TSCPA CPE Expo
Friday, December 5, 2014
Houston
Tuesday, December 9, 2014
San Antonio
Friday, December 12, 2014
Arlington
They’ve Changed Circular 230…Again
William R. Cousins III, CPA, J.D., L.L.M.
901 Main Street, Suite 3700
Dallas, TX 75202
214.744.3700 800.451.0093
fax 214.747.3732
tcousins@meadowscollier.com
www.meadowscollier.com
Copyright © Meadows, Collier, Reed, Cousins, Crouch & Ungerman, L.L.P. All rights reserved.
Office of Responsibility is Shifting Emphasis
•
They are shifting from tax compliance cases to those
dealing with Practitioner’s tax conduct.
•
As part of this process, they are streamlining the system
by making egregious tax compliance issues punishable by
expedited suspensions. Previously that sanction only
came into play in cases of felony convictions or loss of
professional license.
•
Newly emerging case law is filling in the blanks on how the
OPR will view Practitioner conduct.
Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP
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Expedited Procedures – Section 10.82
Traditionally, this was used in very serious situations involving little
ambiguity: conviction of the Practitioner of a felony, suspension of
their professional license, etc.
•
The new changes expand this to filing problems.
•
The result will be a significant acceleration of the process.
–
The first step is the mailing of a complaint to the Practitioner; giving him 30
days to respond.
–
If that deadline is not met, the OPR issues a default decision and disbars the
Practitioner.
–
If that deadline is met, the Practitioner can request a conference; if he fails to
convince the OPR he is then disbarred.
–
The Practitioner then can request a hearing AFTER disbarment before an
ALJ.
Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP
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Circular 230 Section 10.36(b)
The IRS can use this section to sanction a person with
principle authority over a firms’ tax practice and its compliance
with Circular 230:
• Example:
–
A firm nets $500,000.00 a year from its tax work. An OPR
compliant is filed and the IRS questions the procedures the firm has
in place to insure compliance with Circular 230. The firm responds
with it pays for typical professional development courses on ethics,
and the IRS contends that it is inadequate.
• The IRS can try to impose a $2,500,000.00 fine against the firm or
the person primarily responsible for compliance.
Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP
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Initiating an OPR Case
Traditionally, cases have originated in two ways:
• Internal Referrals.
inside the IRS.
These are more common and come from
• External Referrals. These occur where a Taxpayer feels abused
by a Practitioner. Normally, these complaints are run through the
Return Preparer Office before making it to the OPR.
More recently, the OPR has been initiating its own referrals. These
come through public information, Better Business records, YouTube
videos, webpages, and online review cites.
Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP
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Processing a Referral
•
Initial screening is done by an Intake Analyst, who does a
quick review and write up of the case. It is possible the
Analyst will close the case, otherwise it is referred to either
an Attorney-Advisor or a Paralegal Specialist.
Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP
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Jurisdiction
The first issue the Intake Analyst will consider is whether the
OPR has jurisdiction.
• Legacy Practitioners – the classic group involves CPA’s,
Attorneys, Enrolled Agents and Enrolled Actuaries. Any such
professional doing tax work falls under Circular 230.
• Non-Legacy Practitioners are more vaguely defined – any person
who prepares a document that relates to a Taxpayer’s liability, for
compensation, and which is submitted to the IRS is also under
Circular 230. Section 10.8.
• Is the Statute of Limitations open:
–
For tax compliance issues, the statute of limitations is 5 years.
–
For tax practitioner conduct cases, the OPR’s view is that there is
NO STATUTE OF LIMITATIONS.
Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP
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Tax Compliance Check
•
Once jurisdiction is confirmed, the OPR makes sure the
Practitioner and all his related entities are up to date on
tax filings. If he is delinquent, then they will seek
additional charges under Section 10.51(a)(6).
•
During this process, discrepancies may be detected that
result in referral of the return for audit, perhaps holding the
OPR case up to determine if there are more serious
problems.
Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP
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Case Investigation
•
After the compliance check, the attorney or paralegal
assigned to the case will initiate their investigation. OPR
will contact everyone, except the Practitioner, the
Complainant, IRS personnel, IRS internal systems (like
transcripts), the Practitioner’s webpage. It is possible that
the investigation will come back negative and the case will
be dropped without the Practitioner ever knowing about it.
Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP
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10.20 Letter
If the IRS needs additional information from the Practitioner to
proceed with its investigation, it will issue a 10.20 Letter.
• The letter will be the first indication that a Circular 230 matter is
being considered.
• The letter will plainly state it is issued under the authority of
Section 10.20 of Circular 230.
• It will contain a listing of the information being requested.
• Unless privileged, failure to provide the information will result in
additional sanctions.
Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP
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Pre-Allegation Letter
•
That letter details the facts, as OPR understands them,
lists the possible Circular 230 violations. It gives the
Practitioner the chance to meet and provide exculpatory or
mitigating documentation. As a practical matter the
Practitioner should take this opportunity to respond; the
OPR has not yet decided that a violation has occurred,
just that investigation is warranted.
Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP
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Allegation Letter
Now the OPR has determined a violation occurred.
•
This initial, formal document lists all possible Circular 230 violations that
OPR thinks it can prove.
•
The Practitioner can either request a conference to discuss the case or
begin negotiating his sanction. Most conferences are relatively informal,
often conducted by phone. If the Practitioner is unsuccessful in killing
the case, he can make a settlement offer to close the case. Settlement
possibilities include:
–
Deferred Disciplinary Agreement
–
Reprimand
–
Censure
–
Suspension
–
Disbarment
–
Monetary Sanction (this cannot be a stand alone sanction, it must be offered in
conjunction with another punishment)
Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP
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What If You Don’t Settle?
The OPR prepares the trial before an Administrative Law
Judge (ALJ). Several considerations are relevant:
• The resulting proceeding will be public and appear on the IRS
webpage, even if the Practitioner ultimately wins the case.
• Venue for the hearings is controlled by the Practitioner.
• The ALJ may come from a variety of agencies (2013 examples
include the Coast Guard and Department of Interior) and are not
tax experts.
• After the hearing, the parties submit closing briefs.
• Appeal must be made within 30 days of the Decision. Further
appeals are to the Circuit court on an “arbitrary or capricious”
standard.
Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP
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Calendar Year 2013 Discipline Results
Activity
Attorney
CPA
EA
Other
Total Receipts
Totals
784
Disbarments (FAD/Consent)
1
4
4
2
11
Suspensions (FAD/Consent)
1
1
1
-
3
Expedited Suspensions
16
24
4
4
48
DDA
2
4
6
1
13
Censure
-
2
-
1
3
Reprimand/Soft Letter
128
Cease & Desist
25
CWOS, CWOA, Referred, Other
509
Reinstatement Request
26
Total Dispositions
20
35
15
8
Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP
766
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Trouble with the IRS: Overlooked
Circular 230 Issues
Conflicting interests are considered by Section 10.29.
Conflicts exists where:
•
Representation of one Client will be directly adverse to another Client; or
•
There is a significant risk that representation will be materially limited by
the Representative’s responsibilities to:
– Another client;
– A former client;
– A third person; or
– A personal interest of the representative.
Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP
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Trouble with the IRS: Overlooked
Circular 230 Issues
A Representative can continue in a conflict situation if:
•
The Representative reasonably believes that competent and diligent
representation can be given to each affected Client;
•
There is no legal prohibition; and
•
Each affected Client must give written, informed consent:
– Written consent must be provided within a reasonable time, not later
than 30 days; and
– Copies of the written consent must be retained for at least 36 months
after the conclusion of the representation of the affected Clients.
Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP
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What Does the IRS Think?
In the same presentation earlier this year, the IRS posed this
scenario:
•
Conflicting Interests Case Scenario:
–
Practitioner, uses a tax software program and questionnaire and reviews
the information with clients, H&W.
–
H&W answer “no” to the home buyer credit question regarding purchase of
a principal residence within the past three years.
–
Practitioner included a First Time Homebuyer Credit on their return based
on the answer given by the couple.
–
IRS denies the credit and proposes to assess interest and a negligence
penalty because a second Form 1098 was issued to W.
Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP
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What Does the IRS Think?
continued….
–
H&W demand the Practitioner fix their tax problem or reimburse them for
the loss of the tax credit and for the interest and penalties assessed
because W inherited the home for which the second 1098 was issued.
–
Practitioner agrees to resolve the couple’s tax dispute and begins to
prepare a protest of the proposed assessment.
–
Several days later, Practitioner receives a letter advising him that IRS
proposes to assess a preparer penalty for his preparation of H&W’s Form
5405.
Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP
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Comments on the IRS Example
•
How much difference does it make that the Taxpayers’ appear
to have a solid factual defense to the adjustment?
•
What if the CPA discovers overstated income or unclaimed
deductions that negate the proposed adjustment?
•
IRS thinks there is a conflict under Circular 230.
Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP
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Reliance on Taxpayer Information
The stated rule is that normally a return preparer can rely in good
faith, without verification, on information provided by the Taxpayer.
See Reg. Section 1.6694-1(e)(1). However, the exceptions to that
rule substantially reduce its protections:
•
The return preparer “may not ignore the implications of information
furnished…or actually known to the tax return preparer.”
•
The return preparer “must make reasonable inquiries if the information
furnished appears to be incorrect or incomplete.”
•
The Preparer’s obligation to make inquiries is heightened where the Code
requires the Taxpayer to maintain specific documents to claim a deduction or
credit.
See example: Schneider v. U.S., 257 F Supp. 2nd 1154 (S.D. Ind. 2003) requiring
additional inquiry about a claimed charitable contribution involving art, based on
Preparer’s knowledge of the fact pattern.
Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP
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What Does the IRS Think?
In a presentation earlier this year, the IRS used this example:
•
Due Diligence Case Scenario:
–
Practitioner, John, uses standard commercial software to prepare
tax returns.
–
He uses the program Questionnaire for clients to complete along
with submitting their tax data.
–
One question asked is: “Do you have a foreign bank account?”
–
When clients answer “no”, John checks the appropriate box on
Schedule B.
Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP
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Comments on the IRS Example
•
How does this change? If the software package defaulted to a
“no” answer for a foreign account?
•
If the Taxpayer says “yes” how much farther does the CPA have
to go? Does the FBAR filing obligation need to be explored?
•
What happens if the Taxpayer has an unused POA on a foreign
account held in the name of an aged relative?
•
My Questions:
– What if your Client simply lies to you; or
– How do you prove what was asked or answered?
Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP
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Recent Cases of Note
•
OPR v. Bohn, Complaint No. 2012-02 (Jan. 7, 2013)
•
OPR v. Christensen, Complaint No. 2012-05 (Aug. 23, 2013)
•
OPR v. Gass, Complaint No. 2013-06 (Sept. 29, 2013)
•
OPR v. Pezzo, Complaint No. 2013-02 (Sept. 16, 2013)
Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP
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William R. Cousins III
Partner
Mr. Cousins is Board Certified in Tax Law by the Texas Board of Legal Specialization. His practice
focuses on Income Tax Litigation, Estate and Gift Tax Litigation, and White Collar and Government
Regulatory Litigation. He represents corporations and individuals in tax controversies, both
administratively and in litigation. In addition, he has defended taxpayers in criminal tax matters.
In recent years much of his practice has involved Estate and Gift Tax litigation and he has tried
numerous cases in that area, including: Estate of Knight v. Commissioner, Jones v. Commissioner,
Estate of Foy Proctor v. Commissioner, Estate of Fleming v. Commissioner, Estate of Marmaduke v.
Commissioner, Adams v. United States, Kimbell v. United States and Keller v. United States. He
successfully argued the Fifth Circuit of Appeals in Adams, Kimball and Keller.
phone (214) 744-3700
toll-free (800) 451-0093
fax (214) 747-3732
tcousins@meadowscollier.com
Trey has broad experience in the civil tax arena, trying excise tax cases (Moody v. Commissioner),
bankruptcy cases (In Re: Hutton), refund cases (Advertisers Dynamic Services Co., Inc. v. United
States), as well as substantive tax cases (70 Acre Recognition Partners v. Commissioner, Pediatric
Surgeons v. Commissioner, etc.).
Trey is a Certified Public Accountant and an active speaker on substantive and procedural tax issues
for numerous professional organizations nationally. He has been named a Texas Super Lawyer by
Texas Monthly and Law and Politics Magazine from 2003 through 2013 as well as named to Best
Business Lawyers in Tax by D Magazine in 2009, Best Lawyers in America, Tax Law in 2009 through
2013, and Best Go-To Lawyer, by Texas Lawyer Magazine.
He resides in Dalworthington Gardens, the smallest municipality in the Metroplex, is married to
Carol, and has two sons and two grandchildren. Mr. Cousins was admitted to practice in Texas in
1980.
Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP
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DISCLAIMER
The information included in these slides is for
discussion purposes only and should not be relied on
without seeking individual legal advice.
Meadows, Collier, Reed, Cousins, Crouch & Ungerman, LLP
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