I am catching up on developments over the past few months that slipped through the cracks as Stephen, Keith and I gear up for the next update for the Saltzman & Book IRS Practice & Procedure treatise. One item from this summer involves an Office of Professional Responsibility press release describing a settlement that included monetary penalties on a practitioner for misconduct relating to false claims in connection with tax services.
Circular 230 prohibits tax practitioners from using communication that contains false, fraudulent, coercive, misleading or deceptive statements. It also prohibits practitioners from using false or misleading solicitations to procure business. The release discusses how the practitioner misled potential clients in an effort to attract business.
In this case, the practitioner created false advertising designed to mislead potential clients to believe the firm successfully helped thousands of taxpayers and employed multiple attorneys, enrolled agents, CPAs and former IRS employees. In fact, the practitioner is an enrolled agent and the only Circular 230 practitioner at the firm.
The false advertising was also intended to mislead potential clients to believe that hiring a private firm was virtually their only hope of resolving their tax issues due to alleged widespread misconduct by IRS employees. The advertising also falsely inflated the chances of tax relief for clients by inflating the percentage of clients receiving offers in compromise (OIC) and claiming none of these OICs were above a small percentage of outstanding tax.
The settlement agreement with the practitioner included five years of probation and a 12-month suspension of practice before the IRS if the probation is violated. The release notes that the undisclosed amount of the monetary penalty was based on a percentage of the gross income from the misconduct.
OPR plays an important part in ensuring the integrity of tax practitioners. One of the most interesting articles that I read in the past year or so was former Director of OPR Karen Hawkins’ 2017 Griswold lecture published in Volume 70 of the Tax Lawyer (which Keith now edits in his role as Vice Chair-Publications at the ABA Tax Section) where she forcefully discussed the problems facing the Office Of Professional Responsibility and the many holes in the current version of Circular 230. For those interested in tax administration, I recommend a careful read.
One of the points Ms. Hawkins raised in the Griswold lecture was that starting in about 2014 the OPR no longer was releasing ALJ and Appellate Authority disciplinary opinions. As the article explains this change arose due to the 2014 discovery that earlier legal advice erroneously concluded that OPR could release those opinions without violating Section 6103. The article makes the point that this change has contributed to making the OPR less visible.
The press release describing the settlement in this matter included that the sanctioned practitioner allowed for the release of certain information relating to the violation; in the absence of a settlement it appears that the disciplinary opinions are not accessible to the public, an outcome that is far from ideal.
One other point in the settlement is worth emphasizing. The imposition of monetary penalties in OPR proceedings is relatively uncommon; in the 2017 Griswold lecture Ms. Hawkins notes that was invoked only once since 2004 legislation authorizing it. I am not sure if the 2018 release is indicative of a change in policy that is contributing to OPR imposing monetary sanctions. The OPR ability to impose monetary penalties is somewhat controversial; Ms. Hawkins makes the case that it has an unwanted effect of further intertwining Circular 230 with the Internal Revenue Code civil penalty regime—one of the many problems she identifies in the lecture.