By William R. Stromsem, CPA, JD
The IRS has published final regulations related to practice before the IRS, amending Circular 230. The final amended Circular 230 will be available in a few weeks.
In general, the IRS has not made many changes from its proposed regulations and specifically declined to make an important change recommended by the Texas Society of CPAs’ Federal Tax Policy Committee. New section 10.37 regarding covered written opinions changes the burden of proof for whether assumptions used in the opinion are reasonable. In the past, former section 10.37(a) prohibited a practitioner from basing advice on unreasonable factual or legal assumptions. This placed the burden of proof on the IRS to prove that the assumptions were unreasonable. New section 10.37 requires that practitioners base opinions on reasonable facts and legal assumptions, shifting the burden of proof to the practitioner, with the IRS only having to assert that the assumptions were unreasonable. The TSCPA committee raised this issue in comments on the proposed regulations, but the IRS specifically rejected its comment saying that it did not believe this was a substantive change, and that the amendment, “is part of the larger effort undertaken in these regulations to affirmatively state the requirements and standards for practitioners rather than merely specifying prohibited conduct. Treasury and the IRS also disagree that a reasonableness standard is too burdensome.” Note that although the IRS believes the standard is not too burdensome, it nevertheless shifted the burden.
Other changes include:
- Section 10.31 is updated to make the prohibition on endorsing refund checks apply to electronic payments as well.
- Section 10.35 for covered opinion practitioners was changed to eliminate the specific requirements for disclosures in written opinions. This will relieve the practitioner of many unnecessary disclosures, such as past boilerplate in emails. (See related article.) A general competency requirement is put in place that practitioners have the appropriate level of knowledge, skill, thoroughness and preparation necessary for the engagement.
- Section 10.36 on principle responsibility is expanded, requiring the preparer to know what associates and staff are doing (training and supervision) and that they are complying with Circular 230.
- Section 10.37 is clarified to cover emails as well as “written” advice. Practitioners can now take into consideration the likelihood of settlement negotiations in opinions.
- Section 10.82 provides expedited suspensions where there has been a disciplinary action by a state board of accountancy or state bar.