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Ethical Standards for Tax Professionals

While most people who prepare tax returns and represent taxpayers before the IRS are professional, honest and provide excellent service to their clients, unfortunately there are some who do not maintain ethical standards and follow the law.

The 2005-2009 IRS Strategic Plan contains four enforcement objectives one of which is: To assure that attorneys, accountants and other tax practitioners adhere to professional standards and follow the law.

Enrolled Preparers

The IRS Office of Professional Responsibility (OPR) is responsible for setting, communicating and enforcing standards of competence, integrity and conduct among tax practitioners – specifically attorneys, CPAs, enrolled agents and others who represent taxpayers before the IRS. Treasury Department Circular No. 230 contains the rules and regulations governing attorneys, CPAs, enrolled agents, enrolled actuaries and appraisers who represent taxpayers before the IRS.

In general, there are four broad categories of misconduct which may be subject to disciplinary action by OPR: 1) misconduct while representing a taxpayer; 2) misconduct related to the practitioner’s own return; 3) giving a false opinion, recklessly, or through gross incompetence, or 4) misconduct not directly involving IRS representation.

OPR receives referrals regarding possible misconduct from IRS employees and through complaints from tax practitioners and other private citizens. Complaints should be in letter format and include the person’s name, address, telephone number, designation (i.e. attorney, CPE, enrolled agent, etc.), a detailed description of the allegations, and any supporting documents. Fax to 202-622-2207 or mail to:

IRS
Office of Professional Responsibility
Attn: SE:OPR – Room 7238/IR
1111 Constitution Ave, N.W.
Washington, DC 20224

Once a complaint is received, it is assigned to an attorney for investigation. If the evidence indicates the allegations, taken as true, would constitute a violation of Circular 230, a letter is sent to the practitioner informing him or her of the charges and affording the individual the right to respond in writing or by requesting a conference with the OPR office.

Possible sanctions by OPR include disbarment, suspension, censure and reprimand. Disbarment is the permanent revocation of a practitioner’s privilege to represent taxpayers before the IRS. A suspension is the revocation of a practitioner’s privilege to practice before the IRS for a certain period. A censure is a public reprimand. A reprimand is a private admonishment from the Director to the practitioner.

Prior to the refocusing of OPR, the primary nature of most of their investigations involved personal tax compliance issues of tax practitioners. They are now actively seeking cases that have a higher impact on the tax gap and compliance.

In one recent case, an enrolled agent was suspended for threatening false 1203(b) allegations. During the course of representing a taxpayer in a collection matter, he repeatedly told an IRS Revenue Officer that he would “bring up charges of 1203” if the RO followed a specific course of action.

OPR also still seriously investigates cases involving tax professionals not in compliance with their own tax obligations. Examples of recent suspensions and disbarments related to practitioners’ own personal tax obligations include:

  • A CPA was suspended after an IRS audit revealed improper personal expenditures were claimed as business deductions and income tax returns were not timely filed.

  • An enrolled agent was suspended after making misleading statements on federal employment tax returns.

  • A CPA was disbarred and an attorney indefinitely suspended for failing to file returns for multiple years and failing to pay significant delinquent tax liabilities.

Circular 230 was recently amended to modify the rules on written tax opinion standards. The rules, which are effective for advice written after June 20, 2005, require tax practitioners to consider all relevant facts when they prepare written advice. The tax practitioner also may not base the written advice on unreasonable factual or legal assumptions or rely upon unreasonable representations, statements, findings or agreements. The amendments to the regulations also increase transparency by requiring practitioners to disclose if certain advice that they provide is not complete.

In other recent developments, the IRS reviewed the eligibility of public accountants in the states of New Jersey, Pennsylvania, and Rhode Island to practice before the IRS. Because public accountants in these states are, for practical purposes, a certified public accountant under their state laws, the IRS concluded that public accountants in these states, or any state that has similar laws, are eligible to practice before the IRS, subject to the provisions of Circular 230.

Unenrolled Preparers

Practice before the IRS by persons who prepare tax returns, but are not attorneys, CPAs, or enrolled agents, is limited. The practice of the persons, often referred to as “unenrolled return preparers,”, before the IRS is governed by the rules in Revenue Procedure 81-38 (which is reproduced in Publication 470). IRS Area Directors are responsible for enforcement of Revenue Procedure 81-38.

Complaints against unenrolled preparers should be directed to 1-800-829-0433. When information is received indicating an unenrolled preparer’s conduct or practice has been inappropriate according to the guidelines in Revenue Procedure 81-38, an IRS Area Director has the authority to issue a written notice proposing a determination of ineligibility to practice.

The notice will explain the basis for the proposal and will contain a request for a written reply within 30 days. The preparer may also request a conference with the Area Director or the Area Director’s delegate. After review of any reply or after a conference, if one is held, the Area Director will notify the preparer in writing of his final determination. For more information, refer to Section 10 in Revenue Procedure 81-38.

Civil Penalties

Enrolled and unenrolled tax professionals also may be subject to civil penalties under the Internal Revenue Code. The penalties that may be imposed against tax professionals under the Internal Revenue Code include:

  • Negligent or intentional disregard of tax rules and regulations – Internal Revenue Code (IRC) Section 6694(a)
    - $250 fine per return or claim

  • Willful attempt to understate the liability for tax - IRC Section 6694(b)
    - $1,000 fine per return or claim

  • Aiding and abetting understatement of tax liability - IRC Section 6701(a)
    - $1,000 fine per return ($10,000 for corporations)

  • Failure to furnish copy of return - IRC Section 6695(a)
    - $50 fine per return

  • Failure to sign a tax return - IRC Section 6695(b)
    - $50 fine per return

  • Failure to keep copy of tax return or a list of taxpayers for 3 years - IRC Section 6695(d)
    - $50 fine per return

References:

www.TaxTalkToday.tv: View an archive of the May 10, 2005 broadcast of Tax Talk Today which featured an overview of the IRS Office of Professional Responsibility

Circular 230: Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries, and Appraisers before the Internal Revenue Service (PDF File)

Final New Rules on Written Standards (PDF File)

Proposed Regulations Related to Tax Exempt Bonds (PDF File)

Publication 470: Limited Practice Without Enrollment (PDF File)

Publication 947: Practice Before the IRS and Power of Attorney

Enrollment Overview

 

 

 

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