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Integrating circular 230 unto the tax curriculum.

Income tax rules, regulations and court cases are overwhelming in volume and complexity. As a result, tax educators face a daunting task in trying to teach in a meaningful, coherent way and to cover tax literature adequately so that their students can practice effectively. While students may receive an in-depth education and become technically competent tax practitioners, their education would be remiss (and incomplete) if it did not instill a sense of ethics and clarify the consequences of an inadequate performance, such as sanctions and penalties.

Within the broad penalty structure, taxpayers, tax advisers, firms and their staffs, and students should familiarize themselves with two critical documents--Treasury Circular 230, Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries, and Appraisers Before the Internal Revenue Service (Circular 230), and the AICPA's Statements on Standards for Tax Services (SSTSs)--along with any proposed changes to these documents that may be on the horizon. Circular 230 and the SSTSs are the foundation of the profession. In instituting and maintaining them, tax practitioners fulfill their professional responsibilities.

This responsibility extends to tax academicians, who should consider how to revise the tax curriculum to enable students to cope with the increased rigors of tax practice. Updating of curriculum will also better prepare students to sit for the CPA examination. Besides the examination's technical aspects, it also covers ethical issues and responsibilities in tax practice, including Circular 230 and the SSTSs, according to the Uniform CPA Examination's "Examination Content Specifications."

Penalties and Sanctions under Circular 230

Tax practice, as defined in Section 10.2(d) of Circular 230, encompasses "all matters connected with a presentation to the Internal Revenue Service or any of its officers or employees relating to a taxpayer's rights, privileges, or liabilities under laws or regulations administered by the Internal Revenue Service." A presentation may include preparing and filing documents and corresponding and communicating with the IRS, as well as representing clients at hearings, conferences and meetings.

An understanding of Circular 230 is critical, because of the duties it requires of practitioners and the penalties and/or sanctions it imposes for neglecting responsibilities. Duties cover due diligence, as discussed in Section 10.22, which includes preparing (or assisting in the preparation of), approving and filing tax returns, affidavits, documents and other papers with the IRS. Due diligence also means the correctness of both written and oral communications with Treasury and with clients on IRS matters. Other duties include advising clients on tax return positions, which includes signing and preparing tax returns (Section 10.34), covered opinions (Section 10.35) and other written advice (Section 10.37).

In addition to governing tax practice, Circular 230 has the authority to impose sanctions on practitioners who violate its regulations. It also increased the authority of the IRS Office of Professional Responsibility to impose penalties and sanctions. According to Section 10.50, sanctions may range from a private reprimand to public censure, suspension or disbarment. Besides not being able to practice before the Service, practitioners who are suspended or disbarred may lose their license to practice at the state level, depending on the state's disciplinary rules. Tax advisers could also be subjected to liability claims based on the underlying transaction that gave rise to the suspension or disbarment. Finally, Treasury can impose monetary penalties on practitioners and their firms for engaging in conduct subject to sanctions under Circular 230.


Besides Circular 230, the SSTSs, which are mandatory and apply to all AICPA members, can be the basis of professional discipline, including loss of membership. These standards have influenced the courts, the IRS and state accountancy boards. Even tax advisers who are not AICPA members may be subjected to standards similar to those of the SSTSs.

The most recent amendments to Circular 230, including Sections 10.33 (Best Practices) and 10.36 (Procedures to Ensure Compliance), highlight the need for additional guidance to help members respond to the rapid change and complexity of the tax system. Thus, the AICPA Tax Division's Tax Executive Committee, which is also concerned with addressing best practices and compliance, proposed SSTS No. 9, "Quality Control."

According to the introduction to this proposed statement, practitioners "cannot take personal responsibility for every aspect of ... tax practice," because of the broad variation in the size and form of tax practices. Thus, there is a need for a statement addressing an adequate system of quality control in a tax practice. Such a system can give firms "reasonable assurance" that their personnel are complying with professional standards.

The SSTSs reflect the appropriate standards for tax practice and delineate CPAs' responsibilities to taxpayers, the public, the government and the profession. Circular 230 covers a much wider array of tax advisers and also includes attorneys, enrolled agents and actuaries. Its sanctions go far beyond those of the AICPA (reprimand and/or disbarment), including monetary penalties for noncompliance.

Avoiding Penalties and Sanctions

Documentation is the cornerstone of compliance with all relevant regulations and standards. Good record-keeping has been highlighted, regrettably, by the potential for criminal prosecution of clients. Documents should reflect the advice given, when it was given and why it was given (i.e., the authority supporting the opinion). In addition, records should document the conclusion reached. In other words, practitioners must not only understand which research is necessary to comply with the tax laws, but also how they should conduct such research.

Class Assignments

Students in tax courses should become familiar with Circular 230, especially Section 10.35 (determining when advice constitutes a covered opinion). To further complicate matters, Section 10.37 identifies extensive documentation and disclosure requirements for "other written advice" that would not be deemed a covered opinion. This other advice appears to encompass an enormous volume of client-rendered tax advice; for details, see Kastantin, Eide and Gardner, "Amendments to Circular 230," Part I, TTA, January 2006, p. 24, and Part II, TTA, February 2006, p. 90, for an analysis of Sections 10.33-10.38, along with comments and caveats for tax practitioners who prepare written tax advice. (Part II of that article presents a chart useful for navigating the treacherous and sometimes nonlinear text of these sections. For further clarification, the AICPA offers a Circular 230 PowerPoint presentation. While the presentation is quite technical in nature, Slide 52 presents a helpful flowchart.)

Based on a perusal of syllabi available via the Internet, students are being asked to do considerable tax research. Assignments often involve writing a client letter that presents research findings along with an opinion; see Georgia State University's "M.Tx. Tax Writing Web Site" for excellent examples of client letters. To get the most out of this exercise, professors can distribute ungraded, blind copies to students and ask them to review the letters to determine whether an opinion should be classified as a covered opinion, other written advice or as advice not covered by Sections 10.33-10.38.

At the undergraduate level, students can simply identify the Circular 230 paragraph that specifically covers the opinion under review. (it is reasonable to assume that the students can review and master the content of the above sections. This has been the experience of one of the authors over the past 20 years.) In more advanced tax courses or a graduate course, students can also re-draft a covered opinion so it will be recharacterized as other written advice, for example, or state that the nature of the opinion is such that it will normally be a covered opinion.

Students can also use several approaches to review and analyze parts of Circular 230. For example, they can develop sections of a tax responsibilities manual that include material from Circular 230, including Section 10.22 on due diligence, Section 10.34 on tax return positions, Section 10.35 on covered opinions and Section 10.37 on written advice. They can also do tax research on various topics (e.g., on the economic-substance doctrine or another complex tax issue) and then discuss how they would comply with Circular 230 within the broad framework of tax duties (including the SSTSs). Finally, students can review the legal provisions for tax shelters, as well as covered opinions under Section 10.35.

Undergraduates can complete reasonably comprehensive tax research and discuss (with various degrees of sophistication) both legal and professional tax adviser responsibilities under penalty provisions such as Sec. 6694 (i.e., the realistic possibility standard) and duties under Circular 230. Assignments that are demanding require maximum involvement by faculty. This includes giving feedback on the content, grammar and writing of drafts and final papers and arranging for practitioners to lecture on how their firm addresses Circular 230 and the SSTSs in practice. These approaches combine an introduction to tax research with practitioner responsibilities, which should not be overlooked in tax education.

For Circular 230 resources, see the exhibit on p. 487.

Editor's note: Prof. Nellen is a farmer member of the AICPA Tax Division's Strategic Planning Task Force and Tax Executive Committee. Dr. Gardner is a member of the Tax Division's Tax Executive Committee. For more information about this column, contact Prof. Nellen at


Annette Nellen, CPA, Esq.

Professor Department of Accounting & Finance

San Jose State University

San Jose, CA


Joseph T. Kastantin, CPA, CMA

Associate Professor

University of Wisconsin-La Crosse

La Crosse, WI

Barbara J. Eide, Ph.D., CPA


University of Wisconsin-La Crosse

La Crosse, WI

John C. Gardner, Ph.D., CPA


University of Wisconsin-La Crosse

La Crosse, WI
Exhibit: Helpful Websites on Circular 230

Treasury Circular 230
AICPA PowerPoint Presentation,
Circular 230 /8D550F3E-8E50-4945-94OF-
AICPA Code of Professional Conduct

Georgia State University, M.Tx.
Writing Web Site CLExamples.html


SSTS No. 9, "Quality Control"

Uniform CPA Examination,
Examination Content Specifications _CSOs_revised_10 05.pdf
COPYRIGHT 2006 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
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Author:Gardner, John C.
Publication:The Tax Adviser
Date:Aug 1, 2006
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