The Treasury Department and the Internal Revenue Service have proposed amendments to Circular 230, which governs practice before the IRS. The amendments are the most extensive since 2014, and cover significant developments which have affected practice before the service since that time.

The proposed regulations would remove or update the parts of Circular 230 that related to registered tax return preparers and tax return preparation, as well as contingent fees to reflect changes in the law since the prior amendments to Circular 230 in 2011 and 2014. The regs would also revise or eliminate other provisions that are out of date.

The proposed regulations would incorporate new provisions that better align Circular 230 with the current practice environment, such as requiring that practitioners maintain technological competency as part of their practice before the IRS. They would also clarify some provisions, such as confirming that the IRS Office of Professional Responsibility retains jurisdiction over practitioners who have been suspended or disbarred from practice. (The OPR generally is in charge of matters related to practitioner conduct, and is exclusively responsible for discipline, including disciplinary proceedings and sanctions.) And finally,  they would provide rules related to appraisers, including the standards for disqualification.

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The provisions regarding tax return preparation and registered tax return preparers are in response to the IRS loss in Loving v. IRS, according to John Sheeley, founder of Tax Practice Pro. The Loving court denied the IRS the authority to regulate tax return preparers. The provisions in Circular 230 eliminate provisions related to registered tax return preparers, and revise standards for tax return preparation tied to IRS representation, while updating the definition of “practice before the IRS.” 

The proposed revision to Circular 230 establishes that charging contingent fees for preparing returns or refund claims constitutes disreputable conduct. This language, which removes the ability of practitioners to charge contingency fees, will likely generate some opposition, according to Bill Nemeth, NAEA Education foundation trustee and immediate past chair. 

“If a client gives me a return to do and I discover that their previous year’s return was incorrect and they may be able to get a larger refund, I should be able to amend their previous return for a percentage of the refund,” he said. “I don’t want to do the work for free, and the client has no guarantee that they will collect. So they have nothing to lose, and I can do the additional work knowing that I might get an additional reward.”

“As for contingency fees on first-time abatement, the language in the proposed revision is so murky that I’m not smart enough to figure out if it’s allowed or not,” Nemeth said. 

The revisions to Circular 230 create a new Subpart D specifically addressing  appraiser standards. It establishes a new framework for appraiser disqualification, and eliminates the prerequisite of penalty assessment for appraiser disqualification. 

The revisions add a requirement for practitioners to maintain technological competence, and require data security policies and incident response plans. They also mandate business continuity and succession planning, and they update written advice standards. 

The revision expedites suspension by expanding the grounds for expedited suspension, clarifying procedures for reinstatement, and by maintaining IRS jurisdiction over suspended practitioners, said Tax Practice Pro’s Sheeley.

Taxpayers in disaster areas who received extensions to file their 2023 returns must, depending on location, file their returns by Feb. 3 or May 1, 2025.

Taxpayers in the entire states of Louisiana and Vermont, all of Puerto Rico and the Virgin Islands and parts of Arizona, Connecticut, Illinois, Kentucky, Minnesota, Missouri, Montana, New York, Pennsylvania, South Dakota, Texas and Washington state have until Feb. 3 to file.

Those in all of Alabama, Florida, Georgia, North Carolina and South Carolina and parts of Alaska, New Mexico, Tennessee, Virginia and West Virginia  have until May 1 to file. For these taxpayers, May 1 will also be the deadline for filing their 2024 returns and paying any tax due.

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Taxpayers who live or have a business in Israel, Gaza or the West Bank and certain other taxpayers affected by the terrorist attacks in the State of Israel also have until Sept. 30 this year to file and pay. This includes all 2023 and 2024 returns.

Eligible taxpayers are individuals and businesses affected by various disasters that occurred during the late spring through the end of 2024. For extension filers, payments on the 2023 tax year returns are not eligible for the additional time because they were originally due last spring before any of these disasters occurred.

The IRS normally provides relief, including postponing various tax filing and payment deadlines, for any area designated by the Federal Emergency Management Agency. The current list of eligible localities is on the disaster relief page on IRS.gov.

The agency will work with any taxpayer who lives outside the disaster area but who has records necessary to meet a deadline occurring during the postponement period in the affected area. Taxpayers qualifying for relief who live outside the disaster area should contact the IRS at (866) 562-5227. This also includes workers who assisted with relief who are affiliated with a recognized government or philanthropic organization.