Circular 230 is the Treasury Department’s rulebook, published as 31 C.F.R. Part 10, that governs how attorneys, CPAs, enrolled agents, and other tax professionals must behave when they represent taxpayers before the IRS.1eCFR. 31 CFR Part 10 – Practice Before the Internal Revenue Service It sets ethical duties, defines who is allowed to practice, and lists the sanctions the IRS can impose when someone breaks the rules. If you’ve hired a professional to prepare a complicated return or handle a dispute with the IRS, Circular 230 is the reason that person operates under enforceable obligations to you.
Who Circular 230 Applies To
The regulations cover five categories of credentialed tax professionals:
- Attorneys in good standing who are not currently suspended or disbarred from IRS practice.
- Certified public accountants in good standing, under the same terms as attorneys.
- Enrolled agents, who qualify by passing the IRS’s Special Enrollment Examination or through prior IRS employment.
- Enrolled actuaries, whose practice is limited to certain retirement plan and pension provisions.
- Enrolled retirement plan agents, whose practice is limited to specific retirement plan programs.
Appraisers who prepare valuations used in tax filings also fall under Circular 230 and can be disqualified for violations.2eCFR. 31 CFR 10.50 – Sanctions
Not everyone who deals with the IRS on your behalf needs a credential. Circular 230 recognizes “limited practice” for certain people: a family member can represent a relative, a full-time employee can represent their employer, and a corporate officer can represent the corporation. They still need satisfactory identification and proof of authority, and anyone previously suspended or disbarred is shut out entirely.3eCFR. 31 CFR 10.7 – Limited Practice
The activities covered are broad. “Practice before the Internal Revenue Service” reaches all matters connected with a presentation to the IRS relating to a taxpayer’s rights, privileges, or liabilities, including preparing and filing documents, corresponding with the IRS, appearing at conferences and hearings, and rendering written tax advice on transactions with tax-avoidance potential.4eCFR. 31 CFR 10.2 – Definitions If your professional does anything on your behalf that touches the IRS, Circular 230 almost certainly applies.
What Your Practitioner Owes You
Circular 230’s core is a set of professional duties. These are enforceable rules, not aspirations.
Due Diligence
A practitioner must exercise due diligence when preparing or helping prepare returns and related documents, and the same standard applies to oral and written representations made to the IRS and to clients.5eCFR. 31 CFR 10.22 – Diligence as to Accuracy Your preparer isn’t supposed to take your numbers at face value without applying professional judgment about whether they make sense.
Telling You About Errors
When a practitioner discovers that you’ve made an error or omission on a return or other document filed with the IRS, they must promptly notify you and explain the tax consequences.6eCFR. 31 CFR 10.21 – Knowledge of Clients Omission They aren’t required to report the error to the IRS themselves, but they can’t sit on the knowledge.
Conflicts of Interest
A practitioner cannot represent you if doing so would be directly adverse to another client, or if their ability to represent you would be materially limited by obligations to someone else or by a personal interest. They can proceed anyway only if they reasonably believe they can still provide competent representation, the representation isn’t prohibited by law, and every affected client gives informed written consent within 30 days. Those consents must be kept on file for at least 36 months after the representation ends.7eCFR. 31 CFR 10.29 – Conflicting Interests
Returning Your Records
If you ask for your records back, your practitioner must return them promptly, even if you owe them money. A fee dispute generally does not excuse holding your files. The one exception: where state law permits retaining records during a fee dispute, the practitioner can hold back certain work product, but must still return anything you need to attach to a return and give you reasonable access to review and copy the rest.8eCFR. 31 CFR 10.28 – Return of Client Records
Fees
Unconscionable fees are prohibited. The rules don’t set a dollar threshold, but the standard targets fees grossly disproportionate to the services provided. Contingent fees face tighter limits: as a general rule, a practitioner cannot charge a fee that depends on the specific outcome, so “percentage of your refund” arrangements for original return preparation are out. Contingent fees are allowed in narrower situations, including when the IRS has already initiated an examination or challenge to an original return, for claims involving only statutory interest or penalties assessed by the IRS, and for judicial proceedings under the tax code.9eCFR. 31 CFR 10.27 – Fees A preparer advertising fees based on your refund size is likely violating Circular 230.
Standards for Return Positions and Written Advice
Circular 230 prohibits a practitioner from signing a return, advising you to take a position, or preparing part of a return that contains a position lacking a reasonable basis. Willfully, recklessly, or through gross incompetence signing or advising on a position that is “unreasonable” under the Internal Revenue Code’s preparer penalty provisions is a separate violation. A pattern of aggressive positions can itself be evidence of willfulness or recklessness, even if each position looks defensible in isolation.10eCFR. 31 CFR 10.34 – Standards With Respect to Tax Returns and Documents
Written tax advice has its own quality controls. The advice must rest on reasonable factual and legal assumptions, and the practitioner must make reasonable efforts to identify all relevant facts rather than working only with what you volunteer. Reliance on your representations, or those of anyone else, is prohibited if the practitioner knows or should know the information is incomplete or inconsistent.11eCFR. 31 CFR 10.37 – Requirements for Written Advice
One rule here surprises people: a practitioner cannot factor in the likelihood that a return won’t be audited when evaluating a position. The advice has to stand on its legal merits, not on the odds of getting caught.
What Happens When a Practitioner Violates Circular 230
The IRS Office of Professional Responsibility (OPR) has exclusive authority to enforce Circular 230. It investigates potential violations, pursues discipline, and imposes sanctions.12Internal Revenue Service. Office of Professional Responsibility and Circular 230 Grounds for sanction include incompetence, disreputable conduct, failure to comply with any Circular 230 rule, and willfully misleading a client with intent to defraud.
The available sanctions escalate:
- Censure is a public reprimand. The practitioner’s name is published, and they can keep practicing.2eCFR. 31 CFR 10.50 – Sanctions
- Suspension bars the practitioner from IRS practice for a fixed term or indefinitely. Even after a fixed term ends, the practitioner must petition the OPR for reinstatement before resuming practice.13Internal Revenue Service. Frequently Asked Questions
- Disbarment is the most severe sanction. A disbarred practitioner cannot practice before the IRS and cannot even petition for reinstatement for at least five years.13Internal Revenue Service. Frequently Asked Questions
- Monetary penalties can be imposed on the individual, the firm, or both. The penalty cannot exceed the gross income derived from the sanctioned conduct, and it can be layered on top of a censure, suspension, or disbarment.2eCFR. 31 CFR 10.50 – Sanctions
- Disqualification applies specifically to appraisers.
The OPR usually tries to resolve matters informally before filing a formal complaint. If no settlement is reached, the case proceeds as a civil action before an Administrative Law Judge under the Administrative Procedure Act, with appeal rights to a Treasury Appellate Authority and, ultimately, to federal district court.14Internal Revenue Service. Due Process Procedures in Circular 230 Matters
How to Check Your Practitioner’s Standing
The OPR publishes censures, suspensions, and disbarments in the Internal Revenue Bulletin so the public can see who has been sanctioned.15Internal Revenue Service. Announcements of Disciplinary Sanctions in the Internal Revenue Bulletin Because status can change after publication, verify current eligibility by searching the IRS’s “disciplined tax professionals” database on its website. You can also contact the OPR by eFax at 855-814-1722 or by mail at the Office of Professional Responsibility, IR Room 7238, 1111 Constitution Avenue NW, Washington, DC 20224. Running that check before you sign an engagement letter takes a few minutes and is one of the simplest ways to protect yourself.