Practitioners must become knowledgeable about recent changes to Circular 230 or risk sanctions from the IRS Office of Professional Responsibility, according to OPR Director Karen Hawkins.
Hawkins went through the revisions to Circular 230, which governs all practice before the IRS, in detail at the 2014 IRS Nationwide Tax Forum in Orlando on August 26. The changes were announced in June.
Hawkins said the provision calling for due diligence is the most important provision in the entire circular, stressing that the task of practitioners is to "know what the law is, know what the facts are, and whether they fit." Practitioners have a responsibility to tell their clients if they have "round facts and a square law," Hawkins said, and added that due diligence requires that a standard of "reasonableness" applies to all forms of written advice to clients, including e-mails.
Another feature she explained in detail is the circular's focus on conflicts of interest. The revised rules of practice define a conflict as a case in which one client's interest is directly adverse to another, and where there is a significant risk that representation of one client will result in "materially limiting" the representation of another, Hawkins said.
Hawkins explained that practitioners can still continue to represent their clients if they believe they can still provide competent, diligent representation to each affected client, aren't legally prohibited from doing so, and obtain waivers in writing based on informed consent from their clients at the time of the conflict.
Hawkins also made clear that the revised rules for tax practice under Circular 230 make it absolutely clear that tax practitioners can't play the "audit lottery" in representing their clients. "You don't get to take into account whether the client is going to get caught," Hawkins said. "That's violating every ethical principle I can think of. You shouldn't engage with the client on that issue."Hawkins highlighted the Circular 230 requirements for due diligence for tax returns, the ability of practitioners to rely on representations from their clients, and competence, among others. She noted that under a section of the circular dealing with procedures to ensure compliance, a practitioner that is in charge of a firm's Circular 230 compliance can be held responsible if there are violations by other practitioners in the firm.
