Unit 8: Practitioner Misconduct

Question 1

Who is responsible for interpreting and applying the provisions of Circular 230 to ensure that tax professionals follow the law?

Answer 1

IRS Office of Professional Responsibility

(OPR)

OPR’s oversight covers all individuals who interact with federal tax administration, whether in person, orally, in writing, or by the preparation and submission of documents.

Question 2

Which individuals are subject to Circular 230 jurisdiction?

Answer 2

• Attorneys and CPAs who interact with the IRS
• Enrolled agents (EAs), enrolled retirement plan agents (ERPAs), and enrolled actuaries
• Qualified appraisers
• AFSP certificate holders
• Other licensed and unlicensed individuals who give written advice with potential for tax avoidance or evasion
• Any person submitting a power of attorney related to IRS representation

Question 3

What are the four categories of practitioner misconduct?

Answer 3

• Misconduct while representing a taxpayer.
• Misconduct related to the practitioner’s own tax return.
• Giving a false opinion knowingly, recklessly, or through gross incompetence.
• Misconduct not directly involving IRS representation.

Question 4

What actions can lead to disciplinary sanctions under Circular 230?

Answer 4

• Conviction of any criminal offense under federal tax laws.
• Giving false or misleading information.
• Willfully failing to file a federal tax return.
• Willfully assisting a client in violating any federal tax law.
• Misappropriating funds received from a client for tax payments.

Question 5

What is a reprimand in the context of OPR sanctions?

Answer 5

A private letter from the director of the OPR stating the practitioner has committed misconduct under Circular 230.

Although kept private, a reprimand stays on a practitioner’s record.

Question 6

What is censure as a disciplinary sanction by the OPR?

Answer 6

A public reprimand of a practitioner’s misconduct that becomes part of the practitioner’s disciplinary record.

Censure generally does not prevent a practitioner from representing taxpayers before the IRS.

Question 7

What is the minimum duration for disbarment from practice before the IRS?

Answer 7

Five years

After disbarment, a practitioner must demonstrate regained fitness to practice before the IRS for reinstatement.
*The matter that caused the disbarment or suspension published in the Internal Revenue Bulletin.

Question 8

What are some common reasons for referrals to the Office of Professional Responsibility (OPR)?

Answer 8

• Cashing, diverting, or splitting a taxpayer’s refund.
• Patterns of misconduct involving multiple years or clients.
• Potential conflict of interest situations.

Question 9

What should a taxpayer do if they believe their tax return preparer acted improperly or unethically?

Answer 9

They can file a written complaint with the IRS describing the misconduct.

Common issues include refund theft, e-filing issues, preparer misconduct, PTIN issues, employment issues.

Question 10

What is the process followed by OPR when a violation is identified?

Answer 10

• It conducts an investigation and sends a “pre-allegation notice” to the practitioner, allowing them to provide evidence or documentation.
• Provide the practitioner an opportunity to respond before determining the appropriate level of discipline.
• Initiate disciplinary proceedings that can lead to sanctions.

Question 11

What details must be included in an OPR formal complaint?

Answer 11

• The name of the respondent.
• A clear and concise statement of the facts.
• The signature of the OPR Director.
• The type of sanction sought.
• The duration of the suspension, if applicable.
• A response deadline at least 30 days after service.

Question 12

How can a formal complaint be served to a practitioner?

Answer 12

• Certified mail
• First-class mail, if certified mail is returned undelivered
• Private delivery service
• In person
• By leaving it at the practitioner’s office

Electronic delivery, such as email, is not a valid means of serving a complaint.

Question 13

What are the consequence if a practitioner fails to respond to an OPR complaint?

Answer 13

If a practitioner fails to respond to an OPR complaint:

• It is treated as an admission of guilt.
• It is considered a waiver of the right to a hearing.
• An Administrative Law Judge (ALJ) may issue a default decision, which becomes binding without the need for a formal hearing or further procedure.

Question 14

What standard of proof must the OPR meet to prevail in a disciplinary action involving suspension or disbarment?

Answer 14

Clear and convincing evidence.

“Willful” means a voluntary, intentional violation of a known legal duty, which is a higher standard of proof than the preponderance of the evidence.

Question 15

What actions are prohibited for a practitioner during suspension or disbarment?

Answer 15

• Prepare or file documents with the IRS.
• Provide written advice on tax avoidance or evasion.
• Represent a client at hearings, and meetings or sign documents on their behalf.
• Receive a taxpayer’s refund check.
• Sign a tax return on behalf of a taxpayer.
• File powers of attorney with the IRS.
• Accept assistance related to IRS matters.

Question 16

What actions are allowed for a disbarred or suspended individual?

Answer 16

• Represent themselves in any matter.
• Appear as a witness for a taxpayer.
• Furnish information at the request of the IRS.
• Receive IRS information via Form 8821.
• Prepare tax returns for compensation due to the Loving case.

Question 17

Under Circular 230, when can the OPR use expedited suspension procedures?

Answer 17

• When a practitioner’s license is revoked by a state agency or board.
• When convicted of a crime involving dishonesty or breach of trust.
• For willful disreputable conduct related to personal federal tax filing obligations.

Question 18

What must a practitioner do in response to a complaint from the OPR?

Answer 18

The practitioner must admit or deny each allegation. If they lack sufficient information to respond, they must state this. Denying a claim they know to be true is not permitted.

Question 19

What is the process for appealing a decision made by the administrative law judge?

Answer 19

Either party may file a written appeal with the Treasury Appellate Authority within 30 days, stating the issues and reasons. If no appeal is filed, the ALJ’s decision becomes final.

Question 20

How long after a hearing must the administrative law judge enter a decision?

Answer 20

Within 180 days of the conclusion of the hearing.

Question 21

What is the difference between Form 14157 and Form 14157-A?

Answer 21

1. Form 14157, Return Preparer Complaint - Individuals can submit a complaint against a tax preparer in various categories, such as theft of refund, e-file issues, preparer misconduct, PTIN issues, false documents, employment taxes, and other concerns.
2. Form 14157-A, Tax Return Preparer Fraud or Misconduct Affidavit - Used to report potential tax preparer fraud, such as situations where the preparer provided the taxpayer with a copy of a different tax return than what was submitted to the IRS.

Question 22

What are the various Mandatory OPR Referrals?

Answer 22

1. §6700 - Promoting abusive tax shelters
2. §6701 - Aiding and abetting understatement of a tax liability
3. §7407 - Injunction of a tax return preparer
4. §7408 - Injunction for specified conduct relating to tax shelters and reportable transactions.

Question 23

What are the various Discretionary OPR Referrals?

Answer 23

1. §6662 - Accuracy-related penalty
2. §6694(a) - Understatement of liability due to an unreasonable position
3. §6695(a) - Failure to furnish copy of return
4. §6695(b) - Failure to sign return
5. §6695(d) - Failure to keep a copy of tax return or list of taxpayers
6. §6702 - Frivolous tax returns or submissions