Tax professionals who practice before the IRS are subject to Circular 230, the regulations governing practice before the Internal Revenue Service. Administered and enforced by the IRS Office of Professional Responsibility (OPR), Circular 230 establishes professional and ethical standards for attorneys, CPAs, enrolled agents, enrolled retirement plan agents, and enrolled actuaries. Certain appraisers are also subject to Circular 230 requirements.
These standards cover familiar professional obligations such as competence, diligence, promptness, avoiding conflicts of interest, and correcting errors or omissions in matters submitted to the IRS. Violations can result in disciplinary action, including censure, suspension, disbarment, monetary penalties, or disqualification for certain appraisers.
Misconduct Can Affect a Tax Professional's Ability to Practice
Circular 230 also addresses conduct occurring outside of an individual's direct dealings with the IRS. Certain criminal convictions, professional discipline, and other forms of misconduct can constitute "disreputable conduct" and potentially lead to IRS discipline.
For example, a practitioner who is convicted of a felony or suspended from practicing law or accounting by a state licensing authority may face consequences under Circular 230. The OPR can learn about such matters from many sources, including state licensing agencies, IRS personnel, client complaints, media reports, and its own investigations.
Circular 230 also provides for expedited suspension in certain circumstances. These include the suspension or revocation of certain professional licenses, convictions involving dishonesty or breach of trust, certain felony convictions, and specified court-imposed sanctions involving tax-related proceedings.
Does Circular 230 Require Self-Reporting?
An important distinction exists between state professional licensing requirements and Circular 230.
Attorneys, CPAs, and other licensed professionals may be required by their state bar, board of accountancy, or other licensing authority to report criminal convictions, disciplinary actions, civil judgments, or other adverse events. Those requirements vary by jurisdiction.
Circular 230 itself does not expressly impose a general self-reporting requirement on practitioners. However, other IRS requirements can effectively bring certain matters to the OPR's attention.
For example, many tax professionals must obtain and renew a Preparer Tax Identification Number (PTIN). PTIN applications ask applicants about certain felony convictions. Enrolled agents and enrolled retirement plan agents also must disclose specified criminal convictions and professional discipline when renewing their enrollment.
In addition, state licensing authorities frequently notify the OPR when attorneys or CPAs are disciplined. The OPR can also discover potential misconduct through complaints, referrals, public records, or other sources.
Why Voluntary Disclosure to the OPR May Matter
Because the OPR may eventually learn about professional misconduct from another source, practitioners facing a potentially sanctionable matter may want to consider whether voluntarily notifying the OPR is appropriate.
Self-reporting does not automatically eliminate potential discipline, but it can become one of the facts considered by the OPR when determining an appropriate resolution. Circular 230 provides that sanctions should take into account all relevant facts and circumstances. A practitioner's cooperation, acceptance of responsibility, and mitigating circumstances may therefore be relevant during the process.
Timing can also matter. If a state licensing authority has already imposed a suspension, for example, the OPR may later impose a separate Circular 230 suspension. Coordinating with the OPR earlier in the process may, depending on the circumstances, create an opportunity to address overlapping periods of discipline rather than dealing with an additional suspension after the first has already ended.
The OPR Has Several Ways to Resolve a Matter
An OPR investigation does not necessarily result in a formal disciplinary proceeding.
Depending on the circumstances, the OPR may issue a private written reprimand, negotiate a consensual sanction, or enter into an agreement that defers discipline during a probationary period.
A deferred-discipline arrangement can allow a practitioner to acknowledge specified violations and comply with particular conditions during the probationary period. If the conditions are satisfied, the matter may be closed without the deferred sanction being imposed.
The Takeaway for Practitioners
The key point is that a professional disciplinary matter, criminal conviction, or other misconduct outside the IRS can have consequences for an individual's ability to practice before the IRS.
Practitioners should therefore understand both their state licensing disclosure obligations and their responsibilities under Circular 230. Although Circular 230 does not establish a blanket requirement to self-report misconduct, voluntary disclosure to the OPR may be worth considering in appropriate circumstances—particularly when a matter is likely to come to the OPR's attention through another authority.
Before deciding whether to self-report, practitioners should evaluate the specific facts, applicable state licensing rules, potential Circular 230 violations, and possible disciplinary consequences. Because the decision can have significant professional implications, obtaining appropriate legal or professional advice may be prudent.