Circular 230 disclosures stem from the U.S. Department of the Treasury’s regulations, known as Circular 230 (Treasury Department Circular No. 230), which governs tax professionals who represent taxpayers before the IRS. These disclosures are designed to enhance transparency, ensure ethical practices, and protect both taxpayers and tax advisors when providing written tax advice.
Background and Purpose
Initially enacted to regulate who can legally practice before the IRS, Circular 230 outlines rules of conduct for tax professionals—including attorneys, CPAs, enrolled agents, and certain tax return preparers. The disclosure requirements specifically inform clients about the nature and limitations of the tax advice offered, potential conflicts of interest, and possible penalties for relying on the advice improperly.
Key Requirements of Circular 230 Disclosures
Tax professionals subject to Circular 230 must include disclosures in all written tax advice communications that:
- Clarify that advice may not be relied upon to avoid IRS penalties unless it meets specific standards outlined by the IRS
- Identify the professional status and credentials of the individual providing the advice (e.g., attorney, CPA, enrolled agent)
- Highlight relevant conflicts of interest, if applicable
- State that the advice is not a substitute for legal counsel and is not guaranteed to be error-free
These requirements limit professional liability and promote client understanding of the advice’s scope.
Practical Examples
- A CPA distributing a tax tips newsletter includes a disclaimer that the content is informational and not formal tax advice.
- A tax attorney drafting a written opinion for a complex transaction includes Circular 230 disclosures noting the advice’s scope and warning about IRS penalty risks.
Which Tax Professionals Must Comply?
Circular 230 disclosures apply to IRS-regulated tax practitioners, including:
- Certified Public Accountants (CPAs)
- Enrolled Agents (EAs)
- Tax attorneys
- Registered tax return preparers under certain circumstances
General tax information provided by non-professionals or broad sources usually does not require these disclosures.
Why Taxpayers Should Pay Attention
Receiving written tax advice with Circular 230 disclosures assures that your advisor is adhering to IRS regulations and clarifying the nature and limits of their guidance. This transparency helps protect you from unexpected tax penalties and liability.
Common Misunderstandings
| Mistake | Explanation | Correct Approach |
|---|---|---|
| Overlooking disclosures | Mistaking them for irrelevant legal jargon | Always review disclosures to understand advice limitations |
| Relying on oral advice | Oral advice is not covered by Circular 230 disclosure requirements | Obtain key advice in writing with appropriate disclosures |
| Expecting guarantees | Disclosures signal risks but do not ensure error-free advice | Use disclosures as a guide to transparency, not a guarantee |
Frequently Asked Questions
Q: Are Circular 230 disclosures mandatory on all tax advice?
A: They are required primarily on written tax advice by professionals governed under Circular 230.
Q: Can I rely on advice without Circular 230 disclosures?
A: Advice lacking these disclosures may not meet IRS standards for penalty protection.
Q: Where is Circular 230 officially published?
A: The IRS publishes Circular 230 and relevant guidelines in official documents, including IRS Publication 947.
Additional Resources
For more information on related topics like tax return preparation or IRS requirements, see our glossary entries on Tax Return Preparer and IRS Practice Standards.
Understanding Circular 230 disclosures empowers you to engage with tax professionals who follow IRS regulations rigorously, giving you clearer, more reliable tax advice and helping you navigate complex tax issues with confidence.