A joint letter from the NSA and the NATP requesting clarification on tax preparers' professional responsibilities prompted the IRS to publish guidance on how practitioners can meet their Circular 230 responsibilities.
Much of the current challenge for practitioners is third-party advisers encouraging business taxpayers to claim the ERC without pertinent information or verifying eligibility. Many of these advisers charged either hefty upfront fees or a contingent fee based on the refund credit. As practitioners become aware of these ERC credit claims, the challenge has understood our professional responsibilities in advising these clients and filing amended returns.
Tax professionals in all areas of tax must meet the applicable provisions in Circular 230 Regulations Governing Practice. The Office of Professional Responsibility (OPR) has indicated several provisions of Circular 230 that are implicated when working with a client who claims or seeks to claim an ERC.
Section 10.22(a) requires a practitioner to exercise due diligence in preparing and filing tax returns, including ensuring eligibility for tax credits.
In exercising due diligence, Section 10.34(d) allows a practitioner to rely on good faith information from the client without verification. Incorrect information from the client, incomplete or inconsistent with facts known by the practitioner, requires the practitioner to inquire further about the client and reconcile the incomplete, conflicting, or inconsistent facts. If a practitioner cannot reasonably conclude that a client is eligible, practitioners cannot prepare an original or amended return that claims a potentially improper credit.
Practitioners should remember that Section 10.34(b) prohibits advice to a client to take a position that lacks a reasonable basis or unreasonable position under section 6694(a)(2) of the Internal Revenue Code.
Further, Section 10.34(c) mandates a practitioner advise a client of potential penalties. It also requires practitioners to inform the client of any opportunity to avoid penalties through disclosure filing Form 8275, Disclosure Statement.
A practitioner is only required or obligated to prepare and file an amended ERC claim if the client asks and only if the practitioner feels competent in preparing these returns. (See section 10.35 of Circular 230.)
Practitioners engaged with clients inquiring about an ERC must have detailed knowledge of the credit and its eligible criteria. The practitioner must follow Circular 230's requirement of:
- Due diligence in the advice and preparing and filing returns, including the standards in section 10.34
- Full disclosure to the client of their tax situation.
- Reasonable reliance on client-provided information and advice from another tax professional.
Suppose a client's excessive ERC claim is due to their reliance on improper or erroneous advice from a third party. In that case, the practitioner should advise the client of the overstated claim and additional tax and penalties. If asked, assist the client in correcting or mitigating the problem. The practitioner should consider informing the client to file a complaint against the third party using Form 14242. Report Suspended Abuse Tax Promotions or Preparers.