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Circular 230 and AI for Tax Professionals
Circular 230, the Treasury regulations governing practice before the IRS, contains no AI-specific rules.
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Overview
But its existing duties of diligence, competence and reasonable written advice apply fully when practitioners use AI. A practitioner who relies on AI output is responsible for it as if they had written it themselves. This matters because AI tools can produce fabricated citations and confident errors, and those can lead to professional discipline.
Deep Dive
Circular 230 is codified at 31 CFR Part 10. It governs attorneys, certified public accountants, enrolled agents and others who practice before the IRS. The Office of Professional Responsibility enforces it. It does not mention artificial intelligence, but several sections map directly onto AI use.
Section 10.22 requires due diligence in preparing and filing returns and in determining the accuracy of representations to the IRS and to clients. It allows a practitioner to rely on others' work product only if they used reasonable care in engaging, supervising, training and evaluating that source. Section 10.35 requires competence: the knowledge, skill, thoroughness and preparation needed for the matter. A practitioner who can't evaluate what an AI tool produced does not meet that standard. Section 10.37 sets standards for written advice. It must rest on reasonable factual and legal assumptions, consider all relevant facts the practitioner knows or should know, relate the law to those facts, and not take into account the chance that a return won't be audited. An AI draft that assumes facts or cites nonexistent authority fails this test unless someone catches it. Section 10.34 sets standards for positions taken on returns.
Confidentiality comes from outside Circular 230. Internal Revenue Code sections 7216 and 6713 penalize preparers for unauthorized disclosure or use of tax return information. The FTC Safeguards Rule requires many tax preparers to maintain a written information security plan. Sending client data to an AI vendor raises questions under all of these.
There are two misconceptions. The first is that citing an AI tool shifts responsibility; it does not. The second is that Circular 230 covers every preparer. After the Supreme Court's Loving v. IRS decision in 2014, the IRS's authority over unenrolled return preparers' preparation work is limited, although other preparer penalties still apply.
Strategic Impact
Risk and safety
Catastrophic and everyday AI harms both depend on who understands the risks and who can act.
Clearer decisions
Public and professional literacy shapes whether strong safety policy is politically possible.
Cutting through hype
Clear explanations reduce capture by hype, lab PR, and vague ethics theater.
The Future of Circular 230 and AI for Tax Professionals
Treasury, the IRS and professional bodies may issue guidance that addresses AI directly. Commentators have urged it, but what form it would take is uncertain. Until then, practitioners should expect existing standards to be applied to AI-assisted work, much as courts have applied existing rules to lawyers who filed AI-generated briefs citing fake cases. Firms that build verification, documentation and data-protection controls now will be ready for whatever guidance comes, and they will also reduce their malpractice and discipline risk under current law.
Real-World Implementation
An enrolled agent uses an AI tool to draft a client memo on a home office deduction. Before sending it, she checks every code section and regulation it cites against primary sources.
A CPA firm writes a policy that bars staff from pasting client names and Social Security numbers into consumer chatbots. The policy cites confidentiality rules for return information and the firm's written information security plan.
A practitioner asks an AI tool for the tax treatment of a transaction and gets an answer that assumes facts the client never gave. He goes back to the client for the missing facts before advising.
A firm documents how reviewers check AI-drafted research, so it can show reasonable care in supervising the tools and staff whose work it relies on.
Risks & Guardrails
Treating existential risk as sci-fi while capability compounds.
Confusing surface product safety with alignment under high autonomy.
Leaving non-English and non-expert audiences with only low-quality sources.
Implementation Roadmap
Separate product harms, misuse, and loss-of-control / misalignment risks.
Ask what evidence would change your view on timelines and severity.
Prefer primary sources and concrete evals over marketing claims.
Identify one action path: career, policy, funding, or skills — not only awareness.
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Frequently asked questions
What is Circular 230 and AI for Tax Professionals?
Circular 230, the Treasury regulations governing practice before the IRS, contains no AI-specific rules. But its existing duties of diligence, competence and reasonable written advice apply fully when practitioners use AI. A practitioner who relies on AI output is responsible for it as if they had written it themselves. This matters because AI tools can produce fabricated citations and confident errors, and those can lead to professional discipline.
How does Circular 230 address artificial intelligence specifically?
Circular 230 does not mention AI. Diligence, competence and written-advice standards govern work that uses AI just as they govern any other work.
Under section 10.22, when may a practitioner rely on the work product of another source?
Section 10.22 allows reliance only with reasonable care in engaging, supervising, training and evaluating the source. This is why documenting how AI output is reviewed matters.
Section 10.35 imposes which duty?
Section 10.35 requires the knowledge, skill, thoroughness and preparation needed for the matter.
An AI draft of written advice assumes facts the client never provided. Under section 10.37, what is the problem?
Section 10.37 requires reasonable factual and legal assumptions and consideration of relevant facts. Unconfirmed facts assumed by a model undermine that.
Which provisions outside Circular 230 penalize preparers for unauthorized disclosure of tax return information?
Sections 7216 and 6713 of the Internal Revenue Code penalize unauthorized disclosure or use of return information. This is relevant when client data is sent to AI vendors.
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