What Does the Circular 230 Disclosure Mean?

Circular 230 refers to regulations from the U.S. Treasury Department that establish rules for professionals who practice before the Internal Revenue Service (IRS). These regulations, found in Title 31 of the Code of Federal Regulations, Part 10, are designed to ensure tax professionals act ethically and competently. The purpose of Circular 230 is to protect taxpayers by setting standards of conduct for those who represent them and outlining their duties and restrictions.

The Role of Circular 230 in Tax Practice

The rules within Circular 230 apply to individuals defined as “practitioners,” which includes attorneys, Certified Public Accountants (CPAs), and Enrolled Agents (EAs). These professionals are authorized to represent taxpayers before the IRS. They are subject to standards governing all aspects of their tax work, from client communication to submitting documents.

A requirement for all practitioners under Circular 230 is the duty to exercise due diligence. This means a professional must be careful and thorough when preparing tax returns, filing documents, and making oral or written statements to the IRS or to their clients. Practitioners are permitted to rely on information provided by their clients, but they cannot ignore the implications of information they know to be incorrect or incomplete.

Practitioners must be competent to handle the tax matters for which they are engaged. This requires having the necessary knowledge, skill, and preparation to provide adequate representation. If a practitioner is not competent in a specific area, they can satisfy this rule by consulting with another professional who has the required expertise.

Understanding the Circular 230 Disclosure

For many years, it was common to see a lengthy disclaimer citing Circular 230 at the bottom of emails and other correspondence from tax professionals. This practice resulted from rules in effect before June 2014, known as the “covered opinion” regulations. A covered opinion was a type of formal written tax advice that had to meet strict requirements, particularly for transactions with a purpose of tax avoidance.

To avoid these requirements for informal communications like emails, practitioners used a disclaimer. The disclaimer stated that the advice was not intended or written to be used, and could not be used, for the purpose of avoiding tax-related penalties. Including this language carved the communication out of the covered opinion rules, protecting the practitioner from violating the standards.

In June 2014, the Treasury Department and the IRS repealed the covered opinion regulations. With the elimination of the covered opinion framework, the original reason for the Circular 230 disclaimer became obsolete. While the IRS expects this practice to be discontinued, some practitioners may still use a modified version out of habit or as a general risk management strategy.

Current Standards for Written Tax Advice

With the repeal of the covered opinion rules, the IRS implemented a more flexible, principles-based standard for all written tax advice. These requirements apply to any written advice, including electronic communications, concerning a federal tax matter.

Under the current rules, a practitioner must base all written advice on reasonable factual and legal assumptions. They must reasonably consider all relevant facts and circumstances that they know or should know. They must also use reasonable efforts to identify and ascertain the facts relevant to the advice and cannot accept a client’s representation if it seems unreasonable or incomplete.

The regulations prohibit a practitioner from relying on representations from a client or any other person if such reliance would be unreasonable. In evaluating a tax matter, the practitioner cannot take into account the possibility that a tax return will not be audited or that an issue will not be raised during an audit.