Circular 230 and Tax Practitioner Ethics: CPA REG Revision
By SimplyCPA · 11 October 2026
On this page (6)
- Who's covered: Attorneys, CPAs, enrolled agents, enrolled actuaries and enrolled retirement plan agents practising before the IRS.
- Client omissions (§10.21): A practitioner who learns of an error or omission must promptly advise the client of the consequences — but isn't required to tell the IRS.
- Fees (§10.27): No unconscionable fees; contingent fees only for IRS examinations of original returns, certain amended returns or refund claims, interest and penalty claims, and litigation.
- Return positions (§10.34): Don't sign a return with an unreasonable position or a willful or reckless understatement; advise clients about penalties and disclosure.
- Preparer penalties (IRC §6694): The greater of $1,000 or 50% of the fee for an unreasonable position; the greater of $5,000 or 75% for willful or reckless conduct.
What Circular 230 is
Treasury Department Circular No. 230 (31 CFR Part 10) contains the regulations governing practice before the Internal Revenue Service. The IRS Office of Professional Responsibility enforces it. Practice includes preparing and filing documents, corresponding with the IRS, and representing clients at conferences and hearings.
Key duties for the exam
| Section | Duty |
|---|---|
| §10.20 | Provide records and information to the IRS on proper request, unless privileged |
| §10.21 | Advise the client promptly of any noncompliance, error or omission and its consequences |
| §10.22 | Exercise due diligence in preparing returns and documents and in determining the accuracy of representations |
| §10.23 | Don't unreasonably delay the prompt disposition of any matter before the IRS |
| §10.27 | No unconscionable fees; contingent fees only in permitted situations |
| §10.28 | Return client records on request, even if fees are unpaid (practitioner's own work product may be withheld under conditions) |
| §10.29 | Conflicts of interest — representation only with informed written consent and if the practitioner reasonably believes it can provide competent representation to each client |
| §10.30 | Solicitation and advertising must not be false, fraudulent or misleading |
| §10.34 | Standards for tax returns and documents |
| §10.35 | Competence |
| §10.37 | Requirements for written advice — reasonable factual and legal assumptions, consider all relevant facts, no reliance on the likelihood of audit |
| §10.50–10.52 | Sanctions: censure, suspension, disbarment and monetary penalties |
Permitted contingent fees (§10.27)
- An IRS examination of, or challenge to, an original return.
- An amended return or claim for refund filed within 120 days of receiving a written notice of examination or challenge.
- A claim for credit or refund solely of statutory interest or penalties.
- Services in connection with judicial proceedings arising under the Internal Revenue Code.
Return positions and preparer penalties
- A practitioner may rely in good faith on client information without verification, but can't ignore implications of information furnished and must make reasonable inquiries if information appears incorrect or incomplete.
- IRC §6694(a) — understatement due to an unreasonable position: the greater of $1,000 or 50% of the income derived from the return. A position is not unreasonable if there is substantial authority, or if it has a reasonable basis and is adequately disclosed (Form 8275).
- IRC §6694(b) — willful or reckless conduct: the greater of $5,000 or 75% of the income derived.
- IRC §6695 — penalties for failing to sign a return, furnish a copy to the taxpayer, include a PTIN, or meet due diligence requirements for certain credits and head of household status.
AICPA Statements on Standards for Tax Services
CPAs who are AICPA members must also follow the Statements on Standards for Tax Services (SSTS), revised effective January 1, 2024. They cover tax return positions, answers to questions on returns, procedural aspects, use of estimates, departures from prior positions, knowledge of errors, and the form and content of advice.
Exam trap: When a practitioner discovers a client's prior-year error, the duty is to advise the client — not to file an amended return without consent and not to inform the IRS. If the client refuses to correct a material error, the practitioner should consider whether to continue the engagement.
Study further in REG Circular 230 and practitioner ethics.