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Circular 230
Standards of Practice

Master the Treasury Department rules governing tax practitioners, from due diligence to disciplinary sanctions.

CPA Regulation (REG)

What is Circular 230?

Circular 230, formally Treasury Department Circular No. 230, is the set of federal regulations published by the U.S. Department of the Treasury. It governs the practice of tax professionals who represent taxpayers before the Internal Revenue Service (IRS).

Who is Covered by Circular 230?

CPAs
Certified Public Accountants licensed by state boards
Enrolled Agents
Federally licensed by the IRS after passing the SEE exam
Attorneys
Licensed members of state bar associations

What Counts as Practice Before the IRS?

1
Communicating with the IRS on behalf of a taxpayer regarding rights, privileges, or liabilities
2
Representing a taxpayer at conferences, hearings, or meetings with the IRS
3
Preparing and filing documents, including tax returns and claims for refund
4
Rendering written tax advice on federal tax matters

Core Duties Under Circular 230

Circular 230 Duties Due Diligence Competence Reasonable Fees Conflicts of Interest Return of Records

Due Diligence: The Foundation

Section 10.22 of Circular 230 requires practitioners to exercise due diligence in preparing, approving, and filing tax returns, documents, and other papers relating to IRS matters.

1
Verify accuracy of information provided by the client: don't blindly trust what the client says
2
Make reasonable inquiries if information appears incomplete, incorrect, or inconsistent
3
Determine correctness of oral or written representations made to the Treasury Department

Due Diligence vs. Standards of Advice

Due Diligence (10.22) Written Advice (10.37)
Focus Accuracy of returns and documents Quality of tax advice given
Standard Reasonable inquiry into facts Based on reasonable assumptions
Key Prohibition Ignoring obvious errors Relying on unreasonable assumptions
Applies to All filed documents Written communications on tax positions

Standards for Written Advice

Section 10.37 requires that written tax advice must not be based on unreasonable factual or legal assumptions, must not unreasonably rely on representations from the taxpayer, and must consider all relevant facts the practitioner knows or should know.

✕ Cannot Do
Base advice on assumptions you know are wrong, or ignore facts that could change the outcome
✓ Must Do
Use reasonable factual and legal assumptions, and consider all relevant facts known to you

Handling Conflicts of Interest

Section 10.29 prohibits a practitioner from representing a client before the IRS if there is a conflict of interest, unless specific conditions are met:

1
The practitioner reasonably believes they can provide competent and diligent representation to each affected client
2
The representation is not prohibited by law
3
Each affected client gives informed consent, confirmed in writing within 30 days

How to Apply Circular 230 in Practice

1
Identify your role: Are you preparing, advising, or representing? Each triggers different sections.
2
Screen for conflicts: Before engagement, check whether representing this client conflicts with another client's interests.
3
Exercise due diligence: Verify facts, make reasonable inquiries, and don't ignore red flags in client information.
4
Apply the correct standard: Use "reasonable basis" for disclosed positions, "substantial authority" for undisclosed positions.
5
Document everything: Retain written consent for conflicts, copies of advice given, and records of due diligence performed.

Example 1: Due Diligence in Action

Client Claims $50,000 in Charitable Gifts Practitioner Requests receipts and documentation Compliant Files with verified documentation

Example 2: Conflict of Interest Resolution

CPA Practitioner Client A (Spouse) Client B (Spouse) CONFLICT Written consent from both within 30 days

Example 3: Providing Written Tax Advice

A client asks you to write a letter confirming that their home office deduction qualifies under the tax code. Under Section 10.37, your written advice must meet these requirements:

1. Reasonable Assumptions
Verify the home office is used regularly and exclusively for business, not just occasionally
2. Consider All Facts
Don't ignore that the client also has a separate office at their employer's location
3. No Cherry-Picking
Address facts that weaken the position, not just those that support it

Sanctions and Disciplinary Actions

The Office of Professional Responsibility (OPR) enforces Circular 230. Violations can result in escalating sanctions:

Censure Public reprimand (least severe) Suspension Temporary ban from practice Disbarment Permanent removal (most severe) Monetary Penalty (any level)

Common Mistakes to Avoid

✕ Blind Reliance
Accepting all client information without verification, even when amounts appear unreasonable
✕ Oral-Only Consent
Getting verbal conflict waivers instead of the required written consent within 30 days
✕ Ignoring Adverse Facts
Providing written advice that cherry-picks favorable facts while omitting those that weaken the position

Summary: Key Circular 230 Sections

Section Rule Key Requirement
10.22 Due Diligence Verify facts, make inquiries
10.29 Conflicts of Interest Written consent within 30 days
10.33 Tax Returns Don't sign if positions lack basis
10.34 Return Positions Reasonable basis (disclosed) or substantial authority (undisclosed)
10.35 Competence Must have knowledge and skill
10.37 Written Advice Reasonable assumptions, all facts

Question 1 of 5

Under Circular 230 Section 10.22, a tax practitioner may rely on client-provided information without further inquiry in which situation?

Question 2 of 5

A CPA discovers a conflict of interest between two clients. Under Section 10.29, the CPA may continue representing both clients if:

Question 3 of 5

Under Section 10.37, which of the following would violate the standards for written tax advice?

Question 4 of 5

Which of the following sanctions can the Office of Professional Responsibility impose in addition to censure, suspension, or disbarment?

Question 5 of 5

An enrolled agent prepares a tax return taking an undisclosed position that reduces the client's tax liability. Under Section 10.34, what minimum standard must the position meet?