Practices and Procedures · Practice before the IRS

What constitutes practice before the IRS

Practice before the IRS is a defined term, not a description. It sets who Circular 230 governs, which acts expose someone to the Office of Professional Responsibility, and where the line falls between filling in a return and speaking for a taxpayer. Practitioners routinely assume the two are the same thing. They are not, and the difference decides who may stand between a client and a revenue agent.

The rule

Circular 230 defines practice before the IRS as comprehending 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 the laws and regulations the IRS administers (Circular 230 § 10.2(a)(4)). The regulation then gives a non-exhaustive list of what such presentations include: preparing documents, filing documents, corresponding and communicating with the IRS, rendering written advice with respect to any entity, transaction, plan or arrangement having a potential for tax avoidance or evasion, and representing a client at conferences, hearings, and meetings.

Two features of that definition do most of the work. First, it is about presentations to the IRS — the audience is the agency, not the client. Advice given to a client that never reaches the IRS is generally outside it, with the deliberate exception of written advice on arrangements with a potential for tax avoidance or evasion, which the regulation pulls in expressly. Second, it is not limited to representation. Preparing and filing documents count. So does correspondence.

A practitioner is any individual described in § 10.3(a) through (f) — attorneys, certified public accountants, enrolled agents, enrolled actuaries, enrolled retirement plan agents (Circular 230 § 10.2(a)(5)). Being a practitioner and engaging in practice are separate questions: an attorney who never contacts the IRS is still a practitioner, and a non-practitioner who represents an employer at an examination is engaged in limited practice under § 10.7(c) without becoming one.

Some acts are carved out. An individual may always appear on their own behalf, given satisfactory identification (§ 10.7(a)), and may participate in rulemaking under the Administrative Procedure Act (§ 10.7(b)). Under § 10.8(b), any individual may, for compensation, prepare or assist with a return or refund claim provided they prepare less than substantially all of it, appear as a witness for the taxpayer, or furnish information at the IRS’s request. None of that is practice.

How it works in practice

The practical question is usually which side of the line a particular act sits on, and the answer follows the definition more closely than instinct does.

Preparing a return is not, by itself, representation. Signing a return as paid preparer does not authorise anyone to argue about it later. Authority to represent comes from a power of attorney on Form 2848, and authority merely to receive and inspect information comes from Form 8821, which confers no representation rights at all.

Written advice can be practice even with no filing. Under § 10.3(a) and (b), an attorney or CPA need not file a written declaration before rendering written advice covered by § 10.37, but the regulation states plainly that rendering that advice is practice before the IRS. An adviser who never speaks to the agency can still be practising, and can still be sanctioned.

Preparing all or substantially all of a return brings Circular 230 duties with it. Section 10.8(a) requires a preparer tax identification number for anyone who, for compensation, prepares or assists with all or substantially all of a return or refund claim, and subjects that person to the duties and restrictions of subpart B and the sanctions of subpart C. The duty rules reach preparers who are not practitioners.

The regulation still carries provisions the IRS no longer operates. Sections 10.3(f) and 10.8(a) refer to registered tax return preparers, a designation the IRS stopped issuing after its mandatory testing regime was struck down; the voluntary Annual Filing Season Program took its place. Read those references as history, not as a route to practice rights available today.

How this has changed

The current definition dates from the 2011 rewrite of Circular 230, which added rendering written advice to the list of presentations and, in § 10.8, extended the duty rules to compensated preparers of all or substantially all of a return. That rewrite was built around a mandatory registered tax return preparer regime that was later invalidated in litigation, and the IRS replaced it with the voluntary Annual Filing Season Program. The regulation was never fully cleaned up afterwards, so its text still names registered tax return preparers in several places, including § 10.3(f) and § 10.8(a), while the IRS no longer issues that designation. Anything in this area written before 2014 should be read with that in mind.

Exam focus

Expect questions that give you an act and ask whether it is practice: preparing a return, writing to the IRS, giving a client advice, appearing as a witness, representing yourself. Anchor on § 10.2(a)(4)‘s two tests — is there a presentation to the IRS, and does it relate to a taxpayer’s rights, privileges, or liabilities — then check the § 10.7 and § 10.8(b) carve-outs. The distinction between preparing substantially all of a return and less than substantially all appears often, as does the point that written advice on a tax-avoidance arrangement is practice.

Check yourself

1. Which act is NOT practice before the IRS? (A) Filing a protest for a client (B) Appearing as a witness for the taxpayer at the IRS’s request (C) Writing to the IRS about a client’s proposed assessment (D) Rendering written advice on a transaction with potential for tax avoidance Answer: B. Section 10.8(b) expressly permits appearing as a witness and furnishing information without it being practice.

2. A CPA sends a client a memo on a tax-avoidance arrangement and files nothing. Is she practising before the IRS? (A) No, because nothing was filed (B) No, until she files a Form 2848 (C) Yes, because rendering such written advice is within the definition (D) Only if the client acts on the memo Answer: C. Section 10.2(a)(4) lists rendering that written advice as a presentation, and § 10.3(b) requires no declaration first.

3. An unenrolled preparer completes an entire return for compensation. Which is true? (A) Circular 230 does not apply to him (B) He must have a PTIN and is subject to subpart B duties and subpart C sanctions (C) He may represent the client at the resulting examination (D) He is a practitioner under § 10.2(a)(5) Answer: B. Section 10.8(a) imposes both. It does not make him a practitioner or grant representation rights.