Circular 230 — Duties, Restrictions & Best Practices

Overview

Circular 230 (31 CFR Part 10) governs practice before the IRS. It has four divisions: (1) rules of eligibility to practice; (2) duties and restrictions relating to practice; (3) sanctions; and (4) disciplinary proceedings. Violations can result in censure, suspension, or disbarment. The Office of Professional Responsibility (OPR) enforces. (A Dec 20, 2024 proposed regulation (REG-116610-20) would remove obsolete RTRP/contingent-fee sections and add appraiser standards, but Circular 230 has not been substantively updated since 2014.)

Key Duties Under Circular 230

§10.22 — Due Diligence

Practitioners must exercise due diligence in:

• Preparing and filing tax returns, documents, and other papers
• Determining correctness of oral/written representations made to IRS
• Determining correctness of representations made to clients

§10.33 — Best Practices

Practitioners should (not mandatory, but recommended):

• Communicate clearly with client about terms of engagement
• Establish facts, determine which facts are relevant, evaluate reasonableness of assumptions
• Relate applicable law to facts
• Arrive at conclusions supported by law and facts
• Advise client on potential consequences

§10.35 — Competence

Must possess necessary knowledge, skill, and thoroughness. Can accept engagement if competency obtained through:

• Consultation with other professionals
• Research and study
• Acceptable to continue working on matter while gaining competency

§10.21 — Knowledge of Client's Omission

If practitioner knows client has not complied with tax laws or made an error/omission on a return:

• Must promptly advise client of the noncompliance, error, or omission
• Must advise client of consequences under the Code and regulations
• No duty to inform IRS (attorney-client privilege; §7525 extends privilege to CPAs and EAs for non-criminal matters only)

§10.29 — Conflicting Interests

Must not represent conflicting interests unless:

• Practitioner reasonably believes competent to represent each client
• No representation prohibited by law, AND
• Each affected client gives informed written consent (waiver confirmed in writing) within 30 days of any non-written informed consent

Written consent must be retained at least 36 months after the representation ends and produced on request of any IRS officer/employee. The consent must describe the nature of the conflict and the parties represented.

§10.20 — IRS Requests for Information

Must promptly submit records or information requested by IRS officers/employees in proper and lawful discharge of duties (unless privileged). If the requested records are NOT in the practitioner's possession, the practitioner must:

• Inform the requesting IRS officer
• Provide any info the practitioner has about who may hold/control the records
• Make a reasonable inquiry to the CLIENT about the records' location

The practitioner is NOT required to contact third parties, and need not verify client-provided info. The practitioner must NOT interfere with any lawful IRS effort to obtain records — unless the practitioner reasonably believes the info is privileged under §7525 or the request's legality is in doubt. If OPR requests info about another party's possible misconduct, the practitioner must provide it and testify in suspension/disbarment proceedings.

Restrictions

§10.27 — Fees

• Cannot charge an unconscionable fee (one a court would find grossly disproportionate to the service, or for a service not actually rendered)
• Contingent fees are PROHIBITED for preparing an ORIGINAL return.
• Permitted contingent-fee arrangements (limited):
  1. Representing the taxpayer during the examination/audit of an original return (fee based on audit result)
  2. Preparing an amended return or refund/credit claim if filed within 120 days after the taxpayer receives a written examination notice or written challenge to the original return
  3. Services connected with a refund/credit claim for assessed penalties or interest
  4. Services connected with any judicial proceeding under the IRC
• Some state rules (for attorneys/CPAs) may impose additional contingent-fee limits.
• Note: A 2014 district court order (Ridgely v. Lew) enjoined IRS from enforcing §10.27(b) against CPA contingent fees for ordinary refund claims filed before audit; IRSAC has recommended legislation to overturn this.

§10.30 — Solicitation & Advertising

Cannot use false, fraudulent, misleading, or coercive advertising, or advertising that violates IRS regulations.

• An EA must NOT use the word "licensed," and must NOT imply any employer-employee or special relationship with IRS. Acceptable: "Enrolled to Represent Taxpayers Before the IRS," "Enrolled to Practice Before the IRS," "Enrolled to Practice Before the Internal Revenue Service." (EA/E.A. abbreviation is permitted.)
• In-person solicitation prohibited regarding employment as a representative, UNLESS the person is an existing client or has a family/professional relationship with the practitioner. (Mail/phone/internet solicitation is permitted with restrictions.)
• Direct mail/electronic solicitation must be identified as a solicitation and (if applicable) identify the source used to select recipients. Copies of the communication and the mailing/distribution list must be retained 36 months.
• Fee schedules may be published; the practitioner must honor a published fee schedule for at least 30 calendar days after the last publication. Fee info may be published in newspapers, mail, websites, email, etc.
• Radio/TV ads must be recorded; recordings retained 36 months from last transmission/use.
• Permitted logos: IRS e-file Authorized Provider logo; the EA/IRS practice badge. PROHIBITED: the official IRS seal/eagle, the U.S. Treasury seal, or any logo/word implying an IRS relationship.

Other Duties & Prohibitions

• §10.23 — No unreasonable delay: Must not unreasonably delay the timely handling of any matter before the IRS.
• §10.24 — Do not employ/assist disbarred or suspended persons: Must not knowingly employ or accept assistance from a person disbarred/suspended from practice before the IRS, even if that person's duties do not include return preparation. Also must not accept assistance from a former government employee on a matter the employee worked on personally and substantially while in government.
• §10.25 — Former government employees: A government employee who worked personally and substantially on a matter may not represent or assist a taxpayer on that same matter after leaving government. Other restrictions also apply to avoid conflicts of interest.
• §10.26 — Notary: A practitioner who is a notary and who is employed as a consultant/attorney/representative on an IRS matter (or has a substantial interest in it) may NOT notarize any document connected with that matter. (The practitioner may still serve as a notary on unrelated matters.)
• §10.31 — Negotiating refund checks: A practitioner may NOT endorse, negotiate, or cash a taxpayer's refund check — including directing the refund into the practitioner's own account by any means (electronic, direct deposit, wire). Using Form 8888 to route a client's refund into the practitioner's account is prohibited. Violation carries the $650 IRC §6695(f) penalty. A representative may RECEIVE a refund check (if authorized) but must NOT endorse/cash it.

§10.34 — Standards for Returns and Documents

Practitioner may sign return only if they determine it's based on reasonable information and belief that it's true, correct, and complete. Can rely on client-provided information in good faith IF:

• Information appears reasonable
• No reason to doubt accuracy
• Inquires further if information appears incorrect or incomplete

(See practitioner-standards-tax-advice for the full §10.34 position standards — MLTN / substantial authority / reasonable basis / frivolous — and the duty to advise clients on penalties.)

§10.51/10.52 — Incompetence and Disreputable Conduct

Grounds for sanctions include:

• Conviction of federal criminal offense involving dishonesty or tax law
• Giving false or misleading information to IRS or clients
• Willful failure to file personal tax returns or pay taxes
• Misappropriation of client funds
• Directly/indirectly attempting to influence IRS officials
• Disbarment/suspension by any state licensing authority
• Contemptuous conduct at IRS proceedings
• Aiding non-practitioner in unauthorized practice

(See practitioner-misconduct for the four misconduct categories, OPR referral table, and full sanction/procedure detail.)

Sanctions

OPR can accept consent to sanction (voluntary admission). Expedited suspension is available for loss of a state license or conviction of a crime involving dishonesty/breach of trust, and for willful misconduct re personal federal tax obligations. Reinstatement after disbarment may be requested after 5 years.

Return of Client Records — §10.28

Upon request (and regardless of any fee dispute), a practitioner must promptly return ALL client records the client needs to comply with federal tax obligations. "Client records" include:

• All documents the client gave the practitioner before the engagement

• Any materials the client/third party prepared and gave the practitioner for the matter

• Any practitioner-prepared document from a prior engagement that the client needs for current federal tax obligations

• The practitioner may retain copies of everything returned.

• The practitioner may withhold work product (e.g., a completed return) if the fee is unpaid — but must give the client a reasonable opportunity to inspect and copy any additional records needed to meet federal tax obligations.

• The practitioner must NOT be paid to release records.

Return Copies — IRC §6107

A paid preparer must furnish the taxpayer a copy of the completed return/claim no later than when the return is presented to the taxpayer for signature (paper or electronic medium). The preparer must also retain a copy of every return prepared, or a list containing each taxpayer's name, TIN, tax year, and return type — retained for 3 years after the return period ends (the "return period" is the 12 months starting each July 1).

Preparer Employer Records — IRC §6060

An employer of paid preparers must retain records of all employees (name, TIN, work location) and produce them on IRS request. Business records are generally retained 3 years, but payroll records must be retained 4 years.

Refund Anticipation Loans (RALs)

A RAL is a short-term loan (from a third-party lender, sometimes offered through a preparer) backed by the taxpayer's expected refund. IRS treats a RAL as a financial product, not an IRS loan. RALs carry high interest/fees; the full loan must be repaid even if the refund is smaller than expected. IRS does not regulate RALs but cautions taxpayers about terms/costs. (Note: a preparer may NOT route the refund into the preparer's own account — see §10.31 above.)