Increasing Concerns Over Potential Circular 230 Violations Among Tax Preparers
As tax practitioners delve deeper into the Employee Retention Credits (ERC), they are increasingly confronted with the complexities and challenges posed by Circular 230, especially for clients involved in problematic ERC claims, or those just now getting notice of ERC Audits.
Circular 230’s Section 10.21: A Liability Landmine
Section 10.21 of Circular 230, a frequent point of reference among attorneys, highlights the responsibilities of practitioners in cases of non-compliance or errors in tax-related documents by clients. This section is particularly significant for those amending tax returns, as it introduces considerable liability concerns.
Dichotomy in Tax Preparer Responsibility
The definition of a tax return preparer in Title 26, Section 301.7701-15(b)(iii), presents a contrast to Circular 230. It stipulates that a preparer for one return is not necessarily responsible for another, barring specific conditions. This distinction underscores the varying scopes of liability under the two regulations.
Risk for Practitioners in ERC Claim Filings
Practitioners, especially those involved in mass filing of ERC claims, face the risk of severe consequences. Those who accepted and filed Form 941s prepared by attorneys without adequate due diligence, particularly in smaller practices, are at risk of losing their licensure.
The Value of Consulting CPAs and EAs
This scenario highlights the importance of consulting with Certified Public Accountants (CPAs) or skilled Enrolled Agents (EAs), particularly those under a CPA firm. These professionals offer extensive expertise and operate under state regulatory oversight, providing a secure option for tax services in complex situations.
The Consequences of Inadequate Guidance and Oversight
The escalation of issues for many clients is unfortunate and could have been prevented with better guidance and adherence to the law as practiced by CPAs. The financial and professional stakes are now high, with mounting penalties and potential damage to careers due to inadequate analysis.
Conclusion: The Imperative of Integrated Tax Services
The substantial responsibilities placed on Circular 230 practitioners in overseeing both clients and fellow practitioners suggest the benefit of businesses engaging a single firm for all tax and accounting related services. This approach ensures consistency and comprehensive oversight, underscoring the critical importance of thorough, informed, and compliant tax practice.
