Question

When looking through the client’s documents and compiling the tax return, you realize that there are not enough supporting documents for deductions that would result in a refund. How would you handle this situation while being in compliance with Circular 230? Give an example of two actions that demonstrate that you are adhering to Circular 230 and explain why this is critical.

Answer 1

Circular 230 give information concerning the Regulations Governing Practice before the Internal Revenue Service under the Treasury Department. It provides for the filing of the tax returns by the customers using an established system by the relevant department. However, the filing of the tax returns and the deductions made by the tax authority are subject to the provisions of the circular. For this particular client, the filing of his tax returns reveals inadequate supporting documents to suffice the refunding of his/her huge deductions. According to the Circular 230, customers should only be refunded excess deductions on the provision of adequate supportive documents to supplement the complaint of excess deductions by the Internal Revenue Service. Hence, the best action is to advise the client that the provided documents do not give a definite proof of the excess deductions and, therefore, it would only be possible if sufficient evidence is provided. Similarly, the records retained by the Internal Revenue Service Authority belonging to every client can be used to determine whether indeed the customer has grounds to complain about the refunds and if it's true, the client can be reimbursed.
Circular 230 section 10.68 on Motions and requests states that a motion challenging any Internal Revenue Service action must concisely specify its grounds with proper supportive documents, which must contain a details and memorandum of facts that are supported by law. This regulation prompts the accountant to request all complaining clients to provide adequate supporting information to any complaint filed with the Internal Revenue Service Authority. Secondly, Circular 230 section 10.22 on Diligence as to accuracy part (a) (i) states that a practitioner must exercise diligence when preparing or assisting clients either in the preparation, the process of approving or filing tax returns, preparation of documents and affidavits or any other papers relating to Internal Revenue Service matters. Hence in light of these provisions of the Circular 230, it would not be able to recommend the refunding of the client without adequate supporting documents of prove. These provisions of Circular 230 are critical because acting without the necessary documents will lead to a breach of the provisions of the