Circular 230, a regulation issued by the U.S. Treasury Department and administered by the Office of Professional Responsibility, governs what CPAs, lawyers, and tax preparers can tell clients when giving tax advice to them. As such, Circular 230 bears directly on the fiduciary responsibility tax preparers have in regard to those they prepare taxes for. This is especially important in regard to errors and omissions tax preparers are responsible for since it is the taxpayer ultimately that is subject to penalties and fines for submitting an inaccurate tax return.
As fiduciaries, tax preparers are expected to promote and protect the interests of their clients, identifying appropriate tax deductions and accurate, factual information necessary for compliance and tax filing purposes. Understanding what Circular 230 requires can help tax professionals avoid unwanted sanctions, censure, disbarment, or suspension from practice before the IRS, any of which can severely impair a practitioner’s business.
If you are a CPA, a lawyer or tax preparer and are interested in legal counsel regarding issues of liability, Circular 230 and fiduciary re
sponsibility, contact the tax lawyers at our Houston-based firm today.
Tax Preparers and Fiduciary Responsibility
As fiduciaries, tax preparers are expected to adhere to the following principles:
- Tax preparers are required to act in the interests of their clients, providing transparency and disclosure
- Tax preparers cannot place their own interests before those of their client
- Tax preparers are expected to exercise due diligence in adhering to the ethics and standards of their profession
- Tax preparers are supposed to provide a maximum amount of protection for their client allowable under the law
- If a tax preparer has a dual role that would require him to act contrary to the interests of his client, he or she must disclose this information.
The Small Business and Work Opportunity Act and Tax Preparers
In May of 2007, the Small Business and Work Opportunity Act was passed by Congress (SBWOA). Under the SBWOA, the accuracy threshold for tax preparers was increased, using a “more likely than not” standard as opposed to the older” realistic possibility.” Practically speaking, under the SBWOA, the “more likely than not” standard translates into a 51 percent likelihood that a tax return is accurate. This is substantially more than the older “realistic possibility” standard that required a 33 percent chance that a position on a tax return could be defended on its own merits. Failure on the part of tax preparers to adhere to the revised accuracy standards of the SBWOA can result in substantial penalties.
Of equal importance is the broadening of the definition of “preparer” under the SBWOA. Under its terms, “preparer” includes more than the person who signs the return. Under the SBWOA, a preparer can include employees who prepare data for the return and professionals who offer advice to a taxpayer. The effect of the SBWOA on Circular 230 has resulted in a more stringent requirement for accuracy under Circular 230 as well.
Contact the Pro Tax Councel
If you prepare taxes for others and have questions about changes to existing law or Circular 230, contact Pro Tax Councel for more information regarding liability and tax preparation and steps you can take to protect your business and clients.