Circular 230 is a document published by the United States Treasury Dept. containing rules and regulations that CPAs, attorneys, appraisers and enrolled tax professionals must follow when practicing before the Internal Revenue Service (IRS). The document also outlines duties, restrictions and sanctions to which these professionals are subject. Although attorneys and CPAs may give advice to clients, Circular 230 prohibits written advice that constitutes "reliance opinion" as defined below.
Definition of "Reliance Opinion"
Circular 230 defines a "reliance opinion" as one that advises a taxpayer that he has a 50 percent chance of favorably resolving tax issues. While a tax issue such as back taxes owed or possible tax evasion may be resolved in the taxpayer's favor after IRS investigation, it is not the place of the CPA or attorney to suggest this is possible in written advice. To avoid written advice being classified as reliance opinion, professionals should explicitly state the intention of the advice and make clear that no part of the written document should be used for tax evasion purposes.
Aside from containing a statement that forewarns against tax evasion, advice must also contain other information to avoid the "reliance opinion" classification. To be valid, advice must be written in a manner that relates tax laws to the relevant facts of the matter. If, for instance, a taxpayer has failed to report all taxable income, attorneys and CPAs cannot use laws pertaining to taxable income to assist the taxpayer in avoiding penalties associated with failure to report. Instead, the written document must give the taxpayer advice in lieu of the law; otherwise, the advice is treated as reliance opinion.
Taxpayers who attempt to use a reliance opinion or any other professional advice for tax evasion purposes will be subject to federal charges. Convicted tax evaders may be required to spend a number of years in prison and to pay fines that include back taxes, penalties and interest. When receiving professional advice concerning IRS practices, it is important for the individual to use such information appropriately.
Circular 230: Other Aspects
In addition to providing rules and regulations regarding reliance opinion and professional advice in general, Circular 230 paints a clear picture of overall duties and restrictions for tax professionals. When interacting with clients, practitioners are not allowed to represent themselves in a manner that is misleading or to render advice that is deceiving. Strict sanctions can be imposed for such behavior, which includes suspension and disbarment. Practitioners desiring to maintain positive relations with the IRS should follow all rules set forth in Circular 230.
- Sprouse Shrader Smith PC: Covered Opinions Under Circular 230
- American Institute of Certified Public Accountants: Treasury Department Circular No. 230
- IRS: Treasury Dept. Circular No. 230, Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries, Enrolled Retirement Plan Agents, and Appraisers
- Photo Credit TAX TIME image by brelsbil from Fotolia.com
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