Circular 230 Requirements

Ms. Greta P. Hicks
August 8, 2013 — 3,680 views  
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Integrity, Objectivity and Competence

If you, as a CPA, perform non-attest services, are you required to be in compliance with the Texas State Board of Public Accountancy (TSBPA) Rules of Professional Conduct, the American Institute of CPAs (AICPA) Rules of Professional Conduct, and/or the U.S. Treasury Circular 230? The answers are “yes,” “no” and “maybe.”

TSBPA, Part 22, Rule 501.53© states, in part: “The following rules of professional conduct shall apply to and be required to be observed by certificate or registration holders when not employed in the client practice of public accountancy: 501.73 relating to Integrity and Objectivity and 501.74 relating to Competence…”

Title 31 U.S.C. 330, Practice before the Department of Treasury, states…”the Secretary of the Treasury may—before admitting a representative to practice, require that the representative demonstrate:

  • Good character;
  • Good reputation;
  • Necessary qualifications to enable the representative to provide to persons valuable service; and
  • Competency to advise and assist persons in presenting their cases.”

Circular 230 10.2, Practice before the IRS (Internal Revenue Service) comprehends all matters connected with a presentation to the IRS or any of its officers or employees relating to a taxpayer’s rights, privileges or liabilities under laws or regulations administered by the IRS. Such presentations include, but are not limited to, preparing documents; filing documents; corresponding and communicating with the IRS; rendering written advice with respect to any entity, transaction, plan or arrangement, or other plan or arrangement having a potential for tax avoidance or evasion; and representing a client at conferences, hearing and meetings. Circular 230 10.34 goes further to say that a practitioner may not willfully, recklessly or through gross incompetence sign a tax return or claim for refund that the practitioner knows, or reasonably should know, contains a position that lacks a reasonable basis; is an unreasonable position as described in Section 6694(a)(2) of the Internal Revenue Cod; or is a willful attempt by the practitioner to understate the liability for tax or a reckless or intentional disregard of rules or regulations.

Circular 230 10.29 addresses Conflicting Interests, as follows: (a) Except as provided by paragraph (b) of this Section, a practitioner shall not represent a client before the IRS if the representation involves a conflict of interest; a conflict of interest exists if:

(1)    The representation of one client will be directly adverse to another client; or

(2)    There is significant risk that the representation of one or more clients will be materially limited by the practitioner’s responsibilities to another client, a former client or a thir person, or by a personal interest of the practitioner.

Paragraph (b) provides exceptions to the conflict of interest rules above. The practitioner may represent a client if:

  • The practitioner reasonably believes that the practitioner will be able to provide competent and diligent representation to each affected client;
  • The representation is not prohibited by law; and
  • Each affected client waives the conflict of interest and gives informed consent, confirmed in writing by each affected client, at the time the existence of the conflict of interest is known by the practitioner; the confirmation may be made within a reasonable period of time after the informed consent, but in no event later than 30 days.

In addition, copies of the written consents must be retained by the practitioner for at least 36 months from the date of the conclusion of the representation of the affected clients, and the written consents must be provided to any officer or employee of the IRS on request.

AICPA has much to say regarding potential conflict of interest: “A conflict of interest may occur if a member performs a professional service for a client or employer and the member or his or her firm has a relationship with another person, entity, product or service that could, in the member’s professional judgment, be viewed by the client, employer or other appropriate parties as impairing the member’s objectivity. If the member believes that the professional service can be performed with objectivity, and the relationship is disclosed to and consent is obtained from such client, employer or other appropriate parties, the rule shall not operate to prohibit the performance of the professional service. (Rule 102.03 102-2.)

As to the question of whether we are required to be in compliance with the AICPA Code of Conduct, the answer is: Perhaps. In addition to avoiding conflict of interests, a member must maintain objectivity, integrity and due care. Per ET Section 55, Article IV .04: “Although members not in public practice cannot maintain the appearance of independence, they nevertheless have the responsibility to maintain objectivity in rendering professional services. Members employed by others to prepare financial statement or to perform auditing, tax or consulting services are charged with the same responsibility for objectivity as members in public practice and must be scrupulous in their application of generally accepted accounting principles and candid in all their dealing with members in public practice.” (Rules 102.04 102.3)

In regards to Integrity and Objectivity, Rule 102.02 102-1 states that a member shall be considered to have knowingly misrepresented facts in violation of Rule 102 when he/she knowingly:

  • Makes, or permits or directs another to make, materially false and misleading entries in an entity’s financial statements or records; or
  • Fails to correct an entity’s financial statement or records that are materially false and misleading when he/she has the authority to record an entry; or
  • Signs, or permits or directs another to sign, a document containing materially false and misleading information.

Examples where objectivity might be in question include:

  • A member has provided tax or personal financial planning (PFP) services for a married couple who is undergoing a divorce, and the member has been asked to provide the services for both parties during the divorce proceedings;
  • In connection with a PFP engagement, a member plans to suggest that the client invest in a business in which he/she has a financial interest;
  • A member provides tax or PFP services for several members of a family who may have opposing interests;
  • A member recommends or refers a client to a service bureau in which the member of partner(s) in the member’s firm hold material financial interest(s)

To read more on the AICPA ethics requirements, please go to their website at . In addition, see, ET Section 191 for examples of Ethics Rulings on Independence, Integrity and Objectivity.

Ms. Greta P. Hicks

Greta P Hicks CPA

Greta P Hicks is a former IRS Examination manager and Ms Hicks currently serves on the Editorial Board of the Texas Society of CPAs and is Tax Editor of Today’s CPA. Greta is active on the TSCPA IRS Relations Committee and teaches seminars on IRS.