Practices and Procedures · Sanctionable acts

Incompetence and disreputable conduct that may result in a disciplinary proceeding

There are two separate doors into a Circular 230 disciplinary proceeding, and practitioners tend to know only one. Section 10.51 lists conduct that is disreputable in itself — much of it criminal, some of it merely careless. Section 10.52 says that willfully breaking any other rule in the part is independently sanctionable. A practitioner who has done nothing on the § 10.51 list can still be disbarred through § 10.52, and the reverse is also true.

The rule

The sanction power. The Secretary of the Treasury or delegate may, after notice and an opportunity for a proceeding, censure, suspend or disbar any practitioner shown to be incompetent or disreputable within the meaning of § 10.51, who fails to comply with any regulation in the part under the standards of § 10.52, or who, with intent to defraud, willfully and knowingly misleads or threatens a client or prospective client (Circular 230 § 10.50(a)). Those are three independent grounds, and the third does not depend on either list.

Section 10.51 conduct. The section gives 18 enumerated categories, expressly a non-exhaustive list^TY2026. They fall into recognisable families. Convictions: any criminal offence under the federal tax laws, any offence involving dishonesty or breach of trust, and any felony whose conduct renders the practitioner unfit to practise (§ 10.51(a)(1)–(3)). Deception of the government: knowingly giving, or participating in giving, false or misleading information to Treasury or to any tribunal passing on federal tax matters — and “information” expressly reaches testimony, returns, financial statements, enrollment applications, affidavits and declarations, written or oral (§ 10.51(a)(4)). The practitioner’s own compliance: willfully failing to file a federal return, or willfully evading assessment or payment of any federal tax (§ 10.51(a)(6)). Handling client money: misappropriating, or failing properly or promptly to remit, funds a client gave the practitioner to pay taxes (§ 10.51(a)(8)). Corruption: attempting to influence official action by threats, false accusations, duress, coercion, special inducement, or any gift or thing of value (§ 10.51(a)(9)). Discipline elsewhere: disbarment or suspension by any state, federal court of record, or federal agency (§ 10.51(a)(10)). Opinions: giving a false opinion knowingly, recklessly or through gross incompetence, or a pattern of incompetent opinions (§ 10.51(a)(13)). Administrative failures done willfully: failing to sign a return the practitioner prepared where signature is required, failing to e-file where required, preparing or signing without a valid PTIN, and representing a taxpayer without authority (§ 10.51(a)(14), (16), (17), (18)).

Section 10.52 conduct. A practitioner may be sanctioned for willfully violating any regulation in the part other than § 10.33, or for violating § 10.34, § 10.35, § 10.36 or § 10.37 recklessly or through gross incompetence (Circular 230 § 10.52(a)). The second branch is the important one: for those four sections — return standards, covered opinions, procedures to ensure compliance, and requirements for written advice — the government does not have to prove willfulness.

How a case starts. An IRS officer or employee with reason to believe a practitioner violated the part must promptly make a written report explaining the facts and reasons, submitted to the office responsible for enforcing the part (§ 10.53(a)). Anyone else may report orally or in writing; if the report goes to an IRS employee, that employee reduces it to writing and submits it (§ 10.53(b)). Reports are destroyed as soon as the applicable records schedule permits, and destruction does not bar a proceeding — it only prevents the report itself being used in one (§ 10.53(c), (d)).

Current figures

How it works in practice

The clearest structural point is the mental state. Most of § 10.51 is written around “willfully”, “knowingly” or a conviction, but three entries are not: giving a false opinion through gross incompetence (§ 10.51(a)(13)), and the whole reckless-or-grossly-incompetent branch of § 10.52 that applies to §§ 10.34–10.37. A practitioner who is simply out of their depth on a written advice engagement is exposed without any finding of bad faith. Section 10.51(a)(13) even defines the terms: reckless conduct is “a highly unreasonable omission or misrepresentation involving an extreme departure from the standards of ordinary care”, and gross incompetence includes “gross indifference”, “preparation which is grossly inadequate under the circumstances”, and “a consistent failure to perform obligations to the client”.

The second point is that the list is not a boundary. Section 10.51(a) says the categories are included “but not limited to”, so conduct that fits none of the eighteen can still be disreputable. Arguing that a fact pattern does not match an enumerated item is not a defence on its own.

The third is that a practitioner’s own tax affairs are inside the rule. Willfully failing to file one’s own return is § 10.51(a)(6) conduct, entirely independent of anything done for a client. This is the most common route to a suspension in practice and the one practitioners least expect.

The reporting rules deserve a moment. Section 10.53(a) obliges an IRS employee who has reason to believe there was a violation — it is not discretionary at that threshold. Section 10.53(d) is the sting in the tail: a destroyed report cannot be used as evidence, but the investigation it started proceeds unaffected.

How this has changed

The current text of §§ 10.51 and 10.53 dates from T.D. 9527 (76 FR 32308, 3 June 2011) and applies to conduct on or after 2 August 2011; § 10.52 comes from T.D. 9359 (72 FR 54551, 26 September 2007) and applies to conduct on or after 26 September 2007. The 2011 amendments added the PTIN and electronic filing entries at § 10.51(a)(16) and (17), which reflect the registered tax return preparer regime introduced at the same time. The registered tax return preparer designation itself did not survive later litigation, but the PTIN and e-file entries in § 10.51 were never removed and remain enforceable as written.

Exam focus

Distinguish § 10.51 from § 10.52 and be able to say which one a fact pattern uses. Know the mental state each requires, and in particular that §§ 10.34–10.37 can be violated recklessly or through gross incompetence under § 10.52(a)(2). Recognise the frequently tested § 10.51 entries: personal failure to file, misappropriation of client funds, false or misleading information to Treasury, discipline by another authority, and practising while suspended or assisting someone who is. Remember that the list is non-exhaustive and that § 10.50 carries a third ground of its own — misleading or threatening a client with intent to defraud.

Check yourself

1. A practitioner is suspended from practice by their state accountancy board. Under Circular 230 this is: (A) Irrelevant, since the state has no authority over IRS practice (B) Disreputable conduct under § 10.51(a)(10) in its own right (C) Sanctionable only if the underlying conduct involved federal tax (D) Grounds for automatic disbarment Answer: B. Discipline by a state authority, a federal court of record or a federal agency is itself listed conduct.

2. Which provision allows sanction without a finding of willfulness? (A) Section 10.52(a)(1), for violating any regulation in the part (B) Section 10.52(a)(2), for violating §§ 10.34, 10.35, 10.36 or 10.37 recklessly or through gross incompetence (C) Section 10.51(a)(6), failure to file (D) None; Circular 230 always requires willfulness Answer: B.

3. A member of the public telephones the IRS to allege a practitioner falsified a client’s records. Under § 10.53: (A) Nothing happens unless the report is put in writing by the caller (B) The IRS employee receiving it must make a written report and submit it (C) The report may only come from an IRS employee (D) The allegation must first go to the practitioner Answer: B. Section 10.53(b) allows an oral report from a person other than an IRS employee; the employee reduces it to writing.

4. A practitioner’s conduct fits none of the eighteen categories in § 10.51(a). It follows that: (A) The conduct cannot be disreputable (B) The conduct may still be disreputable, the list being non-exhaustive (C) Only § 10.52 can apply (D) A proceeding requires a criminal conviction first Answer: B.

5. An enrolled agent collects funds from a client to pay a tax liability and remits them three weeks late, the client suffering no loss. This is: (A) Outside § 10.51 because nothing was misappropriated (B) Within § 10.51(a)(8), which covers failure to remit promptly as well as misappropriation (C) Sanctionable only under § 10.52 (D) A matter for the state board rather than OPR Answer: B.