employee of government unit or agency

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‣ §10.8 Return Preparation and Application of Rules to Other Individuals Preparing All or Substantially All of a Tax Return‣Any individual who prepares or assists with preparation

of all or substantially all of a return, claim for refund or tax liability submission for compensation:

Must have PTINIs subject to the rules and restrictions relating to practice in Subpart BMay appear as a witness for the taxpayer before the IRS, or furnish information at the request of the IRSIf a person does not have a PTIN then they may not sign tax returns and claims for refund: may not practice before the IRS

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Subpart B: Duties & Restrictions Relating to Practice Before the IRS

‣§10.20 states if IRS makes lawful request for information, practitioner is obliged to turn over information unless he/she believes material is privileged‣Prompt response to a request should be by:

• Submitting the information, or• Explaining why information cannot be provided

‣A practitioner my not interfere with any effort by the IRS to obtain any record or information unless they believe the information is privileged‣§10.21 Knowledge of Client’s Omission: Promptly notify clients of

any noncompliance with tax laws

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‣§10.22 Diligence as to Accuracy: Practitioner must exercise due diligence in:

• Preparing, approving and filing of tax returns, documents, affidavits and other papers relating to IRS matters

• Determining accuracy of oral or written representation made to the government

• Determining the accuracy of oral or written representations made to clients

• Reliance on Others: Practitioner may rely on the work of another and use reasonable care in evaluating that person

‣ §10.23 Practitioner may not reasonably delay the prompt disposition of any matter before the IRS

‣ §10.24 Practitioner may not knowingly accept assistance from or assist any person who is under disbarment or suspension from practicing before the IRS

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‣ §10.27 Fees

§10.27(a) Practitioner may not charge an unconscionable fee in connection with any matter before the IRS

§10.27(b)(1) Except as provided in paragraphs (b)(2), (3), (4), practitioner may not charge contingent fee for services rendered in connection with any matter before the IRS

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‣ §10.27 Fee Contingent Exception

‣ §10.27(b)(2) Practitioner may, for services, charge a contingent fee in connection with the services,

examination of, or challenge to:

• An original tax return; or

• An amended return or claim for refund if amended return was filed within 120 days of the

taxpayer receiving notice of the examination or a written challenge to the original return

‣ §10.27(b)(3) Challenge of statutory interest and penalties

‣ §10.27(b)(4) Contingent fee may be charged for services rendered in connection with any judicial

proceeding arising under the Internal Revenue Code

‣ §10.27(c) Contingent fee is any fee that is based on whether or not a position taken on a tax return or

other filing avoids challenge by the IRS

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§10.28 Return of Client’s Records

‣General Rule: Promptly return all records

‣Records of the client include:

• All written or electronic documents provided

• All documents obtained by the practitioner that preexisted retention of client

‣ Also includes materials prepared by client or third party

‣ Does not include documents prepared by practitioner if fees for documents have not been paid

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§10.30 Solicitation

‣§10.30(a)(1) addresses the issues pertaining to advertising and

solicitation restrictions

‣No statements containing false, fraudulent or coercive statements

or claims

‣EAs, enrolled retirement plan agents, or registered tax return

preparers may not use the term “certified” with designations

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§10.30 Solicitation: Acceptable Descriptions

Enrolled to represent taxpayers before

Internal Revenue Service

Enrolled Agents

Enrolled to practice before the Internal

Revenue Service

Enrolled Agents

Admitted to practice before the Internal

Revenue Service

Enrolled Agents

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§10.30 Solicitation: Acceptable Descriptions

Enrolled to represent taxpayers before Internal Revenue Service

as a retirement plan agent

Enrolled Retirement Plan Agents

Enrolled to practice before the Internal Revenue Service as a

retirement plan agent

Enrolled Retirement Plan Agents

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§10.30(b) Practitioner may publish written schedule of fees containing the following:

DCBA

DCBA Fixed fees for

specific routine services

Range of fees for particular services

Hourly rates

Fee charged for an initial consultation

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‣Practitioner may charge no more than the rates published for 30

days after the last date posted

‣§10.30(c) Fee information may be communicated in professional

lists, telephone directories, print media, electronic media,

facsimile,

hand-delivered flyers, radio, television, and any other method

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‣Radio and television broadcasts must be recorded and retained by

practitioner

‣Direct mail and e-commerce communications:

• Retain copy of actual communication

• Retain list of persons communication was distributed to

• Retain copies for at least 36 months from date of last use

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§10.33 Best Practices for Tax Advisors

‣ Provide highest quality representation‣ In addition to standards of practice, best practices include:

0102

03

0405

Communicate clearly with client regarding terms of engagement

Establishing facts, and determining which facts are relevant

Evaluate reasonableness of assumptions, relating applicable law to relevant facts and arriving at conclusion supported by both the law and the facts

Advising client regarding importance of conclusions reached

Act fairly and with integrity

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§10.34 Standards for Tax Returns and Documents, Affidavits and Other Papers

Practitioner cannot sign a return that he/she knows contains a position that:

Lacks reasonable basis

Is an unreasonable position

Is a willful attempt to understate the liability for tax

Is a reckless or intentional disregard of rules or regulations by the practitioner

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‣ Final Guidelines in Circular 230 loosely mirror IRC §6694 civil penalties

‣A position on a return or claim for refund would always have to meet the

minimum threshold standards of reasonable basis

‣Practitioner is subject to discipline only after willful, reckless, or grossly

incompetent conduct

‣Multiple practitioners can be disciplined

‣Pattern of conduct is a factor

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Circular 230 §10.34Always needs to meet minimum standard

Single unintentional error: not willful

Multiple practitioners can be disciplined

Pattern of conduct to determine willful, reckless or gross incompetence

IRC §66946694(d) final determination of no understatementWillful, reckless or grossly incompetentOnly one person subject to the penaltySingle act of willful, reckless or gross incompetence

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Other Changes

‣ §10.36 Expanding procedures to ensure compliance to include practice involving tax return preparation activities

‣ §10.51(a)(16) Disreputable conduct includes willfully failing to file, on magnetic or other electronic media, a tax return prepared by the practitioner

‣ Disreputable conduct also includes willfully preparing all or substantially all of, or signing as a compensated tax return preparer when the preparer does not have a current PTIN

‣Willfully representing a taxpayer before an officer or employee of the IRS unless authorized to do so

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Issues of the PTIN and the Paid Preparer

‣Return preparers need to obtain, or reapply for, a Preparer Tax Identification Number (PTIN) and pay a user fee

‣All preparers were required to be registered on a new on-line registration system and to obtain a PTIN before filing any returns after December 31, 2010

‣The requirement to sign up on the new system applies to all compensated tax return preparers whether or not they currently possess a PTIN

‣Return preparers who already had a PTIN generally were reassigned the same number

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‣ Individuals who plan to prepare all or substantially all of a tax

return for compensation have to obtain a PTIN even if testing and

continuing education was not required

‣ IRS Issued paper Form W-12

‣Required to renew PTINs annually

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‣ Application requires:• Name• Address• SSN• Birth date• Email address• Filing status and tax year of last tax return filed• Business name and address with EIN and EFIN• Business telephone number and website address• CAF number• Professional credentials, if any

‣ Form requires a signature under penalties of perjury

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‣ IRS has issued Form 8945 PTIN Supplemental Application for US

Citizens Without a Social Security Number Due to Conscientious

Religious Objection

‣Form 8945 is to be filed with Form W-12, with the fee of $50.00

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