Is There a Future Role for Circular 230 in the Internal Revenue Service’s Efforts to Improve Tax Compliance?

Apart from Circular 230, the Service has unchallenged authority to regulate the conduct of paid return preparers and others who assist taxpayers in complying with the tax law (or not complying with the tax law, as the case may be) through a broad range of civil and criminal provisions in the Code. These include the preparer penalty provisions in Code sections 6694 and 6695, the penalty for promoting abusive tax shelters under Code section 6701 and the civil injunction provisions in Code sections 7407 and 7408. To enforce these provisions, however, takes a commitment of significant resources. After identifying the bad actors and developing an administrative case against them (itself a resource-intensive effort), the Service can be dragged into protracted litigation in seeking to obtain a court injunction or in defending its penalty determinations against a challenge brought by a preparer or practitioner who is highly motivated to clear their name or delay imposition of an inevitable sanction.
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