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Crossing the Finish Line with Circular 230

Tax Ethics and Horses

OK, raise your hand if you have that Circular 230 legend at the bottom of all your emails.  Great – now keep your hand up if you know why.  Not to worry – most of us are in the same boat.  So why the question now?  Here’s the story . . .

If you do any kind of tax work, I hope you're familiar with the AICPA’s Statements on Standards for Tax Services.  And if that work involves any kind of federal filing or representation, you'll also need to be familiar with Treasury Department Circular No. 230

Horse-raceCircular 230 isn’t new - its roots go back to the Civil War. The post-Civil War Congress enacted legislation that gave citizens the authority to make claims with the Treasury Department for the value of horses and other property lost during the war.  It soon became evident that more claims had been submitted than horses lost.  On July 7, 1884, President Chester Arthur signed what became known as the Horse Act, giving Treasury the authority to regulate the admission of representatives of claimants before them and to take related disciplinary action.  Eventually, the Horse Act led to the system we have today in which licensed CPAs are automatically admitted to represent taxpayers to the IRS with full practice rights.

The most recent proposed changes to Circular 230 were released this past September and the AICPA submitted comments on them.  Now back to that Circular 230 legend at the bottom of your emails; take a look at the proposed changes to see if you still need it.

Something that’s not new is the Conflicts of Interest rule contained in section 10.29.  AICPA Rule 102-2 has similar provisions.  A conflict is created when you cannot represent all parties with the same level of objectivity and professionalism.  A central test of a conflict is whether the representation of one client would be adverse to the other party or materially limited in any way.

Why do I bring it up if it’s not new?  The IRS’ Office of Professional Responsibility, which oversees compliance with Circular 230, is renewing their focus on section 10.29 enforcement.

Some potential conflicts are a little more obvious than others.  Divorce and separation comes to mind.  Do you represent a married couple who recently separated?  Is it possible to represent either party to the IRS, let alone both parties?

Some situations are less obvious.  Do you represent multiple shareholders or partners from the same closely held business?  And if you are aware of a potential conflict, are your clients? Have they provided informed consent to represent them? Are you sure you can represent each party with objectivity? Have you thought about the potential liability exposure?

Sorry, a lot of questions with no answers. But I won’t leave you completely hanging. The AICPA will be hosting a webcast on these issues Jan. 10, and our special guest will be Karen Hawkins, the Director of OPR.  This Tax Adviser article also provides valuable background information and we will be releasing a Conflicts of Interest practice guide to help members when they face some of these questions.   

Trotting back to the Horse Act for a minute (sorry, couldn’t resist),  just remember that claiming too many horses because it is the easier thing to do and the rules are a bit gray will not get you across the finish line. The ethical CPA who takes the time to consider and answer these types of questions is the one who crosses the finish line.   

Edward S. Karl, CPA, Vice President of Taxation, American Institute of CPAs.

Cheryl Ann Quigley / Shutterstock.com

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