Circular 230 is the Treasury regulation governing practice before the IRS, codified at 31 CFR Part 10. When a practitioner delegates return preparation to staff, to a contract preparer or to an offshore team, four sections decide whether the practitioner meets the standard. Section 10.35 sets the competence standard. The delegation duties sit in sections 10.22 and 10.36. This post states what each section says and how a firm applies them to delegated work.
Section 10.35: competence
Section 10.35 requires a practitioner to possess the necessary competence to engage in practice before the Internal Revenue Service. Competence means the appropriate level of knowledge, skill, thoroughness and preparation for the matter. The regulation recognizes that a practitioner reaches competence through consultation with experts in the relevant area or through studying the relevant law.
Three things follow from the text:
- The standard attaches to the practitioner, not to the task. A practitioner who accepts a matter owns the competence requirement for it.
- Competence is matter-specific. A practitioner competent in individual returns has to build competence before taking a partnership allocation issue or a foreign reporting matter.
- Consultation counts. Section 10.35 does not require the practitioner to personally perform every step. It requires that the practitioner, with the help used, has the knowledge, skill, thoroughness and preparation the matter calls for.
Section 10.35 contains no delegation mechanics. It does not say who is allowed to prepare a return or how to supervise. Those duties live in 10.22 and 10.36.
Section 10.22: diligence and reliance on others
Section 10.22(a) requires a practitioner to exercise due diligence in preparing, approving and filing returns and other papers submitted to the IRS, and in checking the accuracy of representations made to the Department of the Treasury and to clients.
Section 10.22(b) is the delegation rule. A practitioner is presumed to have exercised due diligence when the practitioner relies on the work product of another person and uses reasonable care in engaging, supervising, training and evaluating that person. Each of the four verbs is a documentation target:
| Verb | What the file shows |
|---|---|
| Engaging | Why this person or team was selected: credentials, tax-law training, references, screening |
| Supervising | Review of the work at the firm, with sign-off, at a depth set by the return's complexity |
| Training | Instruction on firm procedures, form-specific rules and the current tax year's changes |
| Evaluating | Error rates, review notes and feedback loops that adjust assignments or end the arrangement |
The presumption is subject to sections 10.34 and 10.37 and takes account of the nature of the relationship between the practitioner and the person. It is the practitioner's benefit. A firm that uses an offshore or contract preparer and can show reasonable care on all four verbs holds the presumption. A firm that cannot show them has no presumption to rely on.
Section 10.34: the standards the work product must meet
Section 10.34(a) prohibits a practitioner from willfully, recklessly or through gross incompetence signing a return or claim for refund that the practitioner knows or reasonably should know contains a position that lacks a reasonable basis, that is unreasonable under section 6694(a)(2) of the Code, or that meets the willful or reckless standards of section 6694(b)(2). A pattern of conduct is a factor in deciding whether the practitioner acted willfully, recklessly or through gross incompetence.
Section 10.34(c) requires the practitioner to inform the client of penalties reasonably likely to attach to a position or a return the practitioner prepared or signed, and of how to avoid them. Section 10.34(d) lets the practitioner rely in good faith on client information without verifying it, but the practitioner cannot ignore the implications of information the practitioner knows. When information appears incorrect, inconsistent or incomplete, the practitioner makes reasonable inquiries.
Section 10.34(d) matters for delegation because a preparer who sees an inconsistency has to raise it. A delegated workflow that lets the preparer's question die in a ticket queue fails the inquiry duty even when the practitioner never saw the issue. Build an escalation path from preparer to signing practitioner and record each resolution.
Section 10.36: firm procedures
Section 10.36 puts the burden on the people with principal authority over the firm's tax practice. They must take reasonable steps to ensure the firm has adequate procedures in effect to comply with Subparts A through C of the regulation. A practitioner with principal authority can be disciplined when, through willfulness, recklessness or gross incompetence, the person fails to take reasonable steps to ensure those procedures exist or are followed, and a pattern or practice of noncompliance results. Discipline also follows when the person knows or should know of a pattern of noncompliance and fails to correct it promptly.
For a firm with delegated or offshore preparation, adequate procedures cover the delegation as well as the preparation. A written procedure covers selection, training, review standards, escalation and evaluation of every outside preparer, and the firm can show it was followed.
A practical delegation file
For each delegated or offshore preparer relationship, keep:
- Engagement record: scope, qualifications of the individuals, tax years and return types covered
- Training record: instruction delivered and the date, including annual updates
- Review standard: what the signing practitioner examines on every return, and what triggers deeper review
- Query log: preparer questions, answers and the date each was resolved
- Evaluation record: periodic error analysis, reviewer feedback and decisions
- Procedure document that satisfies 10.36, approved by the person with principal authority
The signing practitioner's review is the control that matters. Section 10.22(b) gives a presumption, not a shield, when the review is a rubber stamp.
What 10.35 does not do
Do not cite 10.35 as the source of a duty to supervise, a prohibition on offshore work or a requirement of a particular credential. The text says none of those. The prohibitions on disclosure sit in IRC 7216 for tax return information. See Section 7216 consent for offshore tax return preparation. The data-security duties sit in the FTC Safeguards Rule: see vendor oversight under the Safeguards Rule. The AICPA ethics layer is in the offshore ethics overview. For the IRS contact side of practice, see the IRS Practitioner Priority Service guide.
Sources
- 31 CFR Part 10 (Circular 230), sections 10.22, 10.34, 10.35 and 10.36 on eCFR: https://www.ecfr.gov/current/title-31/subtitle-A/part-10
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