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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
2
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
3
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
4
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
5
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.
6
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
7
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.
8
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
9
Subpart A: Rules Governing Authority to Practice
‣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
10
Subpart A: Rules Governing Authority to Practice
‣§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
11
Subpart A: Rules Governing Authority to Practice
‣§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)
12
Subpart A: Rules Governing Authority to Practice
‣ §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.
13
Subpart A: Rules Governing Authority to Practice
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
14
Subpart A: Rules Governing Authority to Practice
§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
Subpart A: Rules Governing Authority to Practice
§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
Subpart A: Rules Governing Authority to Practice
‣ §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
17
Subpart A: Rules Governing Authority to Practice
‣ §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
18
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
19
Subpart B: Duties & Restrictions Relating to Practice Before the IRS
‣§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
20
Subpart B: Duties & Restrictions Relating to Practice Before the IRS
‣ §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
21
Subpart B: Duties & Restrictions Relating to Practice Before the IRS
‣ §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
22
§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
23
§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
24
§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
25
§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
26
§10.30 Solicitation
§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
27
§10.30 Solicitation
‣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
28
§10.30 Solicitation
‣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
29
§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
30
§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
31
§10.34 Standards for Tax Returns and Documents, Affidavits and Other Papers
‣ 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
32
§10.34 Standards for Tax Returns and Documents, Affidavits and Other Papers
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
33
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
34
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
35
Issues of the PTIN and the Paid Preparer
‣ 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
36
Issues of the PTIN and the Paid Preparer
‣ 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
37
Issues of the PTIN and the Paid Preparer
‣ 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
38