Representation before the IRS · Building the Taxpayer's Case: Preliminary Work
Identification of tax issue(s) with supporting details
tax year · reviewed 2026-08-18 · I. Ohu
Identifying the issue is not a preliminary to the work — under Circular 230 it is the work, and the standard is written down. Section 10.37 lists six requirements for written advice, and read as a research method rather than as a compliance checklist they describe exactly how a matter should be worked up: find the facts, do not assume them, relate the law to them, and never weigh the odds of getting away with it.
The rule
The six requirements. See the figures table (Circular 230 § 10.37(a)(2)). A practitioner giving written advice on a Federal tax matter must:
- Base the advice on reasonable factual and legal assumptions, including as to future events;
- Reasonably consider all relevant facts and circumstances the practitioner knows or reasonably should know;
- Use reasonable efforts to identify and ascertain the facts relevant to each Federal tax matter;
- Not rely on representations, statements, findings or agreements of the taxpayer or anyone else “if reliance on them would be unreasonable”;
- Relate applicable law and authorities to facts; and
- Not take into account the possibility that a return will not be audited or that a matter will not be raised on audit.
When reliance is unreasonable. See the figures table (§ 10.37(a)(3)). Reliance is unreasonable “if the practitioner knows or reasonably should know that one or more representations or assumptions on which any representation is based are incorrect, incomplete, or inconsistent.”
Relying on another professional. See the figures table (§ 10.37(b)). Only if the advice “was reasonable and the reliance is in good faith considering all the facts and circumstances” — and never where the practitioner knows or reasonably should know that the opinion should not be relied on, that the person is not competent or lacks the necessary qualifications, or that they have a conflict of interest in violation of Circular 230.
What counts as a Federal tax matter. Any matter concerning the application or interpretation of a revenue provision, “any provision of law impacting a person’s obligations under the internal revenue laws,” or “any other law or regulation administered by the Internal Revenue Service” (§ 10.37(d)). Government submissions on general policy and continuing education presentations are outside it — but not presentations “marketing or promoting transactions.”
How compliance is judged. A reasonable practitioner standard, “considering all facts and circumstances, including … the scope of the engagement and the type and specificity of the advice sought by the client” (§ 10.37(c)(1)).
Client-supplied information. See the figures table (Circular 230 § 10.34(d)). A practitioner “generally may rely in good faith without verification” on information furnished by the client — but “may not ignore the implications of information furnished to, or actually known by, the practitioner, and must make reasonable inquiries if the information as furnished appears to be incorrect, inconsistent with an important fact or another factual assumption, or incomplete.”
Telling the client what it will cost them. See the figures table (§ 10.34(c)). The practitioner must inform the client of penalties reasonably likely to apply, and of “any opportunity to avoid any such penalties by disclosure, if relevant, and of the requirements for adequate disclosure.” This applies “even if the practitioner is not subject to a penalty.”
Diligence underpins it. Circular 230 § 10.22(a) requires due diligence in preparing and filing, in representations to Treasury, and in representations to clients.
Current figures
| Item | Rule | Authority |
|---|---|---|
| Requirements for written advice | 6 — base the advice on reasonable factual and legal assumptions including as to future events; reasonably consider all relevant facts and circumstances the practitioner knows or reasonably should know; use reasonable efforts to identify and ascertain the facts relevant to each Federal tax matter; not rely on representations, statements, findings or agreements of the taxpayer or anyone else where reliance would be unreasonable; relate applicable law and authorities to facts; and not take into account the possibility that a return will not be audited or a matter not raised on auditTY2026 | Circular 230 § 10.37(a)(2) |
| When reliance is unreasonable | reliance on representations, statements, findings or agreements is unreasonable if the practitioner knows or reasonably should know that one or more of the representations, or assumptions on which any representation is based, are incorrect, incomplete or inconsistentTY2026 | Circular 230 § 10.37(a)(3) |
| Relying on another professional | a practitioner may rely on another person's advice only if it was reasonable and the reliance is in good faith on all the facts and circumstances — and reliance is not reasonable where the practitioner knows or reasonably should know that the opinion should not be relied on, that the person is not competent or lacks the necessary qualifications, or that the person has a conflict of interest in violation of Circular 230TY2026 | Circular 230 § 10.37(b) |
| Client-supplied information | a practitioner generally may rely in good faith without verification on information furnished by the client — but may not ignore the implications of information furnished to or actually known by them, and must make reasonable inquiries if the information appears incorrect, inconsistent with an important fact or another factual assumption, or incompleteTY2026 | Circular 230 § 10.34(d) |
| Warning the client on penalties | a practitioner must inform the client of any penalties reasonably likely to apply to a position on a return where the practitioner advised on it or prepared or signed the return, and to any document, affidavit or other paper submitted to the IRS — and must inform the client of any opportunity to avoid them by disclosure and of the requirements for adequate disclosure, whether or not the practitioner is themselves exposedTY2026 | Circular 230 § 10.34(c) |
| Where diligence applies | 3 — in preparing or assisting in the preparation of, approving, and filing returns, documents, affidavits and other papers relating to IRS matters; in determining the correctness of oral or written representations made to the Treasury Department; and in determining the correctness of oral or written representations made to clients on any matter administered by the IRSTY2026 | Circular 230 § 10.22(a) |
How it works in practice
Facts first, and go and get them. Requirement (iii) is the one that separates competent work from plausible work: use reasonable efforts to identify and ascertain the facts. Not accept the facts as narrated. The client’s account of a transaction is a starting point, and the documents — agreements, bank records, minutes, the return itself, the transcript — are what the issue is actually identified from.
Two-way reading: return and transcript together. The client’s copy tells you what was reported. The account transcript tells you what the IRS did with it. Issues live in the gap, and a matter worked up from one without the other will miss half of them.
Never price the audit lottery. Requirement (vi) forbids taking into account the possibility that a return will not be audited or an item not raised. The same prohibition appears in Reg. § 1.6662-4(d)(2) for substantial authority. A client who argues a position is safe because nobody will look is making an argument Circular 230 forbids the practitioner from adopting, and saying so plainly is part of the job.
Good faith reliance on the client has a hard edge. Section 10.34(d) permits reliance without verification — and then removes it wherever the information “appears to be incorrect, inconsistent with an important fact or another factual assumption, or incomplete.” The trigger is what appears on the face of what you were given. A schedule that does not foot, a figure inconsistent with last year, a gap where a document should be: each obliges a reasonable inquiry.
Write the assumptions down. Requirement (i) requires reasonable factual and legal assumptions. Assumptions that are never articulated cannot be tested, and when the facts turn out differently there is no record of what the advice was conditioned on. Stating them protects the client and the practitioner.
Relate law to facts — do not narrate them separately. Requirement (v) is a drafting instruction as much as an analytical one. A memorandum with a facts section and a law section and no bridge has not done it. The analysis is the bridge.
Penalty advice is mandatory and is owed even when you are safe. Section 10.34(c)(3) applies “even if the practitioner is not subject to a penalty.” So the practitioner’s own exposure is irrelevant to the duty. And the duty has two limbs: the penalties reasonably likely to apply, and the disclosure route out of them, with its requirements. A client told about the penalty but not about Form 8275 has been half advised.
Check the other professional before leaning on them. Reliance on someone else’s advice fails where the practitioner knows or should know the person is not competent, lacks the qualifications, or has a Circular 230 conflict. That is a due diligence step on the adviser, not only on the advice.
The facts nobody checked
A client describes a transaction and asks for written advice. The practitioner analyses the law carefully against the description and delivers an opinion. On examination the agreements turn out to contain a clause the client never mentioned, which changes the answer.
Analysis. The failure was at requirement (iii). Circular 230 § 10.37(a)(2)(iii) requires the practitioner to "use reasonable efforts to identify and ascertain the facts relevant to written advice on each Federal tax matter" — not to work from the client's narration. Reading the agreements was the reasonable effort. The advice may also fail (i), since the factual assumptions were not reasonable, and (v), since the law was related to facts that were not the facts.
The schedule that did not foot
A client supplies a summary of deductible expenses. The total does not match the sum of the components, and one category is roughly double the prior year with no explanation.
Analysis. Reliance without verification is no longer available. Circular 230 § 10.34(d) permits good-faith reliance on client information without verification, but the practitioner "may not ignore the implications of information furnished" and "must make reasonable inquiries if the information as furnished appears to be incorrect, inconsistent with an important fact or another factual assumption, or incomplete." An arithmetic mismatch and an unexplained doubling are both on the face of what was supplied. Ask, and record the answer.
The client who liked the odds
A client acknowledges the position is weak but points out that returns like hers are rarely examined, and asks the practitioner to proceed on that basis.
Analysis. The practitioner may not reason that way. Circular 230 § 10.37(a)(2)(vi) requires that the practitioner not, in evaluating a Federal tax matter, "take into account the possibility that a tax return will not be audited or that a matter will not be raised on audit," and Reg. § 1.6662-4(d)(2) excludes the same consideration from the substantial authority analysis. The practitioner should say so directly, advise on the penalties reasonably likely to apply under § 10.34(c), and explain the disclosure route and its requirements.
The specialist's opinion
A practitioner relies on a written opinion from a specialist in an area outside their own experience. The specialist turns out to have an undisclosed financial interest in the arrangement.
Analysis. The reliance fails if the practitioner knew or reasonably should have known. Circular 230 § 10.37(b) permits reliance on another person's advice only where it was reasonable and the reliance is in good faith, and provides that reliance is not reasonable where the practitioner knows or reasonably should know that the other person "has a conflict of interest in violation of the rules described in this part." Checking who instructed the specialist and what interest they hold is part of the diligence, not an afterthought.
Ascertain the facts — do not accept the narration. Requirement (iii) is an affirmative duty to go and find them.
The chance of not being audited may never be weighed — not under Circular 230 § 10.37(a)(2)(vi), and not under Reg. § 1.6662-4(d)(2).
Reliance on client information ends where it looks wrong. Incorrect, inconsistent or incomplete on its face obliges a reasonable inquiry.
Penalty advice is owed even where the practitioner faces no penalty — and must include the disclosure route and its requirements.
How this has changed
Section 10.37 in this form dates from 2014 and replaced something very different. It is “applicable to written advice rendered after June 12, 2014” (T.D. 9668). Before that revision, written advice was governed by the covered opinion rules in § 10.35 — a prescriptive regime that produced the boilerplate disclaimers once attached to every practitioner email. The 2014 revision removed the covered opinion rules entirely and replaced them with the six principles-based requirements here. Practitioners still appending covered-opinion disclaimers are complying with a regime that no longer exists.
The standard of review changed with it. Section 10.37(c)(1) applies a reasonable practitioner standard taking account of the scope of the engagement and the specificity of the advice sought. That is a proportionality rule the covered opinion regime did not have: a short answer to a narrow question is judged as what it is.
Marketing gets a heavier standard. Where the practitioner knows or has reason to know the opinion will be used by someone else in promoting an arrangement a significant purpose of which is tax avoidance or evasion, § 10.37(c)(2) applies the reasonable practitioner standard “with emphasis given to the additional risk caused by the practitioner’s lack of knowledge of the taxpayer’s particular circumstances.”
Section 10.34’s paragraphs carry two different dates. Paragraph (a), the return-position standard that mirrors the preparer understatement penalty, is applicable “for returns or claims for refund filed, or advice provided, beginning August 2, 2011”; paragraphs (b) through (d), covering documents, penalty advice and reliance on client information, are applicable to items filed on or after 26 September 2007.
Exam focus
Know the six requirements in Circular 230 § 10.37(a)(2), and especially (iii) — reasonable efforts to identify and ascertain the facts — and (vi), that the possibility of not being audited may not be taken into account.
Know that reliance on representations is unreasonable where the practitioner knows or reasonably should know they are incorrect, incomplete or inconsistent.
Know that reliance on another person’s advice requires the advice to be reasonable and the reliance in good faith, and fails where the other person is not competent, lacks qualifications, or has a Circular 230 conflict.
Know that a practitioner may rely in good faith without verification on client information, but must make reasonable inquiries where it appears incorrect, inconsistent or incomplete.
Know that § 10.34(c) requires informing the client of penalties reasonably likely to apply and of the disclosure route and its requirements — even if the practitioner faces no penalty.
Know the reasonable practitioner standard, judged on the scope of the engagement and the specificity of the advice sought.
Check yourself
1. A client narrates the facts of a transaction and asks for written advice. What does Circular 230 § 10.37 require of the practitioner as to those facts? (A) Accept them as given (B) Verify every fact independently (C) Use reasonable efforts to identify and ascertain the facts relevant to the matter (D) Obtain a client representation letter Answer: C. Requirement (iii). A representation letter does not replace reasonable efforts to ascertain.
2. May a practitioner take account of the likelihood that a return will not be examined? (A) Yes, as one factor (B) Yes, for small items (C) No — Circular 230 § 10.37(a)(2)(vi) forbids it, as does Reg. § 1.6662-4(d)(2) (D) Only in oral advice Answer: C. The prohibition appears in both the practice rules and the penalty regulations.
3. Client-supplied information appears inconsistent with an important fact. What must the practitioner do? (A) Rely on it in good faith (B) Make reasonable inquiries (C) Withdraw (D) Disclose to the IRS Answer: B. Circular 230 § 10.34(d) permits reliance without verification but not where the information appears incorrect, inconsistent or incomplete.
4. When is reliance on another professional’s advice unreasonable? (A) Whenever the practitioner could have done the work themselves (B) Where the practitioner knows or should know the person is not competent, lacks qualifications, or has a Circular 230 conflict (C) Only where the advice is oral (D) Never — reliance is always permitted Answer: B. Circular 230 § 10.37(b), which also requires the advice itself to have been reasonable and the reliance in good faith.
5. A practitioner faces no penalty exposure on a client’s position. Must the client still be advised about penalties? (A) No (B) Only if the client asks (C) Yes — § 10.34(c) applies even if the practitioner is not subject to a penalty, and the advice must include the disclosure route (D) Only for positions on returns, not other documents Answer: C. It covers documents, affidavits and other papers submitted to the IRS as well as return positions.
Change log
- Initial publication from Circular 230 §§ 10.37, 10.34 and 10.22 and Reg. § 1.6662-4, each opened at source.