(a) Tax returns. (1) A practitioner may not willfully, recklessly, or through gross incompetence—
(i) Sign a tax return or claim for refund that the practitioner knows or reasonably should know contains a position that—
(A) Lacks a reasonable basis;
(B) Is an unreasonable position as described in section 6694(a)(2) of the Internal Revenue code (Code) (including the related regulations and other published guidance); or
(C) Is a willful attempted by the practitioner to understate the liability for tax or a reckless or intentional disregard of rules or regulations by the practitioner as described in section 6694(b)(2) of the Code (including the related regulations and other published guidance).
(ii) Advise a client to take a position on a tax return or claim for refund, or prepare a portion off a tax return or claim for refund containing a position, that—
(A) Lacks a reasonable basis;
(B) Is an unreasonable position as described in section 6694(a)(2) of the Code (including the related regulations and other published guidance); or
(C) Is a willful attempt by the practitioner to understate the liability for tax or a reckless or intentional disregard of rules or regulations by the practitioner as described in section 6694(b)(2) of the Code (including the related regulations and other published guidance).
(2) A pattern of conduct is a factor that will be taken into account in determining whether a practitioner acted willfully, recklessly, or through gross incompetence.
(b) Documents, affidavits and other papers. (1) A practitioner may not advise a client to take a position on a document, affidavit or other paper submitted to the Internal Revenue Service unless the position is not frivolous.
(2) A practitioner may not advise a client to submit a document, affidavit or other paper to the Internal Revenue Service—
(i) The purpose of which is to delay or impede the administration of the Federal tax laws;
(ii) That is frivolous; or
(iii) That contains or omits information in a manner that demonstrates an intentional disregard of a rule or regulation unless the practitioner also advises the client to submit a document that evidences a good faith challenge to the rule or regulation.
(c) Advising clients on potential penalties. (1) A practitioner must inform a client of any penalties that are reasonably likely to apply to the client with respect to—
(i) A position taken on a tax return if—
(A) The practitioner advised the client with respect to the position; or
(B) The practitioner prepared or signed the tax return; and
(ii) Any document, affidavit or other paper submitted to the Internal Revenue Service.
(2) The practitioner also must inform the client of any opportunity to avoid any such penalties by disclosure, if relevant, and of the requirements for adequate disclosure.
(3) This paragraph (c) applies even if the practitioner is not subject to a penalty under the Internal Revenue Code with respect to the position or with respect to the document, affidavit or other paper submitted.
(d) Relying on information furnished by clients. A practitioner advising a client to take a position on a tax return, document, affidavit or other paper submitted to the Internal Revenue Service, or preparing or signing a tax return as a preparer, generally may rely in good faith without verification upon information furnished by the client. The practitioner may not, however, ignore the implications of information furnished to, or actually known by, the practitioner, and must make reasonable inquiries if the information as furnished appears to be incorrect, inconsistent with an important fact or another factual assumption, or incomplete.
(e) Effective/applicability date. Paragraph (a) of this section is applicable for returns or claims for refund filed, or advice provided, beginning August 2, 2011. Paragraphs (b) through (d) of this section are applicable to tax returns, documents, affidavits, and other papers filed on or after September 26, 2007.
[T.D. 9359, 72 FR 54549, Sept. 26, 2007, as amended by T.D. 9527, 76 FR 32307, June 3, 2011]
Notes of Decisions
Cited in
18
cases (
4 in the last 5 years), 1999–2026 · leading case:
Bedrosian v. Comm'r, 143 T.C. 83 (Tax Ct. 2014).
Bedrosian v. Comm'r, 143 T.C. 83 (Tax Ct. 2014).
· cites it 3× “Determining whether TEFRA applies to a particular partnership involves the application of *82 the law (specifically, section 6231(a)(1) ) to a set of facts (specifically, the information shown on the face of a partnership return).”
United States v. Gladstone Morrison, 833 F.3d 491 (5th Cir. 2016).
“…furnished appears to be incorrect, inconsistent with an important fact or another factual assumption, or incomplete. 31 C.F.R. § 10.34 (d).”
Dewar v. Smith, 342 P.3d 328 (Wash. Ct. App. 2015).
· cites it 2× “A practitioner may represent a client despite a conflict of interest if the practitioner reasonably believes that he or she will be able to represent both clients, the representation is not prohibited by law, and both clients expressly waive the conflict and give informed…”
Brinks Gilson & Lione P.C. v. Comm'r, 2016 T.C. Memo. 20 (Tax Ct. 2016).
· cites it 4× “Because petitioner initiated for its own reasons--whatever those reasons might have been--the practice of paying yearend bonuses that eliminated its book income, any culpability of McGladrey was secondary, in failing to recognize petitioner's erroneous characterization of part…”
Banister v. Comm'r, 2015 T.C. Memo. 10 (Tax Ct. 2015).
· cites it 2× “Department of the Treasury filed a complaint initiating proceedings to bar petitioner from practicing before the Internal Revenue Service for disreputable conduct in violation of Circular 230, specifically 31 C.”
Alskom Realty, LLC v. Baranik, 2020 NY Slip Op 07153 (N.Y. App. Div. 2020).
“On their motion for summary judgment in this action, the plaintiffs submitted an affirmation by their attorney arguing that the defendants departed from accepted standards of accounting practice and violated 31 CFR 10.34(d), which states that a practitioner may rely in good…”
Whitehouse Hotel Ltd. P'ship v. Comm'r, 139 T.C. 304 (Tax Ct. 2012).
· cites it 2× “34(a)(3) (" Relying on information furnished by clients ") (1994) is virtually the same as TX Section 132.”
Joseph Banister v. United States Dept. Of the Treasury, 499 F. App'x 668 (9th Cir. 2012).
“By signing a client’s tax returns as preparer even though he knew the positions advanced in support of the returns did not have a realistic possibility of being sustained and were frivolous, Banister also violated 31 C.F.R. § 10.34 . In light of Banister’s admissions, there were…”
United States v. Musin, 953 F. Supp. 2d 944 (S.D. Iowa 2011).
“31 C.F.R. § 10.34 (d). Similarly, the standard of care under § 6694(a) requires preparers to exercise due diligence, which sometimes requires them to affirmatively seek additional information from clients: [I]f the information .”
United States v. Powell (E.D. Mich. 2023).
· cites it 2× “31 C.F.R. § 10.34 (d).22 The Government argues that Defendants failed to exercise due diligence because “[i]t is inherently impossible to conduct proper due diligence while fabricating claims and amounts on a tax return.”
Guy v. CPI Assocs., Inc. (S.D.N.Y. 2020).
· cites it 2× “Although CPI cites to 31 C.F.R. § 10.34 – which authorizes tax practitioners to “rely in good faith without verification upon information furnished by the client” – that regulation also states that practitioners “must make reasonable inquiries if the information as furnished…”
— 31 C.F.R. § 10.34(a) — 2 cases
Bedrosian v. Comm'r, 143 T.C. 83 (Tax Ct. 2014).
“Determining whether TEFRA applies to a particular partnership involves the application of *82 the law (specifically, section 6231(a)(1) ) to a set of facts (specifically, the information shown on the face of a partnership return).”
— 31 C.F.R. § 10.34(d) — 1 case
Alskom Realty, LLC v. Baranik, 2020 NY Slip Op 07153 (N.Y. App. Div. 2020).
“On their motion for summary judgment in this action, the plaintiffs submitted an affirmation by their attorney arguing that the defendants departed from accepted standards of accounting practice and violated 31 CFR 10.34(d), which states that a practitioner may rely in good…”
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