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All right. I see it is the top of the hour. Those of you just joining, welcome to Circular 230: Practicing "Inside the Lines" Throughout the Tax Engagement Lifecycle. My name is Michael Smith and I'm liaison with the Internal Revenue Service and I'll be your moderator for today's webinar which is for 120 minutes. Before we begin, if there is anyone in the audience that is with the media, please send an e-mail to the address on the slide be sure to include your contact information. Our media relations and stakeholder staff will assist you with any questions you may have. As a reminder, this webinar will be recorded and posted to the IRS video portal in a few weeks. And that portal is located at And please note continuing education credit or certificates of completion, those aren't offered if you view any version of our webinars after the live broadcast. We hope you won't experience any technology issues, but you do, this slide shows some helpful tips and reminders. We've posted a technical help document you can download from the materials section on the left side of your screen. It provides the minimum system requirements for viewing this webinar along with some best practices and quick solutions.

If you completed and passed your system check and you're still having problems, try one of the following options. No. 1, close the screen where you're viewing the webinar and simply relaunch it. 2, click on settings on your browser viewing screen and select HLS. You should have received today's PowerPoint in a reminder e-mail, but if not, no worries. You can download it by clicking on the materials drop down arrow on the left side of your screen. You can see that on this slide.

Closed captioning is available for today's presentation. If you're having trouble hearing the audio through your computer speakers, please click the closed captioning drop-down arrow located on the left side of your screen. That feature will be available throughout the webinar. If you have a topic-specific question today, please submit it by clicking the ask question drop-down arrow to reveal the text box. Simply type your question in the text box and then click send.

Very important note on that, please do not enter any sensitive information or taxpayer specific information. That's no names, no social security numbers, nothing like that, please. During the presentation, we will take a few breaks to share knowledge-based questions with you. And at that time, a polling style feature will pop up on your screen with questions and multiple choice answer. Select the response you believe is correct by selecting the radial button next to your selection. Some people may not get the polling questions and that may be because you have your pop up blocker on. So please, take a moment to disable your pop-up blocker now so that you can answer the question we have included several technical documents that describe how you can allow pop-up blockers based on the browser you are using. We have documents for chrome, Microsoft Edge, Firefox and Safari. You can access them by clicking on the materials drop-down arrow on the left side of your screen. We're going to take some time now and simply test the polling feature.

Here's your opportunity to ensure your pop-up blocker is not on so you can receive the polling questions throughout the presentation. And that should be popping up on your screen now. And I'll read this and we'll take a couple minutes just to make sure everybody has a chance for that polling question to load. The polling question reads: How many times have you attended an IRS national webinar with us? And your options are A, this is your first time. Welcome if this is your first time. We're glad you're here. B, 1 through 5. C, 6 to 10. D, 11 to fifteen webinars. Or E, you have attended 16 or more webinars with us. So please, take a moment and click the radio button that best corresponds to your answer. Just to give everybody ample time for that to load, let me read this one more time. Please be patient. Thank you. How many times have you attended an IRS National Webinar? And I'll give you just a few more seconds to answer before we close this poll. Okay. We are going to stop the polling now. And let's see how often you've attended a national webinar with us. I'll just give my team a second to assemble those figures and let me know. All right. And those figures have just come in. So it looks like 15 percent of you are first-time attendees. Again, welcome. Thank you for choosing to attend this webinar. 26 percent are here 1 through 5 times. 17 percent, 6 through 10. 11 percent 11 through 15 times. And the largest group of you, 30 percent, have been with us for 16 or more IRS national webinar. So we definitely, definitely thank you for continuing to come back, continuing to provide feedback for these webinars. We really do appreciate it. All right. Again, welcome and thank you for joining us for today's webinar. Before we move along with our session, let me just make sure you're in the right place. Today's webinar is Circular 230: Practicing "Inside the Lines" Throughout the Tax Engagement Lifecycle. This webinar is scheduled for approximately 120 minutes. And now, I'd like to introduce today's speaker. Our speaker today is Timothy McCormally, acting director of the IRS office of professional responsibility. Timothy joins OPR in February 2021 and was appointed acting director effective September 11th of this year, 2022.

He previously worked for a big 4 firm, an international law firm and a professional association of in-house tax professionals. He also served four years on the Internal Revenue Service advisory council, including one year as chair. So Timothy, if you're all set, I will hand it over to you.

TIMOTHY MCCORMALLY: Thank you, Michael. And thanks to all of you for joining us. You will see an agenda for today's program. After setting the stage by reviewing the stages of the tax engagement lifecycle and the legal framework for overseeing those who practice before the IRS, we will review how Circular 230, the governing document of the IRS's office of professional responsibility, applies during the different stages of a practitioner's representation of clients.

We will also provide a quick overview of Circular 230's sanctions and the OPR disciplinary process. And finally, we will provide you with contact information and a list of helpful resources. Under the Treasury Regulations, OPR has authority to interpret and administer Circular 230, which sets forth requirements for tax practitioners. The OPR office takes its mission very seriously to protect taxpayers, to protect the fisc, and to protect the tax profession as a whole. Allegations of misconduct involve a practitioner's failure to meet the standards in Circular 230 throughout the tax engagement lifecycle and even completely outside it. These failures fall into four broad categories of conduct: Advising taxpayers on filing positions or transactions, representing taxpayers before the IRS, the practitioner's own tax returns, and external misconduct, typically involving acts of moral turpitude. As part of its responsibilities, OPR is charged with investigating allegations of misconduct and disciplining those practitioners whose conduct falls below the standards set forth in the circular. During the investigative and disciplinary process, OPR ensures the practitioners are forwarded due afforded due process at every step. So what is meant by the Tax Engagement Lifecycle? Generally speaking, it refers to the beginning, the middle, which we divide in two; and the end of a client relationship. The lifecycle includes, first, the beginning of an engagement, that is, the practitioner's finding, vetting, and securing of a client. Second, the rendering of tax planning or compliance advice, or providing representational services. Engaging in mere return preparation as a paid preparer, however, while part of the Tax Engagement Lifecycle is not covered by Circular 230. The third stage encompasses a practitioner's formal representation of a client during an IRS examination or other interactions with the agency. The final stage is the ending or wrapping up of the relationship. Now, in addition, there are some provisions of Circular 230 that relate to the practitioner's own tax obligations or external conduct that apply beyond the tax engagement.

Before delving in depth to how Circular 230 applies throughout the lifecycle, let's start with some background on OPR's statutory and regulatory authority. The statutory authority to regulate practitioner conduct before the IRS is not found in the internal revenue code. Section 31 USC 330 was first enacted in 1884 when Congress was concerned about the filing of inflated or fraudulent claim with the government. As it currently reads, the provision does five things: It authorizes regulation of the practice of representatives before the treasury department, and specifically determination about their fitness to practice. It specifies the types of disciplinary action that the Secretary can take against those representatives who are incompetent, disreputable or who violate the regulation. It authorizes the secretary to impose a monetary penalty against these individuals and in certain circumstances, entities with which the individuals are affiliated. It also authorizes the secretary to regulate certain appraisers and finally, it authorizes the Secretary to impose standards for giving certain written advice, a provision which was enacted in 2004 to address practitioners' role in tax avoidance transactions. In addition, other authorities come into play. Foremost among these is Circular 230, which was first issued in 1921.

The circular has been revised periodically over the years, with the most recent revision being issued in June 2014. In addition, a Delegation Order and two revenue procedures relating to limited practice for unenrolled return preparers are part of the legal authority regulating the practicing before the IRS. And finally, I want to note that Section 10.1 of the circular formally establishes the office of professional responsibility. Circular 230 has four subparts: Subpart A contains provisions regarding individuals who may practice before the IRS. Subpart B specifies various kinds of ethical conduct necessary to practice. Subpart C lists the sanctions that can be imposed for violations and describes the disreputable and incompetent conduct that could give rise to discipline. And subpart D details how the disciplinary process works to ensure due process protections a practitioner is entitled to throughout the process. In enacting Section 330 of title 31, Congress determined that only individuals who are professionally and ethically fit should be eligible to practice before the treasury department, which of course includes the IRS.

So what is fitness to practice? The statute itself requires that practitioners be of good character and good reputation. It requires them to have the qualifications to provide a valuable service to their clients, and it requires them to possess the competence to advise and assist clients in presenting their cases to the IRS. Section 20.2a4 of the circular defines practice before the IRS. Most of us think of practitioners as professionals who represent clients at IRS meetings, conferences, or hearings. But as our discussion of a full Tax Engagement Lifecycle will confirm, practice can constitute many actions that do not involve direct interaction with the IRS. For example, practice can include rendering written advice to clients and providing appraisals for tax positions. Practice broadly contemplates all matters connected with a presentation to the IRS regarding a taxpayer's rights, liabilities, and privileges under laws and regulations administered by the IRS, even if those lawed and regulations are not contained in title 26. So while unemployed preparers who merely prepare tax returns are not covered by Circular 230, these preparers could opt in to OPR's jurisdiction through the IRS's annual filing season program. This program established in revenue procedure 2014-42, allows for limited representation rights for unenrolled preparers who, after 2014, prepared and signed federal tax returns where there's a subsequent IRS examination of one of those returns. Under Circular 230, those who practice before the IRS include attorneys, CPAs, enrolled agents, as well as enrolled retirement plan agents, enrolled actuaries, preparers possessing an annual filing season program record of completion and who agree to be subject to Circular 230, and appraisers who submit appraisals supporting tax positions. Michael, I think now would be a good time for a polling question. MICHAEL SMITH: Sounds like a plan. All right, audience. I hope you're ready.

Here is our first polling question, which should be popping up on your screen now. And it reads: The authorities to regulate the practice of representatives of persons before the department of the treasury, including the IRS, comes from which of the following? A, internal receive new code; B, title 31 of the US code Section 330; C, State licensing authorities; or D, Circular 230. Take a moment and click on the radio button that best completes that statement. I'll give you a few more seconds now to make your selection. Okay. We're going to stop the polling now, and we'll share the correct answer on the next slide. And as you can see, the correct answer is B, title 31 of the United States code Section 330' correct answer was B. And my team is telling me that we have a correct response rate of 40 percent. So 40 percent responded correctly. Timothy, do you mind providing a brief explanation of why B was the correct answer? TIMOTHY MCCORMALLY: I would be pleased to, Michael. While the other choices that are identified in the question, the internal revenue code and licensing authority and Circular 230 itself all apply to the practice of tax before the agency, the statutory authority that the firm rules that Congress gave come in a federal statute title 31 USC. All of these are relevant. But the authority itself comes from 31 USC 330. MICHAEL SMITH: That clears it up. Thanks, Timothy. If you're all set, I'll hand it back to you. TIMOTHY MCCORMALLY: Michael, I want to know one further thing in terms of the authorities under which people practice. And that is that things completely outside of the federal government rules sorry, the rules of Circular 230 can come into play. For example, the internal revenue code imposes numerous reporting and other requirements of practitioners, those who prepare returns or represent taxpayers in violating those statutory provisions for not meeting your own tax filing or payment obligations and generally committing acts of moral turpitude could subject practitioners to discipline under Circular 230 for being disreputable. Practitioners are also subject to the rules governing attorneys, accountants and enrolled agents, and appraisals issued by their licensing authorities or their professional organizations like the AICPA, the ABA, or NAEA. Discipline by those authorities under those rules could prompt reciprocal action by OPR under Circular 230. While some provisions of the circular have very narrow application, others have much broader scope. And before discussing provisions that have significance during a particular stage of the Tax Engagement Lifecycle, let's consider two of those broad provisions that should be top of mind throughout every engagement. The first is Section 10.36, which is captioned Procedures to Ensure Compliance. Under this provision, anyone in a firm or a business who has or shares principal authority or overseeing the firm's Circular 230 tax practice must take reasonable steps to ensure that everyone who is engaged in the tax practice is aware of their duties and responsibilities under Circular 230 and sufficiently qualified to satisfy them throughout their work for the client. This provision is relevant not only to tax professionals, but also to administrative and other personnel, and it encompasses an obligation to ensure technological competence. For example, by taking steps to safeguard the confidentiality of client information.

Another provision of universal relevance is Section 10.33, which addresses Best Practices for Tax Advisors. This provision is aspirational in operation; that is, a practitioner who fails to comply with the provision will not be subject to discipline solely on that basis. But observing best practices and not only help preserve confidence in the tax system, but they can help ensure the practitioners adhere to Circular 230 specific provisions. And best practices could also reduce the likelihood of a malpractice claim. Best practices that can be incorporated into a tax practice's procedures include communicating clearly with the client about the terms of the engagement, identifying and documenting pertinent assumptions, gathering relevant facts, and applying the tax law properly to arrive at supportable conclusions. Best practices also include keeping clients informed about the risks and penalties that might arise as a result of a recommended course of action, keeping information confidential and using adequate backup procedures for both internal and client electronic data, and acting fairly and with integrity in practice before the IRS. Once again, 10.33's admonition to have and follow best practices is only aspirational. But following the provision will elevate your practice and help preserve public confidence in the tax system. Return to 10.36, Circular 230 provides that the responsible person at a firm and by the way, if a firm doesn't designate the responsible person, OPR does it for them but that person is subject to discipline if they fail to take reasonable steps to ensure that Circular 230 and its obligations are known to employees and are properly being followed.

Thus, if someone at a firm, an employee, associate, fellow partner or principal, or independent contractor violates the Circular 230 competence rules, which is contained in Section 10.35, that individual would be responsible for their own misconduct and would receive appropriate discipline under Circular 230 for their violation. And additionally, under 10.36, the individual who should have assumed the oversight role in the firm but maybe didn't follow through, will also find their conduct scrutinized to determine whether they at some level are culpable. Importantly, there is no requirement that the responsible person have actual knowledge of the misconduct. What is meant by reasonable steps? It's important to keep in mind that there is no one size fits all here.

But among the things that a firm, regardless of its size or complexity of its practice should consider doing are creating a firm policy on adhering to the circular and an environment which supports ethical behavior. For example, by encouraging questions when issues arise. Putting controls in place to ensure oversight and review of employees and their work. And also, setting policies and procedures regarding the assignment of work and workload, taking prompt and effective remedial action regarding failures, and supporting mentorship and continuing education so that employees can gain and maintain the knowledge needed to be competent advisers and understand their ethical obligations. A firm might also wish to focus not only on the technical requirements of the tax law and the black-and-white duties and restrictions of Circular 230 but also on the unavoidable truth that being a tax practitioner in 2022 is not easy. More fundamentally, given the nature and complexity of the law, the principles-based nature of many of Circular 230's provisions and the sometimes conflicting duties practitioners have to their clients and the tax system, many firms have found that their employees can benefit from ethics training that focuses on the intersection of regulatory ethics, including Circular 230, and so-called behavioral ethics, which focus on factors affecting by u why people make the decisions they do.

The potential value of this approach, which could address when and how to raise concerns and how to ask for help, was explored in a February 2018 article in The Tax Adviser by Tracy Manly and Christina Ritsema. Best practices could also include reinforcing an employee's personal tax filing and payment obligations, as well as reminding them of their duty to deal with revenue agents and other tax authority personnel in a professional manner and meeting continuing education requirements. In addition, practitioners need to be vigilant concerning data security and using various technological tools. For example, practitioners need to disable smart speakers, such as Alexa and Siri, when teleworking. And best practices also include installing antimalware or antivirus software on all devices, using strong passwords of eight or more characters and backing up sensitive data to a safe and secure external source not connected full-time to a network.

Let's turn to the Tax Engagement Lifecycle. The first stage covers the finding, vetting, and securing of clients, and implicates provisions of Circular 230 relating to solicitation, competence, conflicts of interest, and fees. Section 10.30, which addresses practitioner solicitation, provides that a practitioner cannot use any form of public communication or private solicitation that contains false, fraudulent, or deceptive statements or claims. For example, a practitioner cannot claim that they can obtain a better result than other professionals because of a personal relationship with IRS agents or perhaps being a prior employee of the agency. In addition, a practitioner must clearly identify invited written and oral solicitations and identify the source of the information used in choosing the recipient. Section 10.30 states a practitioner may communicate fee information in professional lists, telephone directories, print media, mailings, e-mail, and any other method. But any statement of fee information must expressly include a statement disclosing whether the client will be responsible for costs. Things such as phone charnels, copying charges, tiling fees, and the like. And finally, if a practitioner changes their rate, they must charge no more than the published rate for at least 30 days after the publication on the fee schedule. Section 10.35 is one of Circular 230's most significant provisions. It states that you must be competent to practice before the IRS. And this requirement comes straight from the statutory language on what constitutes fitness to practice.

Competent practice requires the appropriate level of knowledge, skill, thoroughness, and preparation necessary for the matter for which the practitioner is engaged. A practitioner cannot just wing it and cannot merely rely on a software program. They must understand the underlying tax law applicable to the client's return. Competence is essential throughout the tax engagement, but perhaps especially in deciding whether to solicit a client or to respond positively to an inquiry from a prospective client. It's important to recognize your limits, to know when you do not have the knowledge or the understanding to advise a client and cannot readily become compliant. If competency cannot be readily obtained, you may need to retain a consultant or refer the client to someone who has the requisite expertise. The responsibility of the practitioner is to assess and maintain their own competency to recognize their areas of weakness and to ensure that they are giving the client quality service. None of is totally competent in all topics in all points in time. And so Circular 230 recognizes that there are many ways of maintaining competence. You can research and educate yourself on a matter. You can consult with another professional who is competent on the topic. You may bring in another tax professional who is competent and work with them. And you can, of course, attend continuing education classes to expand your knowledge and the network of other tax professionals with whom you can consult.

Knowing when and how to ask for help is an aspect of satisfying Section 10.35. To reiterate, competence relates more than to your tax knowledge. It relates to all aspects of practice including the supervision of employees, your procedures to safeguard client information and your due diligence in filing returns, transmitting returns to the IRS back to the client and others.

All of these items could adversely affect an assessment of a practitioner's competency to practice. Moreover, there is growing recognition that maintaining data security is an unavoidable, integral part of competent tax practice. For example, 40 different state bar associations expressly provide that technological proficiency is part of their basic requirement that lawyers be competent. And federal law, enforced by the Federal Trade Commission, expressly requires paid tax return preparers, whether they're practicing before the IRS or not, to create and implement a data security plan. Hey, Michael, how about another polling question?

MICHAEL SMITH: Sure thing, Timothy. Audience, you should see polling question No. 2 coming up on your screen. Let me read that for you. In which way can a practitioner meet the competence requirement under Circular 230 Section 10.35? Which way can a practitioner meet the competence requirement? And your options are: A, research and education; B, having the requisite tax knowledge and experience; C, consulting with another tax professional who is an expert on the tax matter; or D, all three of those qualify for ways that a practitioner can meet the competence requirement. So please, take a moment and click the radio button that best answers the question.

I'll give you a few more seconds now to make your selection. Okay. We're going to stop the polling now, and we'll share the correct answer on the next slide. And as you can see, the correct response is D, all of the above. Research and education, having the requisite tax knowledge, and experience and consulting with other tax professionals all help a practitioner meet that requirement. And my team is reporting a correct response rate of 97 percent. So excellent job, everyone. 97 percent answered that correctly. All right, Timothy. I will hand it back over to you. TIMOTHY MCCORMALLY: Thank you, Michael. Moving on, an important part of that first stage of the Tax Engagement Lifecycle is ensuring against disqualifying conflicts of interest.

Circular 230 describes two distinct types of conflict. The first is when you have one client whose interests are directly averse to another's. For example, two partners are now fighting one another while they were once in harmony, their interests are now in conflict. The second class of conflicts is more challenging. These are defined by a significant risk that your representation of one client will be materially limited by your representation of another client, your responsibilities to a form were client, or to a third party, or by your own personal interests.

The situation that may be the most difficult to recognize and evaluate is when your own personal interests threaten to materially limit representation. For example, the IRS examines a return you prepared, asking questions about various entries on the return, some of which you may have advised about, some of which you may have calculated, and some of which you may have chosen from among various alternative tax treatment. Initially, you see no conflict because you have a mutuality of interest with the client. You both want to have the filing position sustained. But suppose the IRS starts focusing on issues that you have responsibility for. You may then become concerns about a possible preparer penalty, even a Circular 230 due diligence action. And your interest and those of your client may diverge a little or a lot. This difference or divergence may begin to affect how you're answering questions. And maybe you're now putting a little bit of a blame on the client. Maybe you're saying or implying, oh, that client didn't give me that information, even if those statements are true, the conflict of interest between your client and you arises when your interests materially affect your ability to zealously represent the client. And of course what seems to be the case at the beginning of the engagement could well change over time. Once you've concluded that a conflict exists, that's not the end of the game. You must determine whether you reasonably believe that you can provide competent, diligent representation to each affected client. And if you cannot or if the conflict is legally prohibited, you must withdraw from representation. But if you believe that despite the conflict, you can provide that competent, diligent representation to each affected client, then you may continue to represent the clients if you obtain a written waiver from each affected client at the time the conflict becomes known.

This documentation must occur within 30 days of when the conflict arises to assure that clients are immediately informed of the potential conflict. And a practitioner must retain the written conflict waivers for three years after whatever the engagement you were involved in has ended.

Waivers must be produced to the IRS when requested. Recognizing a conflict of interest, whether a conflict of interest exists or whether you can provide competent diligent representation to each affected client can be tricky. If you cannot provide that quality representation, you must withdraw from the representation. Conflicts can often occur when representing related taxpayers.

For example, representing a married couple in an IRS examination, a conflict could arise when one spouse seeks or could be eligible for innocent spouse relief. Conflicts can also arise when representing a partnership and the partners and a corporation and its shareholders. And a conflict might arise when a practitioner promotes a transaction, prepares the return reporting transaction, and defends the taxpayer during an IRS examination of that transaction. In such a situation, the practitioner's interests may be or eventually become adverse to the client in that the practitioner may continue to dispute a transaction to avoid a penalty or malpractice suit.

Best practices with respect to conflicts include conducting a conflict check before accepting an engagement, using an engagement letter or contract for services to define who the client is and to describe and limit the nature and scope of services to be provided, and communicating clearly what the client with the client about the terms of engagement, including limitations imposed to avoid or manage potential conflicts. Let's turn to another provision, 10.27 relating to fees.

There are very few practitioners who aren't interested in getting paid for their work. Section 10.27 of Circular 230 addresses the fees practitioners can charge and the practitioner and client's agreement about fees should be memorialized in the engagement letter to avoid future misunderstandings. Your fee structure can take into account the complexity of the return, advice given. It should not be set on a sliding scale based on your client's refund amount.

Significantly, contingency fees can only be charged in limited situations. A contingency fee is one that is based in whole or in part on whether a position taken by a taxpayer is sustained by the IRS and any fee arrangement requiring a taxpayer to reimburse the client for all or portion of a fee if the position is challenged by the IRS or not ultimately sustained in an IRS examination.

The situations in which a contingency can be charged are in connection with an IRS examination or challenge to incur a refund claim, services rendered in connection with the determination of statutory interest or penalties assessed by the IRS, or for services in connection with any judicial proceeding. Before turning to the next stage of the lifecycle, let's briefly touch on the topics that should ideally be covered in your engagement agreement, the form and scope of services to be provided, fees and expenses, as well as the procedures and the timetable for returning client records and the practitioner's obligation to keep the client informed. Stage 2 of the lifecycle is where the bulk of a practitioner's efforts will be expended the provision of professional services. This stage covers the practitioner's preparing or filing comments, their responding with or communications to the IRS, and advising clients regarding tax positions.

Formal opinions, yes, but also in e-mails, texts, and oral conversations. It also encompasses the preliminary or complementary work involved in meeting or gathering information from the client or retaining or consulting with other tax professionals or experts. And not surprisingly, the most important provision of Circular 230 come into play during this stage. The first provision we want to discuss here is Section 10.22, which requires the practitioner to exercise due diligence in their representation. What does it mean to exercise due diligence? It means going the material facts, which you do by asking questions. You cannot simply let the client determine which facts are pertinent or significant. You need to solicit the sailant facts and information from the client. And you need to make reasonable inquiries if the information you're given appears to be incorrect, inconsistent, or incomplete. You must know the applicable legal authorities; that is, you must be competent about the law. And you must apply those applicable legal authorities through your client's facts. A practitioner's willful they're looking the other way or not asking the probing questions, could violate their due diligence responsibility. This means that while you do not have a duty to audit your client and to independently verify everything they say, you cannot ignore the implication of other information you know or have been given by the client or someone else. All that said, OPR approaches its enforcement obligation with the humility of knowing that not everything is clear in the tax law and with the knowledge that sometimes, you don't have all of the information at the time you need it. At OPR, we do not act on foot faults or technicalities in applying to due diligence or other provisions of the circular. Rather, OPR looks for patterns of misconduct by a practitioner. Section 10.34 provides a safe harbor to practitioners by stating that they may rely in good faith and without verification on client information. But this safe harbor doesn't give the practitioner carte blanche. They are still required to make reasonable inquiries if the information they receive appears to be incorrect or inconsistent or incomplete. You must also consider the implications of other information you received or know. Again, the practitioner cannot be willfully blind. You cannot escape discipline by saying, I'm just going on what my client told me. Sometimes your client may not give you all of the relevant information by accident or purposefully. Or the information that you have gathered from your client does not appear to be correct or consistent or complete. In such a case, you might make a mistake. But quite possibly still have met your due diligence. Let me give you an example. A taxpayer, a US citizen receives an inheritance upon the death of her mother, who is also a US citizen. The inheritance includes $10,000 held in a bank. In this example, a foreign bank. Later, the client meets their long time CPA to have their federal tax return prepared. As part of their due diligence, the CPA reviews the client's completed tax organizer and ask about changes occurring during the year. The client tells the CPA about the inheritance but does not mention that the cash is held in a foreign bank account. Not being tax savvy, the taxpayer does not know that this is an important fact. Based on what they know, the CPA advises the taxpayer that the inheritance from the mother is not taxable and hence does not need to be reported on their individual return. But in giving this correct advice, they did not know or have reason to know that the inheritance was being held in a foreign bank account, and therefore, they didn't have the where with all to inform the client that his foreign bank account needs to be reported on Schedule B or as well as on a separate FBAR form. Although this leads to an error in the preparation of the client's federal return, an argument could be made that there was no willful blindness on the part of the CPA. The CPA followed their own reasonable procedures, asked their client questions, received no information indicating that the client was deceitful. They exercised the argument goals, due diligence. But query, should the practitioner's organizer have included questions about Schedule B and foreign bank accounts?

Perhaps not. But having made the mistake once where a practitioner's continuing use of organizers without such questions lead them open to a due diligence challenge? Due diligence is a facts and circumstances concept, and the answer may change. What's that expression? Once bitten, twice shy. There's also a safe harbor in Section 10.22(b) regarding reliance on another's work product. This is something that occurs routinely in practice. A practitioner relies on a colleague's work or that of a third party expert such as appraise or another CPA or attorney. In that case, the practitioner is deemed to have exercised due diligence in their reliance if they exercised reasonable care in selecting, engaging, supervising, training, overseeing, and evaluating that individual's work. Now, reasonable care is a facts and circumstances test. To rely on the work product of another tax professional or a third party, the basic rule is you may rely on it unless you have reason to question it. If you have information that suggests a third party document may be unreliable, you need to ask some questions before you can satisfy your due diligence obligation. To ensure the exercise to ensure you exercise your due diligence responsibility properly, best practices include knowing the relevant facts regarding your client's tax matters, asking your client questions, obtaining sufficient information to determine the correct reporting of items on the return and compliance with the tax law. It also means making reasonable inquiries if the information you're given appears incorrect, incomplete, or inconsistent. And if an estimate must be used because of lost records or a late arriving K1, it is critical to maintain a record of how the estimate you used was determined to substantiate the position as a provided defense, penalties, or other sanctions. Again, you do not have to audit your client, but you cannot ignore the implications of other information you have been given. And you should not take unnecessary risk in this regard or be cute. The loss of your livelihood and damage to your reputation and integrity is not worth it. No client is worth your license. The next provision is section 10.34(a), which covers the standards for tax return preparation, return advice, and the submission of other documents to the IRS. This section applies when you assist or advise clients on reporting items on their tax returns. Section 10.34(a)

states that you may not sign a tax return that lacks a reasonable basis or advise taking a position on a return that lacks a reasonable basis. It also you may not sign or advise a position on a return that is unreasonable. Lastly, 10.34(a) provides that you may not sign or advise with respect to a tax return position if it constitutes a willful attempt to understate liability, either by you or your client, for that represents a reckless or intentional disregard of the rules and regulations. As with the general due diligence requirements in 10.22, this section requires that you understand what the applicable law is with respect to your client's facts. In this context, patterns are always going to matter. A single mistake is not what OPR looks for when considering fitness to practice. But numerous errors, multiple demonstrations of recklessness, disregard of the rules and regulations, or frequent displays of incompetence are going to get our attention. The various standards that we have talked about are set forth graphically on this slide. From lowest to highest, they are as follows: A reasonable basis means a 25 percent possibility of success. A realistic possibility of success means a one in three, or 33 and a third percent. Substantial authority means between 40 percent and 50 percent. And more likely than not means more than 50 percent. Moving on from positions on tax returns, subsection b of 10.34 sets forth the due diligence standards for documents and other papers. The standards here are similar. You may not advise a frivolous position. You also may not advise making a submission that would be frivolous or where the submission is intended to delay or impede tax administration. Say you have your client has an outstanding tax liability but they do not have the funds to pay it. Even though they acknowledge the liability, you advise them to complete and submit a form 14039 identity theft affidavit, which claims that the tax liability is the result of identify theft, which will put a hold on collection action. If your client follows this advice and completes the form and sends it to the IRS, you have violated Section 10.34(b). It's irrelevant that you personally did not complete the form or submit it to the IRS. Similarly, you may not advise making a submission that either contains or omits information that demonstrates an intentional disregard of the rules or regulations. That said, it is allowable to advise a client to submit a document that disregards or challenges a rule or regulation if the submission of that document evidences a good faith challenge to that rule or regulation. Finally, it is your obligation under 10.34 to advise your client of penalty exposure and the opportunity to avoid the penalty by making a disclosure on the tax return. Disclosure can be made by attaching a form 8275 or 8275-R, regulation disclosure statement, to the return. Best practices for complying with Section 10.34 include establishing and documenting the relevant facts, determining which facts are relevant, evaluating the reasonableness of any assumptions or representations made, including those offered by other practitioners or third-party experts, and relating applicable law, including potentially applicable judicial doctrines to the relevant facts. Other best practices include reaching a conclusion supported by the law and the facts and advising the client on the importance of conclusions reached, including whether penalties may be avoided through disclosure.

A complementary provision to 10.22's due diligence rules and 10.34's treatment of returns and other documents is 1037, which applies to written advice. Specifically, the provision states that when you're giving written advice, you must make a reasonable effort to determine the relevant facts, reasonably consider those facts, and make reasonable factual and legal assumptions in situations where you know the facts are unknown. Significantly, your written advice may not take into consideration the audit lottery. That is, you may not give advice based on the assumption that the return will not be examined or if it is examined, that the IRS won't notice the issue.

It is a best practice to document the information you relied on in your written advice. This record can be helpful during an IRS examination if the client becomes incapacitated or dies, if the business changes hands or employees, for malpractice purposes, or otherwise. With respect to written advice, 1037 also provides that you may rely on the advice of others if the advice given is reasonable and your reliance is in good faith, considering all the facts and circumstances. A potential pitfall to complying with Circular 230 involves Section 1021 and it deals with a sensitive topic. Your duty regarding client errors or omissions. If you learn that a client has not complied with the internal revenue code or has made an error or an omission on any form or other document submitted to the IRS, you have a duty to inform the client of that noncompliance, error, or omission and a duty to advise the client about the consequences under the code and regulations of the noncompliance, error, or omission, including your own obligation not to perpetuate the error. For example, you become aware of an error when reviewing a client's prior year return. What should you do? Well, a best practice required under the rules governing CPAs and attorneys would be to advise the client about the discovered noncompliance. And CPAs are required, in fact, under AICPA rules to recommend correction of the error. That said, under Circular 230 itself, a practitioner does not have a duty to file an amended return or another corrected document. In fact, if you did so without the client's permission, it could expose you to a malpractice issue and potential discipline from a state bar or accountancy board for violating your duty of confidentiality. Consider this situation. A client asks you to prepare a federal tax return, and you discover numerous errors, including the fact that the prior preparer did not sign the return. What are your obligations? Well, as just mentioned, you have a duty to inform the client of the error and the implications in terms of penalty, interest, audit exposure, and the like. And as a best practice, you would say you recommend to the client that the error be corrected. Also, under AICPA rules, if the client declines to correct the error, the CPA needs to consider whether to withdraw from the engagement. Now consider your obligations if the client says thanks but no thanks and declines to correct the error. You cannot perpetuate the error because your due diligence responsibilities under 10.22 prevents you from preparing a return that you know is incorrect. Can you refer the prior preparer to OPR? Well, you need to weigh the type and the significance of the error. You need to consider the potential exposure of your client if a referral is made, especially if the client is refusing to correct the error. And in fact, I would suggest that absent the client's consent, a practitioner likely may not ethically report this misconduct by the prior preparer since it could well disadvantage the client. I think we should check in with the audience to see if they're still with me, Michael. Time for another polling question? MICHAEL SMITH: Definitely. All right. Yeah, you've covered a lot of information. So another polling question sounds like a great idea. Audience, here's your third polling question. You should see this popping up on your screen. And I'll read that to you.

This is a bit longer, so please read this one carefully before answering. And it reads: In exercising your due diligence responsibilities, you discover your new client has omitted income on a prior year's 1040. Under Circular 230, you are required to which of the following? A, report the unreported income to the IRS; B, tell the client about the error but only if the IRS sends an audit letter; C, promptly inform your client of the unreported income and advise the client of the consequences under the code and regulations for that error; or is it D, do nothing so as not to upset a new client. So take a moment, click the radio button that best answers the question.

And I'll give you a few more seconds to make your selections now. Okay. We're going to stop the polling now, and we'll share the correct answer on the next slide. And the correct answer is C.

In that scenario, you find that a new client has omitted income on a prior year's 1040 income tax return, you would promptly inform your client of the unreported income and advise the client of the consequences under the code and regulations for that error. All right. Checking with the team to see what our success rate was. All right. Wonderful job, everybody. We had 98 percent of you answer that correct. You exceeded the prior question by a 1 percent success rate. Great job. Timothy, I will hand it back over to you. TIMOTHY MCCORMALLY: Thank you, Michael. The third stage of the Tax Engagement Lifecycle involves engaging with the IRS, what most of us well think is the core part of the representation. This stage covers all manner of the practitioner's dealing with the IRS, representing clients during examination or other interactions with the agency, such as appeals or negotiating an offer in compromise. And Circular 230 is directly relevant here, including those interactions with statements with IRS representation which implicates both 10.22 relating a due diligence and several provisions in 10.51 relating to disreputable conduct. Section 10.20 addresses a practitioner's core duty to provide the information to the IRS upon their request. A practitioner must not interfere with any IRS attempt to obtain information unless in good faith the practitioner reasonably believes that the information is privileged. While there are several types of privileges, the most common privilege asserted in a matter before the IRS is the attorney-client privilege and the analogous federally authorized practitioner privilege under code Section 7525. If you are unsure whether a privilege applies, you can consult an attorney. If you're unsure what the results are under a particular provision of the internal revenue code. Also, if neither the client or the practitioner possesses the information being sought, 10.20 provides that the practitioner should promptly inform the IRS of that fact and provide any information regarding who may have the possession of the requested information. The practitioner is not required to make inquiries of any other person other than client or to verify information provided by the client regarding who has the requested information. And quite candidly, even if Section 10.20 didn't require you to inform the IRS that you don't have the information and the client doesn't have the information, a practical reason for doing so is to keep the IRS from assuming that you don't have the document and are purposefully refusing to comply with the IDR. This could affect the tone of the examination as well as the client's ability to use reasonable estimates for the missing information. One final best practice is when responding to an IDR, consider whether to write to the best of the taxpayer's knowledge and belief they are not in possession of the document requested. The next provision is Section 10.23, which provides that a practitioner may not unreasonably delay the prompt disposition of any matter before the IRS. Ignoring the agency's questions for documents, request for documents, or other information are just or raising questionable claims of privilege are examples of this. Now, what is unreasonable, of course, is often a matter of opinion. So it's important for a practitioner as a best practice to document why their response is delayed.

Section 10.51(a) of Circular 230 is a general provision under which a practitioner may be sanctioned for incompetence and disreputable conduct. But the provision enumerates 18 different acts, both during interactions with the IRS and otherwise, that could give rise to sanction. For example, Section 10.51(a)(4) prohibits you from giving false or misleading information or participating in any way in giving false or misleading information to the department of the treasury or to any officer or employee or to any tribunal authorized to pass on federal tax law matters. This provision expansively covers anything you submit to the IRS. Even applications you file with the IRS like a PTIN or enrollment application. Section 10.51(a)(7) identifies as disreputable and incompetent conduct a practitioner's willfully assisting or in some way counseling, encouraging, or suggesting to a client or prospective client an illegal plan to evade federal taxes or the payment of federal taxes or that is otherwise a violation of federal tax law. This type of misconduct could arise with respect to collection matters, advising to transfer or hide assets, omit assets, et cetera.

Or the taking return positions. Similarly, Section 10.51(a)(9) prohibits actions to improperly influence via threats, bribes, or other improper actions, any actions of an IRS employee.

Section 10.51(a)(12) is another broad provision. It proscribes contemptuous conduct, including the use of abusive language, accusations, or statements in dealing with the IRS. And this provision is relevant to conduct during OPR investigations and proceedings as well as conduct during IRS audits and other representational activity. 10.51(a)(13) is another broad provision, stating that a practitioner may not give a false opinion, knowingly, recklessly, or through gross incompetence, including an opinion which is intentionally or recklessly misleading or engaging in a pattern of providing incompetent opinions on questions arising under the federal tax law. Finally, there are several provisions in Section 10.51 relating to preparing or actually filing tax returning such as failing to sign or return or to include your PTIN, as well as representing a client when you're not authorized to. These particular acts of misconduct also implicate specific preparer penalties in the internal revenue code. Michael, do you have another polling question?

MICHAEL SMITH: I sure do. Audience, polling question No. 4 will be appearing on your screen.

And it reads: A practitioner violates Circular 230 if they do which of the following? I'll just read that one more time. A practitioner violates Circular 230 if they do which of the following?

A, they file a tax return that inadvertently includes a math error; B, they fail to inform the IRS of an error on a client's prior year return; C, they charge a fee to prepare an original Form 1120 equal to one third of the taxpayer's refund due; or D, all of these are Circular 230 violations.

So take a moment, click the radio button that best answers the question. And I'll give you a few more seconds to make those selections. Okay. We are going to stop the polling now, and we'll share the correct answer on the next slide. All right. So polling question No. 4, practitioner violates Circular 230. The correct answer is C, charge a few to prepare an original Form 1120 equal to one third of the taxpayer's refund due. That was a challenging question. I'm checking with the team. Okay. 66 percent of you got that correct. So Tim, can you give us a little elaboration on that answer? TIMOTHY MCCORMALLY: Happy to, Michael. Yeah, I'm here. The provision is an example the answer to this question is an example of why OPR approaches tax practice and the discipline of tax practitioners with humility. So the first answer on the screen is not correct because inadvertent errors are not the things that trigger OPR action. Similarly, we already discussed the fact that you're not obliged to, your client's not obliged to tell the IRS of errors on prior returns. So the fact of the matter, the only thing covered is the provision related to fees, which is exorbitant unconscionable fees that the practitioner in this example would use. So it suggests that we don't have to be perfect. We just have to exercise diligence in how we practice. MICHAEL SMITH: All right. Good answer.

Thanks, Timothy. Thanks for clarifying. And I think it is all yours if you'd like to continue.

TIMOTHY MCCORMALLY: Thank you, Michael. The final stage of the Tax Engagement Lifecycle relates to the termination of a practitioner's relationship with his client. This stage encompasses wrapping up of a tax engagement and involves specific provisions relating to the cashing of a taxpayer refund check, the return of client records, and also best practices relating to client communications. First up is Section 10.28, which relates to the return of client's records. Under this provision, a client must be provided with reasonable access to review and copy those records that the client needs to comply with federal tax law. And we believe it will be prudent to consider including a discussion of your file return procedures in the engagement letter. Subject to state law restrictions, a practitioner is entitled to withhold from the client any return, claim for refunds, schedule, affidavit, or appraisal or any other document if it is being withheld for the nonpayment of dues. Sorry, nonpayment of fee. But even in such cases, a practitioner needs to return those records that must be attached to the taxpayer's return. In other words, the practitioner cannot blackmail the client by saying I'll only give you those forms if you pay the fee. Among the documents that are subject to 10.28 are any refund, claim for refund, schedule, affidavit, appraisal, or other document prepared by the practitioner that was presented to the client in a prior engagement if necessary for the client to comply with their current federal tax obligation. Section 10.31 is one of circular 230's truly black and white rules. It deals with the negotiation or cashing of client checks. It says you can't do it. You may not cash, endorse, deposit into account that you control, split via an electronic transfer, or do comparable with a check in your client's name as a taxpayer written from the US treasury. And keep in mind, it does not matter if your client says it's okay. What's more, negotiation of a client check is not only a circular 230 violation, it is also a violation of Title 26 subjecting you to a penalty under Section 6695(f). A practitioner's obligation to maintain client confidences and to safeguard tax return information never ends, even after a tax engagement is over. Section 10.51(a)(15), in other words, disreputable conduct provision. And by the way, it also violates the code. And when retiring or selling your practice, the practitioner should take care to safeguard client information and to keep their clients appropriately informed. Last but not least, some provisions of Circular 230 apply wholly outside of the Tax Engagement Lifecycle. Section 10.51(a)

expressly covers a practitioner's personal conduct. And this is justified by Section 330 of title 31's focus on a practitioner's fitness to practice. First and foremost, practitioners need to be personally compliant in terms of themselves and their firm. Patterns are important here.

Frequent tax noncompliance over multiple periods or concerning different tax withholding, deposit, and payment rules is going to get our attention while the occasional foot fault will not. In addition, there are several acts of moral turpitude which could potentially lead to OPR discipline, specifically disreputable conduct under 10.51(a) ranges from the conviction of any criminal offense under the federal tax law, convictions of criminal offenses dealing with dishonesty, breach of trust to the conviction of any felony under federal law or state law where the conduct renders the practitioner unfit to practice. Disbarment or suspension from the practice as an attorney or CPA, and finally, a conviction of any crime under title 26, any crime involving dishonesty or breach of trust, or any felony that generally renders the practitioner unfit to practice. How about one more polling question? MICHAEL SMITH: You got it. Audience, your fifth polling question is coming up on your screen now. And that question reads: Which of the following would be considered disreputable conduct under Section 10.51 of Circular 230? And your options are A, a state criminal conviction for a crime involving dishonesty; B, giving false or misleading information to the IRS; C, advising a client on how to evade the collection of federal tax liability. Not to avoid it but to evade a collection. And D, all of the above, all three of those. Take a moment, click the radio button that best answers the question. I'll give you a few more seconds to make your selections now. Okay. We're going to stop the polling now, and we'll share the correct answer on the following slide. And hopefully, everybody did well. And the correct answer there is D. Yes, so each one of those options would be considered disreputable conduct. And the team reports that we had a successful response rate of 96 percent of you answered that correctly. Good job. Yes, all of those are disreputable conduct under Section 10.51 for Circular 230. All right. Wonderful. Timothy, I believe it is back over to you. TIMOTHY MCCORMALLY: Thank you, Michael. With our discussion of Circular 230's standards complete, let's turn briefly to OPR's investigative and disciplinary process, which includes a summary of the types of discipline OPR can impose. Subpart C of the circular addresses sanctions for violating the regulations. 10.50 authorizes the sanctioning of practitioners. And potential sanctions include disbarment, censure, suspension, even the imposition of monetary penalties. It is important to know, however, that significant due process protections for the practitioner are built into OPR's procedures. OPR takes its mission very seriously, and for this reason practitioners are accorded many opportunities to explain their conduct. Please wee be assured we listen carefully. OPR receives referrals from many sources, including the IRS, revenue agents, revenue officers, appeals officers, and others. We also receive information about convictions or civil injunctions from the IRS's criminal investigation division or from the Department of Justice. And an important source of referrals for us are the information we receive on disciplinary actions from state bar associations, accountancy boards and US tax court. In addition, referrals can come from current or former clients, a practitioner's peers, former or current employees, business colleagues, and others. It is important for practitioners to realize that when OPR receives a referral, we check the practitioner's personal tax compliance to ensure that they have filed their personal tax returns or the returns for any entity over which they have control, as well as whether they had paid all of their taxes or are making an effort to pay. So do practitioners have time to get compliant? Or if they owe money but are in an installment agreement, is that okay? Yes. Practitioners would have time to get compliant if they are being diligent about doing so. But candidly, OPR is not going to wait for years for a practitioner to get their missing returns filed. When we raise a noncompliance issue with a practitioner, it is typically because there are several years of failure to file returns.

If the practitioner who is not making any real effort to pay an outstanding tax liability that we will focus on. I mentioned IRS employees. When a field agent imposes certain penalties on a practitioner, it is mandatory that they make a referral to OPR. These include 6694(b), 6700, and 6407 and 6408. Also, when other penalties are imposed, IRS field agents are encouraged to consider whether to make a referral to OPR. For example, penalties for failure to get a copy of the return to the client or negotiation of a client's refund check might, especially if imposed multiple times, prompt a referral. Another example of a possible discretionary referral to OPR is when an accuracy-related penalty is imposed under 6662. Upon receiving a referral, OPR first determines whether it has jurisdiction over the tax professional; that is, is the tax practitioner practicing before the IRS? Now, OPR investigations generally begin after the conclusion of an examination, appeal, or other enforcement action. We do not influence or generally participate in ongoing IRS enforcement activities. That said, OPR personnel may consult with OPR about potential practitioner misconduct. But they are admonished not to threaten an OPR referral during any enforcement activity. To do so would trigger an agency created conflict of interest between the practitioner and the taxpayer and undermine OPR's independence. In conducting an investigation, OPR will follow relevantly to determine the facts regarding the issues involved. If we conclude that there are actionable violations of the circular, we will issue an allegation letter that recites the relevant facts and identify the acts and omissions that appear to be violations of particular provisions. That allegation letter provides the practitioner with an opportunity to address the issues at a very early stage. The practitioner can elect not to respond, but I suggest that is generally not a wise choice. Early participation by a practitioner can help OPR understand both sides of the matter and reinforce the case that the practitioner was inside the line. Realistically then, relying early can save time for the practitioner and OPR. That is a win-win. If after a conference and settlement opportunity the practitioner and OPR cannot reach an agreement, OPR prepares a complaint, which is filed through the office of chief counsel to initiate a formal proceeding before an administrative law judge. The chief counsel's office will offer another opportunity to the practitioner to settle before the hearing process begins. The Administrative Law Judge or ALJ process looks very much like civil litigation with pleadings, motions, discovery, and often a hearing before the ALJ, who will issue a written decision. Now, that decision can sustain the allegation, impose or modify the discipline requested by OPR, or dismiss the case entirely on factual or legal grounds. After the ALJ's decision, both OPR and the practitioner have the opportunity to appeal to the treasury's appellate authority. An attorney in another division of the office of chief counsel who has had no previous involvement in the case. A practitioner who wishes to appeal the treasury official's subsequent decision may take the matter to federal court. The key here is that the process for OPR discipline gives the practitioner multiple opportunities to settle their case and provides for an independent review of OPR's proposed action. OPR has a range of options for closing a case and a variety of sanctions that can be imposed. A case can be closed without action if we conclude there was no misconduct or if the conduct does not appear to have any implications for future fitness to practice. It might also be closed if it's concluded that OPR has no jurisdiction over the professional. For example, because they are engaged in mere return preparation activities. We may just issue a soft letter in a tax compliance case giving the practitioner the opportunity to correct any filing or payment issues before we decide whether formal action may be necessary. Where something more formal is appropriate, the available sanctions escalate through the sanction level. Private reprimand, public censure, suspension, and disbarment. A private reprimand is in essence a censure without public disclosure. Censures are public reprimands because OPR publishes a list of censures, suspensions, and disbarments in the internal receive new bulletin. Suspensions and disbarments bar a practitioner from practicing before the IRS until the suspension or disbarment period has ended and the individual petitions for reinstatement and the reinstatement is granted by OPR.

Monetary sanctions are also available, but OPR rarely imposes monetary sanctions on the grounds that a practitioner should not be able to buy their way out of an ethics violation. More information about sanctions, including a list of disciplined practitioners, is accessible through OPR's website. Under the authority of Section 10.82, in certain cases, the OPR can suspend a practitioner before filing a complaint. The expedited suspension procedures involve practitioners who have already been adjudicated as failing to meet specific standards and have aural been provided an opportunity to be heard in another forum. For example, an individual who has been disbarred by their state bar association can be suspended under 10.82. OPR can also impose a suspension before filing a complaint if the practitioner is non-compliant with their federal taxes. This includes filing returning and paying tax liabilities. This brings us to the end of the formal presentation. And reviewing some key points, before reviewing some key points, in summary, I'd like to share OPR's contact information. You should feel free to contact OPR, either with general questions about Circular 230 or specific ones about how to make a referral.

In addition, I'd like to call your attention to helpful publications and other information that can be found on or OPR's website. I also want to confirm that several OPR-related forms and publications are available in Spanish. Again, you should feel free to reach out to OPR with your questions or your concerns. Michael, I turn it back to you. MICHAEL SMITH: All right.

Thanks, Timothy. And hello again, audience. So it is me, Michael Smith. And at this time, we are now going to start our Q&A session, questions and answers. But earlier, I mentioned that we want to know what questions you have for our presenter, and this is your opportunity. So if you haven't input your questions, there is still time. You can go ahead and click on the drop-down arrow next to ask question field and type in your question and click send. And then Timothy is staying on with us to answer your questions. So one thing before we start, we won't have time to get to all the questions. There are a number of them and we do thank you for posting those because we do want to know what you're curious about. But we will answer as many as time allows.

And again, I encourage everybody if you have questions on any of the content that you heard today, please ask it because we also use these questions to build and improve these presentations in the future. So Timothy, I will start reading some of these out to you. And if you need me to repeat the question or if it's something that you can't answer or comment on, just say let's go to the next question. But you just let me know. The first one I have and this has come up in prior webinars on this topic, too, that I can recall, but the question is: Do you need to inform the client in writing and I think the key term is in writing if you discover an error on a prior year's return? TIMOTHY MCCORMALLY: That's a great question. And I think it shows that people are paying attention. The answer is no, it does not have to be in writing. A waiver has to be in writing, but not the notification to the client. The waiver of conflict has to be in writing but not notification of an error or an omission. MICHAEL SMITH: Okay, great. Thanks for clarifying. All right so this one you may or may not be able to answer, but the question reads: When will Circular 230 be updated? And who's responsible for that? Is that your department? TIMOTHY MCCORMALLY: That's another great, great question. And I wish I had a more definitive answer than what I'm going to give, which is I can know it's the last time the Circular 230 was revised was 2014 and for the last couple of years is IRS priority guidance plan.

So it has been identified as a document issued by the IRS that needs to be updated. The office of professional responsibilities working with different individuals at the IRS, including the office of chief counsel have gone through the comments that we have received from a variety of practitioners and practitioner groups and are developing a revision that will then be reviewed by the treasury department. And together, we will collaborate on the preparation of what we call a notice to proposed rulemaking. The good news here is that once that is done, that document will be released, and public comment will be requested on the revisions. It will include a summary of the changes. So no definitive action on when other than that people in the treasury department and the IRS have identified it as a document that needs revision. MICHAEL SMITH: Okay.

Thanks for that. And I think, yeah, that definitely gives us more info and something to look for.

Let me throw another question at you. This one reads: What is the process for a licensed CPA to get certified under the Circular 230? Maybe you can kind of explain how that process works.

TIMOTHY MCCORMALLY: That's an excellent, excellent question. And it's interesting. We have a variety of practitioners, as you will recall, CPAs and enrolled agents. For attorneys and CPAs together, the fact that they have a professional credential, their state licensing authority, gives them authority to practice before the IRS. If it's general matters, CPAs and attorneys. Enrolled agents have to go through an application process. For CPAs, they are within the body of individuals who can practice before the IRS. But what they have to do in order to represent a particular taxpayer is to file a power of attorney, even though they're not attorneys.

It's a power of attorney, a form 2848. That is downloadable I believe on our web page as well as other places on And by completing that and among other things, they identify what their professional credential is. And they identify the tax periods and the issues upon which they want to represent the taxpayer. The taxpayer needs to be the one granting that power of attorney to the individual, and then it's submitted to the IRS. MICHAEL SMITH: All right.

Perfect. Yup, so I think that should clear the question up. If you are a CPA, you are already regulated by Circular 230. Only additional step would be power of attorney. Great. All right.

This question is about engagement letters. And it states: Do we need to receive a signed engagement letter each year for recurring clients? TIMOTHY MCCORMALLY: That's an excellent question. And I think as a best practice, what the practitioner needs to do is look at the specific terms in the engagement letter that the practitioner and the client have. So we're talking about, let's say, 2019 you started representing this individual. And that engagement letter says I will help you file your 2018 return, right? Because they were retained in 2019.

That engagement letter doesn't cover actions in 2020, 21, 22 or the future. So what the practitioner needs to do is think about are all the terms that are relevant to our engagement, are they set forth in the engagement letter? The best practice aspect of this under Section 10.33 of Circular 230 is that complete and ongoing communication with your client helps all of us understand what you've agreed to do. It helps you know what your obligations are and better manage conflicts that might arise between this particular client and other clients that you have. And it also helps everybody manage their expectations. So would it fail you to have a subsequent letter of engagement somehow constitute a violation of Circular 230 and it could give rise to sanction?

My assumption is no, not in itself. If that failure to communicate effectively with your client leads to further conduct that does cross the line of it may well come to that's that whole notion of 10.33. Admonition that a best practice would be to have one, have it cover everything that there is to cover. And that probably does need to be updated on a yearly basis. MICHAEL SMITH: Okay. Okay. Thanks for explaining that. That does make sense. Not just your opinion, but it gives us a best practice to follow. So every year is a good idea. TIMOTHY MCCORMALLY: Michael, I want to just elaborate on that, too, that to the extent that you had been retained by a client and you file that 2848 that we talked about previously, that's going to be limited to particular tax issues and particular tax periods, particular forms and particular periods. And so you're going to be obliged to file a subsequent power of attorney to the extent that you want to represent that client in that subsequent year or that additional tax issuer period. MICHAEL SMITH: Okay. That makes sense. Right. All right. For this next question, this is kind of two parts. I can definitely reread this, if necessary. So this reads: How can I be sure I am in good standing with the IRS or the office of professional responsibility? Or whether someone has filed a complaint against me? I think the question is, is there a way practitioners can check to make sure they are in good standing? TIMOTHY MCCORMALLY: Excellent question. And I think the fact of the matter is you will hear from us if we have received a referral concerning you and deemed it something appropriate for us to investigate. I'll be honest, there are lots of referrals we receive that we close without action because and I think I covered this during the formal presentation we determine that the conduct relates not the practice before the IRS, for example, but mere return preparation. In that case, it's unlikely that we would take any action at all. But to the extent that we can determine that an investigation may be appropriate, we will reach out to the practitioner. Due process requires us to notify the practitioner of the allegations that were made, to invite the practitioner to respond to those. There are times where it may not be until further along in the process that the practitioner is aware of something. But to give you an example, become aware that a practitioner has not paid their tax liability or have not filed their tax return. We're going to notify them of that and give them the opportunity to respond and the response may well be that happened and here is why it happened in this case and I have taken these steps in good faith to be compliant. In that case, you're notified. But if a practitioner has a question, has anybody been talking about me? You can contact us and we will let you know if a formal case has been brought upon which we need to hear from you. And so that will be the advice I have for you. MICHAEL SMITH: All right. I think that gives plenty of information. Awesome. Okay. This next question, it is a bit longer. I'll read through this and just let me know if you need me to read this again. But it poses a good scenario, and probably one that a number of practitioners run into. The question reads: When preparing a form 1065 partnership tax return, the tax practitioner relies on the tax matters partner to make certain choices. And the tax practitioner may know that those choices are disadvantageous to the other partner. So what's the tax practitioner's responsibility, to the other partner? Does the practitioner notify the other partner of these decisions? What's your advice in this situation?

TIMOTHY MCCORMALLY: Let me go back and ask for a clarification of the question just to make sure. Is the engagement of the related to the partnership or to the individual partners as well? MICHAEL SMITH: I'll repeat. Partnership. Preparing a form 1065. TIMOTHY MCCORMALLY: As a strictly legal question, if the engagement goes only to 1065, there is no obligation to do this. So I would suggest that doing your due diligence as in the Circular 230. But generally, to have a conversation with the tax matter partner with respect to whether or not they are aware that this could be disadvantageous to different partners and it may well be that you would suggest that the other partners secure independent counsel or independent representation to get involved in the matter. That will obviously complicate it, but it makes sense that you are not crossing the line in representing the partnership. But if your client is only the partnership, tax matter partner does have the authority to make those elections, then I think that you are in the clear with respect to whether or not there's a violation of Circular 230. MICHAEL SMITH: Okay. TIMOTHY MCCORMALLY: Michael, let me go back to the last question because I've been thinking about it a little bit here which is one of the reasons why I asked you to clarify that question on the 1060. But with respect to whether or not OPR is aware or has taken any action with a particular practitioner, there is this is listed on the resource page that is in the slide deck. There is what we call a disciplinary lookup file on the OPR website where you can bring up this file and look to see whether or not we have taken action against you. You know, it's almost like double checking because you would have heard if we're going to take action against you, but this is a way, if you want to confirm, hey, I don't have anything in my past that I forgot about. So that disciplinary lookup list on

MICHAEL SMITH: Got it, got it. Yeah, and that's something that's good for them to know, too because it's a quick, easy check. And with the US mail, a lot of times, you change offices, something like that, something changes and you don't receive that notice from OPR. That's an easy way for practitioners to check. All right. So here is I think this will have to be our last question. But this comes down to an ethical question. And I'm sure this one comes up and applies to a lot of people as well. So the question is: What if you know the client and know that your client is not providing you with all of their income and it's just a small business but they're simply not reporting? Then what should you do? TIMOTHY MCCORMALLY: This is why I said it during the presentation. It's not always easy being a tax practitioner. This is one where you have a client. Maybe it's an ongoing client. Maybe it's a brand-new one. If you had the if you have that feeling that your client isn't giving you the unvarnished truth, isn't giving you the facts that you need in order to satisfy the due diligence obligation, you need to make inquiries of that. And you need to say, hey, is this is this what you're giving me? Because I'm aware of other information that suggests that this isn't the case. And so you need to probe that because you cannot by being willfully blind, looking the other way, saying hey, this is what they gave me. You cannot satisfy your obligations under Circular 230 by saying, hey, I'm going by what my client told me. You can certainly sign by holding your nose. That doesn't satisfy your obligation under 10.22 to exercise due diligence with respect to tax. MICHAEL SMITH: And I appreciate our audience kind of appreciate your opinion and your perspective on scenarios like that because that does happen a lot. But audience, all right. Thank you, Tim. Audience, that's all the time for questions. Definitely want to thank Timothy for sharing his knowledge and expertise, for answering our questions. And Timothy, at this point, if you do have any key takeaways from today's program that you want the audience to be aware of, would you like to share anything with us now? TIMOTHY MCCORMALLY: You know, I think there's two things I'd like to share because I know we're getting close to our closing time. The first is that there's a wealth of information on the OPR website in Circular 230 that I would commend all the practitioners and others who are listening out there. And it helps identify why OPR does what it does do. On the other hand, the thing I want to reassure people about is that we take our obligation to extend due process protections to practitioners very, very seriously. We don't want to play gotcha. We're not looking for fool falls. And I would hope that the materials that are available to you, the comments that I have made today will underscore that if you have a question, if you have a concern, there are lots of resources. And I will say that in addition to what we have available on the OPR website, those of you who are members of other professional organizations to know that they, too, have a wealth of information. And if nothing else, through participation and continued education like this one, and more so the ones that are face-to-face, you have colleagues and acquaintances that you can say, hey, let me ask you a question. That whole phone a friend option can help you a lot. And I would just recommend that to you as we wrap up this program. MICHAEL SMITH: All right. Thank you so much, Timothy. So audience, we are planning additional webinars throughout the year. You can register for our upcoming webinars.

Visit, keyword search webinars and select the webinars for tax practitioners or webinars for small businesses. When appropriate, we will be offering certificates and continuing education credit for upcoming webinars. We invite you to visit our video portal at there you can view archived versions of our webinars. Please note, continuing education credits and certificates for completion are not offered if you view any version of our webinars after the live broadcast. Again, a big thank you to Timothy for a great webinar and for his expertise and answering your questions. I also want to thank you, our attendees, for attending today's webinar, Circular 230: Practicing "Inside the Lines" Throughout the Tax Engagement Lifecycle. If you attended today's webinar for at least 100 minutes after the official start time, you will receive a certificate of completion that you can use with your credentialing organization for two possible CE credit. If you stayed on for at least 50 minutes from the official start time of the webinar, you will qualify for one possible CPE credit. Again, the time we spend chatting before the webinar started doesn't count towards the 50 or 100 minutes. If you're eligible for continuing education from the IRS and registered with your valid PTIN your credit will be posted to your PTIN account. If you qualify and have not received your certificate or your credit by December 1st, please e-mail us at You should see that on your screen now.

If you're interested in finding out who your local stakeholder liaison is, you can send us an e-mail using that address shown on the slide as well, and we'll send you that information. We would appreciate it if you would take a few minutes to complete a short evaluation before you exit. If you'd like to see more sessions like this one, let us know. If you have thoughts on how we can make them better, definitely let us know that as well. And then if you have requests for future webinar topics or pertinent information, something you'd like to see in an IRS Fact Sheet or a Tax Tip or FAQ on, then please include your suggestions in the comments section of the survey. Click the survey button on the screen to begin. If it doesn't come up, just check to make sure you disabled your pop-up blocker. Finally, it has been a pleasure to be here with you.

And on behalf of the Internal Revenue Service and our presenter, we would like to thank you for attending today's webinar. It's important for us at the IRS to stay connected with the tax professional community, individual taxpayers, industry associations, as well as federal, State, and local government organizations. You make our job a lot easier by sharing the information that allows for proper tax reporting. Thanks again for taking time out of your day to attend today's webinar. We hope you found the information helpful. And you may exit the webinar at this time.

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