the office of professional responsibility what you dont know can hurt you karen l. hawkins, director

THE OFFICE OF PROFESSIONAL RESPONSIBILITY

What You Don’t Know CAN Hurt You

Karen L. Hawkins, Director

The Statute & Regulations

• 31 U.S.C. §330 (1884)• 31 C.F.R. Part 10 (cir. 1886) • Authorizes regulation of

representatives of persons before the Department of the Treasury

Page2

“Fitness” to Practice• good character • good reputation • necessary qualifications to enable

the representative to provide valuable service to the client

• competency to advise and assist persons in presenting their cases

Page3

Finding It

• Online at www.irs.gov/pub/irs-pdf/pcir230.pdf

• Substantial revisions effective August 2, 2011

• NPRM – Additional Revisions Proposed – Final Regs pending

Page4

Calendar Year 2012 Discipline Results

Activity Attorney CPA EA Unenrolled Totals

• Total Receipts 516

• Disbarments (FAD/Consent) - 1 - 1 2• Suspensions (FAD/Consent) 2 2 3 - 7• Expedited Suspensions 29 25 7 - 61• DDA/Other Conditions - 1 2 - 3• Censure 1 2 1 - 4• Reprimands/Soft Letter 150• Cease & Desists 50• CWOS, LOJ , NCOA, CWOA 409 • Reinstatements 25

• Total Dispositions 813

Page5

Calendar Year 2013Discipline Results Through Q3

Activity Attorney CPA EA RTRP Unenrolled Totals

• Total Receipts 631• Disbarments (FAD/Consent) - 4 2 - - 6• Suspensions (FAD/Consent) 1 1 1 - - 3• Expedited Suspensions 13 24 4 - 1 42• DDA/Other Conditions 2 4 5 - 1 12• Censure - 2 - 1 - 3• Reprimands/Soft Letters 117• Cease & Desist Letters 22• CWOS, LOJ, CWOA, etc. 470• Reinstatements 11

• Total Dispositions 701

JURISDICTION

• 31 USC 330(a)(1); (b); (c); (d)• 10.2(a)(4)• 10.7(c)• 10.8(a)• 10.8(c) (Notice 2011-6)• 10.50(b)/10.60(b)

Page7

Key Circular 230 Provisions• Diligence as to Accuracy (10.22)• Due Diligence Standards – Returns/Docs

(10.34)• Competence (Proposed 10.35)• Requirements for Written Advice

(Proposed 10.37)• Ensuring Compliance (Proposed 10.36)• Oral or Written Opinions (10.51(a)(13))

Page8

Diligence as to Accuracy (10.22)

• Must exercise Due Diligence in:– Preparing, approving and filing tax

returns, documents, affidavits etc. relating to IRS matters.

– Determining correctness of oral/written representations made to the client or to Treasury personnel.

• Reliance on Another’s Work Product? With Reasonable Care.

Page9

Standards for Tax Returns Section 10.34(a)• May not sign a tax return or advise a

position on a tax return, willfully, recklessly, or through gross incompetence if:– Lacks reasonable basis– Unreasonable position (6694(a)(2))–Willful attempt to understate liability

(6694(b)(2)(A))– Reckless, intentional disregard of rules

and regulations (6694(b)(2)(B))• Patterns matter

Page10

Standards for Documents and Other Papers- 10.34(b)

• May not advise Taking Positions in Documents that are Frivolous.

• May not advise Making Submissions:– to Delay or Impede Tax

Administration– that are Frivolous–Containing or Omitting Information

that demonstrates an intentional disregard of rules or regulations.

Page11

Disclosure re: Unreasonable Positions (10.34(c))

• Advised position?• Prepared or signed return?• Submitting docs/other papers to IRS?• Then-–Must Advise Client of Potential

Penalties and their Avoidance through Disclosure

• Applicable even if no Practitioner Penalty Exposure

Page12

Reliance on Client Data- 10.34(d)• Reliance on Client Information in

good faith, without verification, is OK, but…–Cannot ignore implications of other

information furnished –Cannot ignore actual knowledge–Must make reasonable inquiries for

incorrect, inconsistent or incomplete information

• No Willful Blindness• No Don’t Ask Don’t Tell

Page13

Proposed §10.35.

• A practitioner must possess the necessary competence to engage in practice before the Internal Revenue Service.

• Competent practice requires the knowledge, skill, thoroughness, and preparation necessary for the matter for which the practitioner is engaged.

• See ABA Model Rule 1.1, “Competence”• AICPA Code of Professional Conduct

Article V, “Due Care”.

Page14

Proposed Section 10.36• Any practitioner who has (or practitioners who have or

share) principal authority and responsibility for overseeing a firm’s practice governed by this part must take reasonable steps to ensure that the firm has adequate procedures in effect for all members, associates, and employees for purposes of complying with Circular 230. Any practitioner who has (or practitioners who have or share) this principal authority will be subject to discipline for failing to comply with the requirements of this Section.

Page15

Prop. §10.37 Requirements For Written Advice

• Reasonable factual and legal assumptions • Reasonably consider all relevant facts • Reasonable efforts to identify and ascertain

the relevant facts• Not rely upon representations, statements,

findings, or agreements if reliance would be unreasonable

• No audit lottery advice (“odds” for an audit, or that a matter will not be raised on audit).

Page16

Prop. 10.37 (cont)

• Reliance on taxpayer is unreasonable if the practitioner knows or should know that one or more representations, or assumptions on which any representation is based, are incorrect, inconsistent or incomplete

• May only rely on the advice of another practitioner if the advice was reasonable and the reliance is in good faith considering all the facts and circumstances .

• May not rely on another practitioner who has a conflict (ref. 10.29); or is incompetent

Page17

Oral or Written Opinions – 10.51(a)(13)

• It is Disreputable/Incompetent Conduct to Give:–False opinions-knowingly, recklessly, through gross incompetence; –Intentional or recklessly Misleading Opinions;–Pattern of Incompetent Opinions

Page18

10.51(a)(13) (cont)

• False Opinion =–knowing misstatements of fact/law;–assertion of unwarranted positions;–Counseling/assisting conduct known

to be illegal/fraudulent;–concealing matters required by law to

be revealed.

Page19

10.51(a)(13) (cont)

• Reckless conduct=– highly unreasonable

omission/misrepresentation involving extreme departure from standards of ordinary care that a practitioner should observe under the circumstances

• Gross Incompetence=– gross indifference, grossly inadequate

preparation, consistent failure to perform obligations to client

• Patterns matter Page20

Recent/Relevant Cases• Tewolde:

http://www.irs.gov/uac/Newsroom/IRS-Office-of-Professional-Responsibility-Disbars-Return-Preparer-Accused-of-Filing-False-Returns

• Tiongson: http://www.irs.gov/pub/irs-utl/Tiongson%20-%20IRS_Decision%20on%20Tiongson%20Motion%20for%20Default%20(FINAL)%20-%204-3-13.pdf

• Walker: http://www.irs.gov/pub/irs-utl/Walker%20FAD%202-18-13.pdf

21 Page21

Recent/Relevant Cases• Bohn: http://www.irs.gov/pub/irs-utl/Morton

%20Bohn%20SJ%20Order%20-FINAL%20Redacted.pdf

• Gee: http://www.irs.gov/pub/irs-utl/opr-_edgar_h__gee_jr__-_final_order.pdf

• Christensen: http://www.irs.gov/file_source/pub/irs-utl/Redacted%20Final%20Order%20Assessing%20Sanction%20-%20IRS%20Christenson.pdf

Page22

Recent/Relevant News

• Attorney Censured by the OPR for Mishandling Conflicts of Interest: http://www.irs.gov/file_source/PUP/taxpros/agents/Atty%20Censured%20by%20OPR%20for%20Mishandling%20Conflicts%20of%20Interests.pdf

• Refund Splitting: http://www.irs.gov/file_source/pub/irs-utl/OPR%20Targeting%20Preparers%20Compensated%20Through%20Shared%20Refunds.pdf

Page23

Proposed Revisions• 10.1 (OPR Authority)• 10.31 (Electronic refunds)• 10.35 (rescission of covered opinion reg)• 10.35 (competence)• 10.36 (Respondeat Superior)• 10.37 (All Written Tax Advice)• 10.39 (rescission re: Bond Practice)• 10.82 (compliance & procedure)

Page24

More Info?• Office of Professional Responsibility

1111 Constitution Ave. N.W.SE:OPR Rm. 7238 Washington, D.C. 20224

• Information on OPR, Circular 230 and Discipline visit:http://www.irs.gov/Tax-Professionals/Circular-230-Tax-Professionals

Page25