Circular logic: Make sense of changes in Circular 230

Tax practice for CPAs is changing. Recent modifications to Circular 230, the U.S. Treasury Department regulations that govern practice before the Internal Revenue Service, have established several changes that leave CPAs with a new standard for the practice of taxation.The rationale for the revised regulations is part of an IRS effort to promote ethical tax practices and curb abusive tax avoidance programs promoted by some tax professionals. Some CPA and law firms were coming up with tax-motivated transactions for clients and then packaging those transactions to sell to other companies.

The marketing of these tax-avoidance programs allowed them to make small fortunes for very little work. These plans were based upon the firms' tax opinions. These opinions would be marketed as sufficient due diligence to help avoid the possible imposition of the IRS's rather significant 20 percent accuracy-related penalty.