Circular 230 Important Revisions

SEGMENT 1:
Robert S. Walton, Partner,
Baker & McKenzie LLP

• What are the levels of due diligence necessary for a tax return preparer to determine whether the advice given addresses or the return contains a reportable transaction or a section 6662 tax shelter?
• How will the proposed section 10.34 rules affect situations where the tax return preparer addresses a reportable transaction or a section 6662 tax shelter but does not conclude that the position is more likely than not correct?
• How will the ambiguities of the definitions of reportable transactions and the section 6662 tax shelter affect tax return preparers with the new proposed section 10.34

SEGMENT 2:
Christopher S. Rizek, Member,
Caplin & Drysdale

• Application of the PTIN and various other of the return-preparer regulation rules to non-signing return preparers. This is an issue of great concern to practitioners, for instance in law firms or the national offices of the big accounting firms, who may render advice regarding a substantial portion of returns or claims for refund but who are not the signing preparer whose PTIN goes on the return. 
• The proposed section 10.34 rules. I suspect Eve and I have similar but slightly different views on the wisdom of incorporating the 6694 standards. I at least am not convinced Congress got 6694 right in the first place – we can of course debate that – but from a technician's standpoint I also don't think the way OPR has tried to incorporate it in 10.34 is technically right either. (The separate use of "reasonable basis" in 10.34(a)(1)(i)(A) is in my view superfluous, for instance.) 
• I also share several of the concerns highlighted by Eve and Robert – eg the ambiguity of the tax shelter definition, the extension of 10.36 to return preparation, what "wilfullness" means for Cir. 230, etc. 
• More broadly, all of this raises very interesting questions of ethics and compliance policy. For instance, it highlights one thing that I have come to believe about Cir. 230, which is that it is not about ethical conduct but about efficient tax administration – any more than 6694 or any number of other penalty provisions are about "ethics." (Actually, they're mostly about tax shelters now, but I digress….) I have lots of examples in Cir. 230 – Eve highlighted one for instance, the notion that failing to file electronically is "disreputable" – is it really?! But here's the one raised by 10.34. Right now, our "ethical" standard is still the one enunciated by the ABA in Formal Opinion 85-352, which interprets the Model Rules that have now been adopted by all states. (The AICPA's standard in Statement 1 is similar.) 6694 and now Cir 230 are at higher levels of authority (at least for non-disclosed positions). Why? Is RPSM suddenly unethical? Or has the ABA in effect been overruled by Congress? Are your ethical duties subject to the whims of Congress, or can I ethically do something that fails what Congress sets (and now OPR has incorporated) as a standard required for efficient tax administration? When you have these kinds of competing standards, must you always default to the most restrictive one? And, when I have other duties on behalf of a client(eg zealous advocacy), isn't that in itself a conflict between practitioner and client? (Interestingly, that was one of the arguments asserted against raising 6694 to MLTN rather than substantial authority in the 2007-2008 time frame.)