Question

Treasury Circular 230 governs the practice of tax professionals before the IRS. Do you see any flaws in these regulations? How do you think paid preparers should be regulated and monitored to ensure that tax filings are true and accurate?

Answer 1

Treasury Circular 230 governs the practice of tax professionals before the IRS.

In most states, anyone can be a paid preparer regardless of education,training, or licensure. However, there are different types of preparers.
Paid preparers who hold professional certification include CPAs and attorneys. CPAs and attorneys are licensed through state agencies,although licensure is not focused on their role as tax preparers. CPAs,
attorneys, and enrolled agents are referred to collectively as practitioners. Other preparers are called unenrolled preparers. This population of preparers is very diverse, ranging from many of the
individuals employed by commercial tax preparation companies to those who are self-employed. Some have extensive training and experience and others
do not.

Many taxpayers who used paid preparers believed they benefited from doing so, some were poorly served. We said that the available evidence did not allow a precise estimate of the percentage of taxpayers affected, but none of it suggested that the percentage was large. We reported that preparer mistakes can cause taxpayers to over- or underpay their taxes, and that taxpayers may pay for certain services, such as short-term loans called Refund
Anticipation Loans (RAL), without understanding their costs and benefits. 

Yes, there are some flaws in these regulations:

Paid tax return preparers serve an important role
in the U.S. tax system as they prepare
approximately 60 percent of all tax returns filed.
Because the IRS’s effort to regulate preparers
was invalidated as a result of litigation, tax return
preparers are generally unregulated, and they
can prepare returns without possessing training
or education. In addition, there is extensive
evidence that some of them prey upon innocent
taxpayers.

Persons preparing returns or giving tax advice must be regulated and monitored in these way to ensure tax filings are true and accurate:

• Disclose on returns all nonfrivolous tax positions whose disclosure is required to avoid penalties.
• Return records to clients.
• Sign all tax returns they prepare.
• Provide clients a copy of tax returns.
• Advise clients promptly of errors or omissions of the preparer or client in any tax matter with respect to which the preparer is retained.
• Submit records, etc., requested by the IRS in a timely manner.
• Exercise due diligence and use best practices of the profession.

In addition to the above, those giving tax advice must follow certain procedural rules in giving the advice. Written tax advice must not be based on unreasonable factual or legal assumptions or unreasonably rely upon representations of the client or others. It must consider all relevant facts and law.

Additionally, Tax preparers and advisers who violate Circular 230 may be subject to penalties. These include monetary penalties as well as potential suspension from practice before the IRS. The rules also provide procedures for disciplinary proceedings.

Periodically, the Internal Revenue Bulletin lists an announcement of disciplinary sanctions for the Office of Professional Responsibility.