By Edward R. Jenkins Jr., CPA, CGMA

The IRS is proposing alterations to Circular 230, the rules that govern those who practice before the IRS, including CPAs, attorneys, and enrolled agents. The rules in Circular 230 are codified as Title 31 of the Code of Federal Regulations. As a member of the AICPA’s Tax Practice Responsibilities Committee, I was asked to provide AICPA’s position on the proposed alterations to Circular 230 at a public hearing in Washington, DC, on March 6.

In short, my presentation of AICPA’s comments focused on rules governing authority to practice, duties and restrictions relating to practice before the IRS, and contingency fees. The PICPA, too, provided comments on the proposed changes to the guidance. They were presented in a comment letter sent in late February.

Rules Governing Authority to Practice

Regarding the rules governing authority to practice, the AICPA thinks that it is vital that the terms being used in the proposed changes be crystal clear, particularly surrounding the use of the term “representative.” The AICPA recommends that the IRS distinguish between the terms “representative” and “practitioner.” The current and proposed versions of Circular 230 use the term “practitioner” throughout, but the correct term should be “representative” under the authorizing statute.

The term “representative” is traditionally and commonly defined as an agent with authority to bind others, a description that does not fit tax-return preparers. Put simply, tax-return preparers are not representatives.

Duties and Restrictions Relating to Practice Before the IRS

There is a section in the proposal that addresses the responsibility of tax advisers to provide “best practices” for client representation, as identified in Section 10.33. The AICPA recommends that this proposal be re-evaluated or removed. In essence, Section 10.33 is regarded as aspirational, and not within the scope of Circular 230.

In particular, the proposed provision to determine mental fitness to represent others before the IRS is beyond the pale. Tax practitioners are not qualified to determine mental fitness -- of their colleagues or themselves. The general goal of providing quality client advice and representation is sufficient to address issues of impairment.

When it comes to the issue of competence, as addressed in the proposal’s Section 10.35, the AICPA believes the guidance would be better served if it used similar language to AICPA’s Statements on Standards for Tax Services (SSTS) Section 1.4, which addresses reliance on tools. AICPA recommends that a representative should exercise appropriate professional judgment and professional care when relying on a tool (SSTS Section 1.4.3).

Contingent Fees

In proposed Section 10.51(b)(2) there is a definition of contingent fees. The AICPA thinks that definition should be expanded to include the circumstances when such a fee would be permitted for tax matters, such as those found in the tax code that denote exceptions of arrangements which are not considered to be a contingent fee, such as when based upon the results of findings of a governmental agency.

This would be consistent with existing Section 10.27, which allows contingent fees for services rendered in connection with an IRS exam, an IRS determination of statutory interest or penalties, or any judicial proceeding arising under the IRC.

The reason this proposed language is an issue is because way back in 1988, the Federal Trade Commission (FTC) began an action against the AICPA that specifically complained about the prohibition against commissions and contingent fees. The AICPA entered into a consent agreement with the FTC in July 1990 that led to the current wording of the code regarding contingent fees. Therefore, the proposed regulation would be in direct opposition to the consent decree.

Appraisal Standards

Also addressed were the proposed changes regarding appraisal standards. The proposed regulations included valuation standards in the regulation. AICPA’s  Forensic and Valuation Services (FVS) division rejected the proposed appraisal standards. AICPA FVS prefers reference to established standards promulgated by authoritative standard-setting bodies, such as the AICPA.

Any changes to the language of Circular 230 will affect all CPAs who perform tax services. It is vital that you stay up to date on any proposals by following news coming from the AICPA or the PICPA.

Edward R. Jenkins Jr., CPA, CGMA, is professor of practice in accounting for Pennsylvania State University in University Park, managing member of Jenkins & Co. LLC in Lemont, Pa., and a member of the Pennsylvania CPA Journal Editorial Board. He can be reached at erj2@psu.edu.

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^{Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of the PICPA's officers or members. The information contained herein does not constitute accounting, legal, or professional advice. For actionable advice, you must engage or consult with a qualified professional.}