Individual Disbarred From Practicing Before IRS

 STEPHEN A. WHITLOCK,
DIRECTOR, OFFICE OF PROFESSIONAL RESPONSIBILITY,
Complainant,
v.
* * *
Respondent

UNITED STATES OF AMERICA
THE DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.

INITIAL DECISION and ORDER

HON. CURTIS E. RENOE, Presiding

SUMMARY

The Office of Professional Responsibility (OPR) initiated this action to disbar * * * (Respondent) from practice before the Internal Revenue Service (IRS) alleging eight counts of incompetence and disreputable conduct. Prior to the hearing, I granted, in-part, OPR's Motion for Adjudication for six of the eight Counts. On March 13, 2018, I convened an in-person hearing on the remaining two Counts of incompetence and disreputable conduct as well as to determine the appropriate sanction. For the reasons set forth below, I find the remaining two Counts PROVED by clear and convincing evidence and that the appropriate sanction in this case is DISBARMENT from practice before the IRS.

PROCEDURAL HISTORY

Pleadings

On March 12, 2015, OPR filed a Complaint against Respondent seeking his disbarment from practice before the IRS and alleging eight counts of incompetent and disreputable conduct. * * *.  See Complaint at ¶¶ 21-44. In Count 5 OPR alleged that Respondent misrepresented himself to the Department of Treasury as a Certified Public Accountant and Enrolled Agent when those statuses were not valid. Id. at ¶¶ 45-51. In Count 6 OPR alleged that Respondent made false or misleading statements to clients with the intent to deceive or, alternatively, Respondent failed to exercise due diligence in the correctness of his representations to clients. Id. at  ¶¶ 52-68. Count 7 alleges that Respondent improperly prepared tax returns without a valid Preparer Tax Identification Number (PTIN). Id. at ¶¶ 69-73. Finally, Count 8 alleged that Respondent charged an unconscionable fee in connection with a matter before the IRS. Id. at ¶¶ 74-88.

OPR initially filed the Complaint with the incorrect Administrative Law Judge (ALJ). On April 15, 2015, OPR filed the Complaint with the correct ALJ and again served Respondent. On April 17, 2015, Respondent submitted his timely Answer to the Complaint filed on March 12, 2015; however, Respondent also sent his Answer to the incorrect ALJ. Respondent did not refile his Answer with the correct ALJ. OPR then moved for default decision against Respondent, which the previously-assigned ALJ granted on October 15, 2015. Respondent appealed the default decision to the Department of the Treasury. The appellate authority reversed and remanded the default decision back to the ALJ on June 6, 2017.

On June 16, 2017, the Chief Administrative Law Judge reassigned this case to the previous ALJ, the Honorable Parlen L. McKenna. Judge McKenna held a prehearing teleconference on October 3, 2017 and established a schedule for the disposition of this case including time for the parties to file motions for summary adjudication and set the in-person hearing for March 8, 2018. Judge McKenna retired as of December 31, 2017. The Chief Administrative Law Judge reassigned this case to me on February 5, 2018 following Judge McKenna's retirement. On February 15, 2018, I convened a prehearing teleconference wherein all parties agreed to reschedule the in-person hearing to March 13, 2018 in Pasadena, CA.

Summary Adjudication

OPR filed a timely Motion for Summary Adjudication on December 21, 2017. OPR argued that there were no genuine issues of material fact on any of the eight counts in the Complaint and that OPR was entitled to judgment as a matter of law on all counts and the proposed disbarment sanction. Respondent filed a timely opposition to OPR's Motion for Summary Adjudication on February 12, 2018. OPR further filed a reply on February 16, 2018.

By Order dated February 28, 2018, I found that clear and convincing evidence demonstrated that no genuine issues of material fact existed as to Counts 1 through 5 and Count 8. Accordingly, OPR was entitled to a decision as a matter of law for those Counts of the Complaint. See Order Granting, in-part, Complainant's Motion for Summary Adjudication dated February 28, 2018. I also found that genuine issues of material fact existed concerning Counts 6 and 7, as well as the proposed sanction, so a hearing was held on those remaining issues. Id.

In-Person Hearing

On March 13, 2018, I convened an in-person hearing in Pasadena, CA to adjudicate the remaining two counts of the Complaint (Counts 6 and 7), as well as to determine the appropriate sanction. Timothy Heinlein, Esq. appeared on behalf of OPR. He presented the testimony of two witnesses and submitted fifteen exhibits, all of which were admitted into the record.¹ Respondent did not appear at the hearing.²

Following the in-person hearing, the parties were both provided a copy of the hearing transcript and an opportunity to submit a post-hearing brief containing proposed findings of fact and conclusions of law pursuant to 31 C.F.R. § 10.75. See also Order and Notice of Briefing Schedule dated April 25, 2018. Both parties filed timely post-hearing submissions.³ Neither party submitted a reply to the post-hearing briefs. Having received and reviewed all pleadings and submissions by the parties, this case is ready for disposition.

STANDARD OF PROOF

The standard of proof differs depending on the nature of the proposed sanction. See 31 C.F.R. § 10.76(b). Because OPR sought Respondent's disbarment, the applicable standard is clear and convincing evidence. Id. The clear and convincing evidence standard has been defined “as evidence of such weight that it produces in the mind of the trier of fact a firm belief or conviction, without hesitancy, as to the truth of the allegations sought to be established, and, as well, as evidence that proves the facts at issue to be highly probable.” Jimenez v. Daimler Chrysler Corp., 269 F.3d 439, 450 (4th Cir. 2001) (internal quotation marks, citations omitted); See also Addington v. Texas, 441 U.S. 418 (1979) (explaining that clear and convincing evidence is an intermediate standard somewhere between proof by a preponderance of the evidence and proof beyond a reasonable doubt).

FINDINGS OF FACT

The following findings of fact are based upon a thorough review and consideration of the entire record and all submissions and argument provided by both parties.

ANALYSIS

Count 6

As stated above, OPR proved six of the eight charges against Respondent through summary adjudication. Thus, the only remaining issues at the in-person hearing concerned Counts 6 and 7 and the appropriate sanction. Count 6 alleges that Respondent violated 31 C.F.R. § 10.51(a)(5) by misrepresenting himself as a valid CPA and enrolled agent to clients or prospective clients. See Complaint at ¶¶ 52-66. OPR claims that these representations were willfully false or misleading and done with intent to deceive in order to procure employment. See Complaint at ¶¶ 67. Alternatively, OPR alleges that Respondent's failure to exercise due diligence in determining the correctness his representations concerning his CPA and enrolled agent status was willful and constitutes a violation of 31 C.F.R. § 10.22(a)(3).

Title 31 C.F.R. § 10.51(a)(5) provides in pertinent part that, “. . . the use of false or misleading representations with intent to deceive a client or prospective client in order to procure employment . . ." constitutes." incompetence and disreputable conduct for which a practitioner may be sanctioned. Title 31 C.F.R. § 10.22(a)(3) provides that “A practitioner must exercise due diligence — [i]n determining the correctness of oral or written representations made by the practitioner to clients with reference to any matter administered by the Internal Revenue Service.” Pursuant to 31 C.F.R. § 10.52(a)(1), “a practitioner may be sanctioned under § 10.50 if the practitioner — willfully violates any of the regulations contained in this part.” (Parenthetical removed).

OPR has already proved by summary adjudication that Respondent did not have a valid CPA license or enrolled agent status as alleged in the Complaint and that he was ineligible to hold himself out as such during the relevant time periods. See Ex. 6 at p. 10 (Order Granting, in-part, Complainant's Motion for Summary Adjudication). At hearing OPR provided evidence that Respondent entered into written fee agreements with clients or prospective clients during 2012. See Ex. at 10-11; see also Ex. 7, pp. 10-2 to 10-175. On these fee agreement forms, Respondent holds himself out as a CPA and enrolled agent. Id. As previously stated, Respondent was not entitled to hold himself out as a CPA or enrolled agent when he did not possess valid CPA or enrolled agent credentials. OPR alleges that by stating that he is a CPA and enrolled agent on the fee agreement forms, Respondent is either violating 31 C.F.R. § 10.51(a)(5) or 31 C.F.R. § 10.22(a)(3). 

In his post-hearing submission, Respondent seems to renew his arguments that his enrolled agent status was “active” during the times in question. Respondent's arguments concerning whether his CPA license and enrolled agent status were valid is an issue that I have already decided in summary adjudication. To the extent that Respondent's arguments reiterate what he has argued before (e.g. that he was permitted to hold himself out as a CPA and an enrolled agent until he was told that he could not) those arguments have been rejected. See Ex. 6 at 9-10. To the extent that Respondent is making a new argument that his enrolled agent status was active, I find his unsupported argument insufficient.⁴

Nevertheless, the record fails to demonstrate by clear and convincing evidence that Respondent's conduct and misrepresentations on the fee agreement forms were done “with intent to deceive” clients or prospective clients “in order to procure employment.” Therefore, I do not find that Respondent's conduct violated 31 C.F.R. §10.51(a)(5). However, Respondent clearly did not exercise due diligence in his representations to clients by continuing to hold himself out as a CPA and enrolled agent when he was not entitled to do so. Further, Respondent exercised no due diligence to determine whether his belief that he could continue to hold himself out as a CPA or enrolled agent without renewing those statuses. Accordingly, I find that Count 6 is PROVED by clear and convincing evidence. Respondent violated 31 C.F.R. § 10.22(a)(3) by failing to exercise due diligence in his representations to clients. Pursuant to 31 C.F.R. § 10.52(a)(1), Respondent is subject to discipline for this violation.

Count 7

Count 7 alleges that Respondent prepared tax returns for compensation without a current or otherwise valid Preparer Tax Identification Number (PTIN) for tax year 2013. Title 31 C.F.R. § 10.51(a)(17) provides that “willfully preparing all or substantially all of, or signing, a tax return or claim for refund when the practitioner does not possess a current or otherwise valid preparer tax identification number or other prescribed identifying number” constitutes incompetence or disreputable conduct for which the practitioner may be sanctioned. While the regulation does not specifically provide that the tax returns must have been made “for compensation”, at hearing OPR stipulated that to sustain a charge of filing a return without a PTIN it must “demonstrate that [Respondent] was compensated for preparing or filing that return.” See Tr. at 45:3-19; see also Complainant's Proposed Findings and Conclusions, fn. 12.

Here, the evidence demonstrates that Respondent's PTIN expired on December 31, 2012 and that he last successfully renewed his PTIN with the IRS on January 30, 2012. See Tr. at 35. Thus, Respondent did not have a valid PTIN for tax year 2013.

OPR alleges that Respondent filed 56. tax returns for compensation during tax year 2013. See Tr. 37:3-5; Ex. 3 at Declaration Exhibit 6-B). On January 9, 2015, OPR performed a search for the number and types of returns Respondent prepared for Tax Year 2013 yielding the result that 56 returns or claims for refund were prepared either under Respondent's expired PTIN or his SSN. See Tr. at 36-7. Of those 56 tax returns, OPR provided evidence of compensation for two individuals. See Exs. 11, 12, 13, and 14. OPR argues that based on Respondent's income for 2013 and the fact that he testified at the deposition that he does not do any other work other than tax work, I should infer from these circumstances that Respondent received compensation for all 56 tax returns.

During his deposition, Respondent denied filing 56 tax returns for compensation. Rather, he claimed that he submitted filing extensions in most cases and only prepared five (5) tax returns. See Ex. 4 at 17; see also Ex. 9 at 101:6-8. In his post-hearing submission, Respondent argues that the compensation he received from the two taxpayers identified in Exhibits 11 through 14 was not for tax return preparation but for other services. See Respondent's Summary of Law and Facts at p. 15.

There is no support or corroboration for Respondent's claims. Regarding his argument that most of these filings were extensions, the record shows that all of the 56 returns at issue were prepared for individual taxpayers using Form 1040. See Tr. at 37-8. The form that IRS uses to allow taxpayers to file for an extension, Form 4868, does not contain any block that would be filled out by a tax return preparer or by an individual indicating that they prepared the form on behalf of someone else. See Tr. at 39-40; see also Ex. 10. Therefore, IRS's search related to Respondent's PTIN for tax year 2013 would not yield extensions filed within the results. See Tr. at 37.

Moreover, Respondent did not appear at hearing either to testify on his own behalf or to present evidence refuting any of OPR's claims and records. Respondent's arguments that the checks were for services other than tax return preparation is self-serving and not corroborated by the evidence. The record demonstrates that Respondent submitted tax returns on behalf of the two taxpayers identified and was provided contemporaneous compensation.⁵ The only reasonable inference from the evidence is that these two taxpayers compensated Respondent for filing tax returns on behalf at a time when he did not have a current or valid PTIN. However, I am not able to extend this inference to the other 54 tax returns Respondent allegedly filed for compensation during tax year 2013. As stipulated to by OPR, Respondent must have been compensated for filing tax returns when he was without a valid PTIN. The record does not support this allegation as to the other 54 tax returns by clear and convincing evidence.

Accordingly, I find Count 7 PROVED by clear and convincing evidence, but only as to the two taxpayers as set forth in OPR Exhibits 11 through 14.

SANCTION

“Practice before the IRS is a privilege, and one cannot partake of that privilege without also taking on the responsibilities of complying with the regulations that govern such practice.” Dir., Office of Prof 1 Responsibility v. Everett, Complaint No. 2009-27 at 7. (Order on Complainant's Renewed Motion for Summary Adjudication regarding Sanctions, July 22, 2010). Pursuant to 31 C.F.R. § 10.50(a), “[t]he Secretary of the Treasury, or delegate, after notice and an opportunity for a proceeding, may censure, suspend, or disbar any practitioner from practice before the Internal Revenue Service if the practitioner is shown to be incompetent or disreputable (within the meaning of § 10.51). . . ." OPR argues the appropriate sanction in this case is disbarment. I agree.

The record establishes a pattern of conduct and occurrences demonstrating that Respondent is not fit to practice before the IRS. As the charges found proved have shown: * * * he has made multiple misrepresentations to both the IRS and to his clients regarding ms status as a CPA and Enrolled Agent; he has filed tax returns on behalf of clients for refunds without a valid PTIN; and, he has charged a client an unconscionable fee in connection with a matter before the IRS. Respondent's proven misconduct manifested in many different forms and over several years.

At the hearing, Mr. Stephen A. Whitlock, Director of OPR, testified concerning his decision to propose disbarment as the requested sanction. Importantly, Mr. Whitlock testified concerning the seriousness of the various charges against Respondent. * * *. See Tr. at 66-7. Similarly concerning was Respondent's position that he could practice as a CPA or Enrolled Agent (even after those credentials were not valid) until he was told not to. Mr. Whitlock found this position to be contrary to law and “unfathomable to me that someone could assert in good faith that practicing with an expired license is not a problem. . . .” Tr. at 71.

As set forth in OPR's post-hearing brief, the Treasury Appellate Authority has “consistently imposed a sanction of disbarment on practitioners who have, without excuse, * * * and such conduct is "a failure to meet a basic obligation of citizenship and inconsistent with a right to practice before the Internal Revenue Service.” See * * *, Complaint No. 2007-12 at 3 (Decision on Appeal, April 21, 2009); * * * Complaint No. 2006-24 (Decision on Appeal, February 21, 2008). * * *. In addition to this serious misconduct, Respondent has engaged in other egregious behavior including making false representations to both the IRS and to his clients, and charging an unconscionable fee. Accordingly, Respondent's proven misconduct weighs heavily in favor of disbarment.

Respondent's pattern of behavior is troubling and bears directly on his fitness to represent taxpayers before the IRS. Furthermore, Respondent's lack of contrition is alarming. Indeed, the lack of remorse by Respondent is a significant aggravating factor that weighs heavily in favor of disbarment. See * * *, Complaint No. 2006-23 at 6 (Decision on Appeal, April 2008); see also * * *, Complaint No. 2009-16 at 4 (Decision on Appeal, May 1, 2011). Throughout the course of this proceeding, Respondent has taken no responsibility for his own actions. Indeed, even in his post-hearing brief Respondent demonstrates no remorse or recognition that he has done anything wrong. Like Mr. Whitlock, I also find Respondent's inability or unwillingness to accept responsibility particularly concerning.

I have taken into consideration several mitigating factors Respondent claims. Specifically, Respondent states that he had * * * See Respondent's Summary of Law and Facts at pp. 12-14. While I am sympathetic to these hardships Respondent has endured, I do not find that these occurrences explain or justify the proven misconduct in this case.

For example, the record is replete with citations to Respondent's deposition testimony in which * * * Thus, according to his own statement, these acts of misconduct had nothing to do with Respondent's health, or tragic deaths. Rather, they were deliberate and calculated actions. As another example, when confronted with his failure to timely renew his CPA license and enrolled agent statuses, Respondent argued that he was authorized to hold himself out until he was instructed not to by the IRS. This position again demonstrates deliberate, intentional actions which are unrelated to Respondent's proposed mitigating factors.

In view of the foregoing, Respondent's conduct demonstrates he should not be trusted with the privilege of representing taxpayers before the IRS. Based upon the charges against Respondent that are found proved, the testimony of Mr. Whitlock at the in-person hearing, and a review of the entire administrative record, I find that the only appropriate sanction is DISBARMENT.

CONCLUSIONS OF LAW

1. Respondent was engaged in practice before the IRS as defined in 31 C.F.R. § 10.2(a)(4) and is therefore subject to the disciplinary authority of the Secretary of the Treasury.

2. * * *

3. * * *

4. Respondent engaged in incompetent and disreputable conduct within the meaning of 31 C.F.R. § 10.22(a)(2) by failing to exercise due diligence by representing on Form 2848 Power of Attorney and Declaration of Representative forms that he was an enrolled agent and a CPA to the IRS.

5. Respondent engaged in incompetent and disreputable conduct within the meaning of 31 C.F.R. § 10.22(a)(3) by failing to exercise due diligence by representing on fee agreement forms with clients or prospective clients that he was a duly authorized enrolled agent and CPA when he was not entitled to hold himself out as such.

6. Respondent engaged in incompetent and disreputable conduct within the meaning of 31 C.F.R. § 10.51 (a)(17) by preparing tax returns for compensation without a current or otherwise valid Preparer Tax Identification Number.

7. Respondent engaged in incompetent and disreputable conduct within the meaning of 31 C.F.R. § 10.17(a) by charging an unconscionable fee in connection with a matter before the IRS.

8. The proper sanction for Respondent's incompetent and disreputable conduct is disbarment.

ORDER

IT IS HEREBY ORDERED that Respondent, * * * is DISBARRED from practice before the IRS effective June 15, 2018.

IT IS HEREBY FURTHER ORDERED that pursuant to 31 C.F.R. § 10.81(a), Respondent may petition for reinstatement after 5 years following disbarment.

Hon. Curtis E. Renoe
Administrative Law Judge

Dated: June 15, 2018 at Alameda CA

Pursuant to 31 C.F.R. § 10.77, either party may appeal this Decision to the Secretary of the Treasury within thirty (30) days from the date of service. The Notice of Appeal must be filed in duplicate with the Director, Office of Professional Responsibility, 1111 Constitution Ave. NW, SE:OPR 7238IR, Washington D.C. 20224, and shall include a brief that states the party's exceptions to this Decision and supporting reasons for any exceptions.