OPR At-a-Glance
Director, Office of Professional Responsibility
In order to understand the Office of Professional Responsibility’s mission it is important to understand the framework within which OPR operates. OPR is a part of Treasury that has been delegated to the IRS and reports directly to the Commissioner. Our authorizing statute is not title 26, but rather is found at 31 U.S.C. § 330. That statute gives OPR broad authority to “regulate the practice of representatives before the Department of the Treasury” for incompetence, disreputable behavior, or for violation of our regulations which are found at 31 CFR Title 10, commonly known as “Circular 230.”
A historical perspective to OPR’s operations is also helpful. The office was known until 2002 as the Office of the Director of Practice. In the height of the tax shelter wars, former Commissioner Everson saw an opportunity for the office to become a real enforcement tool in combating tax schemes by sanctioning the individuals who promote them. Our office was renamed and has undergone a three-fold increase in staffing in order to better combat ethical abuses by practitioners.
When fully staffed our office now has 58 employees. The majority of our employees are housed here in the IRS National Headquarters and there is a smaller component in Detroit. In D.C. we have a Case Development and Licensure Branch and an Enforcement Division divided into two Enforcement branches.
Our Case Development and Licensure Branch handles the intake of all of our cases and oversees the Detroit operations. We have 18 employees in the Detroit office which houses our Enrolled Practitioner Program and Computing Center. There are roughly 46,000 Enrolled Agents and Detroit handles the processing of their initial enrollment as well as their three year renewal cycles.
Here in D.C. there is a Senior Staff which includes a Deputy, a Senior Operations Advisor, two Senior Counsels, two project managers and two administrative staff members.
The broad grant of authority given to us by Congress makes the definition of the terms “practitioner” and “practice” crucial to understanding the constituency that we regulate. We regulate Enrolled Agents, discussed more fully below, and Attorneys and CPAs who “practice” before the Service. Practice is defined broadly under section 10.2 of Circular 230 as comprehending all matters connected with a presentation to the Service relating to a taxpayer’s rights, privileges, or liabilities under laws administered by the Service. Our new regulations clarify that this includes opinion writing. And while it does not include, for instance, merely preparing a return, it could include giving advice on how to report an item on that return. Thus the estimated close to one million paid preparers are not subject to OPR’s regulation.
Under 5 U.S.C. § 500(b), the Service cannot require Lawyers or CPAs to take an examination or demonstrate good character in order to practice. However, other tax professionals - enrolled agents, enrolled actuaries and a new category, enrolled retirement plan agents (ERPAs) must all demonstrate competence and good character in order to practice before the Service.
A three part written examination is administered to both enrolled agent candidates as well as enrolled actuary candidates. In September of this year Circular 230 established ERPAs and it is anticipated that an examination will be ready for delivery to this group in April of 2009.
In 2006 the Service outsourced to a vendor the development and administration of the Special Enrollment Examination for enrolled agent candidates. Previously the Service developed and administered the examination. The benefit of having a vendor perform this function is that the examination is now offered year round versus just one set date annually. Also, candidates no longer have to wait three months for their results. They have their results in hand immediately upon completion of the test.
OPR can waive the examination requirement for former Internal Revenue Service employees based on past service and technical experience interpreting the Internal Revenue Code. The Service waives the examination requirement for former employees with respect to the enrolled agent examination and the ERPA examination but not for the enrolled actuary examination.
OPR’s Detroit office reviews applications for enrollment from enrolled agent candidates and will begin reviewing applications from ERPA candidates in 2009. The review includes the review of a tax transcript. We are currently developing a plan to conduct criminal background checks of candidates. Enrolled actuary applications are processed in our Washington, DC office. These applications are reviewed by the Joint Board for the Enrollment of Actuaries, which is comprised of representatives from the Service, Department of Labor and the Pension Benefit Guaranty Corporation.
Enrolled agents, ERPAs and enrolled actuaries all must apply for renewal of enrollment every three years. A prerequisite for renewal is completing the necessary continuing professional education requirements. For instance, enrolled agent candidates must complete 72 hours, including six hours of ethics.
Currently all applications for enrollment and renewal of enrollment are completed by hand and submitted via mail along with a payment. Starting in 2008 we will roll out an on-line application and payment system. Credit and debit card payments will be accepted. This process will save IRS resources with respect to manually inputting data as well as reduce data entry errors.
In addition, we have jurisdiction over Appraisers whose appraisal is used to support an item or value on a tax return. Although we can quantify the number of Enrolled Agents, CPAs, attorneys and appraisers are much more difficult groups to quantify as anyone who belongs to those groups may engage in practice at any time.
It is with this backdrop that OPR pursues its mission which is setting, communicating and enforcing standards of competence, integrity and conduct among tax practitioners who represent taxpayers before the IRS.
As an operation we have developed a very important partnership with Chief Counsel. Chief Counsel acts as bookends to our core function. At the front end, Chief Counsel (Procedure and Administration) assists in drafting our regulations and other publish guidance which govern how we enforce our rules. At the back end, Chief Counsel (General Legal Services) serves as our prosecutorial arm – they are our litigators who bring our cases before an Administrative Law Judge.
OPR sees the first two prongs of our mission, setting and communicating standards, as vital to our operation. We believe that the vast majority of practitioners are trying to do “the right” thing, however, through a combination of increasing complexity of the tax code and a lack of awareness of their ethical obligations, sometimes practitioners fall short. OPR conducts dozens of outreach efforts each year through speeches, panel presentations and training, externally and internally, both to keep our core constituency alert to their ethical duties and to provide transparency to our operations.
Additionally, in order to provide better guidance, we have created an Advisory Committee under IRPAC that will meet with us to discuss the real world dilemmas faced by practitioners on a day by day basis. We envision we will accept and answer questions that are from hypothetical situations posed by the group as one way to provide better guidance to the practitioner community. We are awaiting Treasury approval of the nominees to the committee, and as soon as that is obtained, we would like to hold our first meeting, hopefully in December or January.
The following description of our operations serves as “thumbnail” on how we pursue an investigation.
Our Case Development and Licensure Branch handles the intake of all allegations against practitioners – this is what we call a “referral.” That branch as a preliminary check must ascertain both whether we have jurisdiction over the tax professional and whether the referral states a claim that is actionable under Circular 230. OPR receives over 500 referrals every year, but the vast majority are closed without sanction because they are simply not someone over whom we have jurisdiction or it does not state an actionable claim under Circular 230. We do not, for example, usually get into fee disputes.
Once we have determined that OPR has jurisdiction and there has been a violation of Circular 230, the case is assigned to an Enforcement Attorney in one of our enforcement branches. The Enforcement Attorney reviews the sufficiency of the allegations and does a preliminary investigation, contacting the referrant to see if there is any more evidence or witnesses that need to be contacted. Unless the investigation reveals evidence which exonerates the practitioner, the practitioner is then contacted and is given an opportunity to respond. The practitioner is invited to have a conference in person, or by phone, and may submit anything in writing he or she chooses to submit. After reviewing the practitioner’s explanation and submissions, the Enforcement Attorney will prepare the case for a panel. A panel consists of approximately five Enforcement Attorneys who review the case. This panel reviews the mitigating, or as the case may be, aggravating factors in the case, and recommends a sanction. The enforcement attorney contacts the practitioner or his representative, and based upon the panel evaluation, discusses the possibility of settlement. Many cases do settle at this point. For every case that is then sent on for litigation, our Director or our Deputy Director reviews the sanction determination, and is the ultimate decision maker. Thus, there are considerable checks and balances in the system.
Once it has been determined that we cannot settle the case with the practitioner, it is sent on to Chief Counsel, General Legal Services (GLS), who handles litigation before an Administrative Law Judge.
Down from the several hundred cases that were initially referred to OPR, at any one time, we have no more than about 40 being prepared for litigation by GLS. GLS does its own review of the case and works with a liaison to our office on questions concerning the sufficiency of evidence and appropriate legal arguments. Accordingly, before filing the Complaint, at least 10 attorneys have reviewed the case and have agreed that there is probable cause to file the Complaint. GLS also works to settle the case and most of the 40 cases never get to the actual Complaint phase. Currently, we average about 6 hearings a year. Because of this painstaking routine of analysis and re-analysis of OPR cases, in the last several years we have prevailed in virtually all of our cases.
This painstaking routine also has its costs – providing this level of due process takes time. Our cases are heard before an Administrative Law Judge. Because we have so few cases, we contract out this work and currently we are using National Labor Relation Board judges.
After the hearing, the practitioner or OPR may appeal to the Secretary of the Treasury. Currently, the Secretary has delegated that duty to the Office of Chief Counsel. If neither party appeals within 30 days, then the decision becomes the “Final Agency Decision.” If either party appeals, then the Office of Chief Counsel, will consider the appeal and issue its decision. That decision then becomes the “Final Agency Decision.” It is at the point that there is a “Final Agency Decision” that the case may be made public. Not only is the case public, but if a sanction is upheld, the period of sanction begins from the date of the “Final Agency Decision.” The practitioner still has appeal rights however, and may appeal to the district court and from there on through the entire appellate process. This process literally takes years.
There are a variety of sanctions available to us. On the low end of the spectrum, OPR can unilaterally issue a private reprimand. That letter indicates that there was a violation of Circular 230 but that we believe that a letter serves to rectify the behavior. That letter is between OPR and the practitioner and is not released to the public. OPR can also issue a Censure. This is a letter of reprimand where the fact of the Censure IS released to the public through the IRB. A censure is appropriate when OPR does not believe that the behavior could be rectified by a private reprimand. The next level is suspension, and suspension can run anywhere from a term of months to five years. After five years, disbarment is appropriate. Under our regulations, any practitioner can apply after being disbarred for 5 years to be reinstated, upon proof of good behavior. As a general matter, the shorter suspensions may be for conduct that requires a suspension to bring home to the practitioner the severity of his or her conduct and to ensure that it will not happen again, while the longer terms of suspension up to and including disbarment may involve conduct that is perpetrating an ongoing harm to the taxpaying community and/or the Service and must be stopped. Also we can impose a Monetary Penalty generally on firms that know or should have known of misconduct by its employees.
The issues OPR sees most are unreasonable delay, false and misleading information, advising false returns, contemptuous conduct such as using threats or abusive language, false or incompetent opinions, and failure to inform the client of the client’s omission. Our second largest group is tax compliance cases. We expect this mix to change as the impact of the new legislation and regulations takes hold with more emphasis on practitioners who have engaged in tax schemes and scams.
With the appointment of Mike Chesman as Director in March of 2007, OPR has dedicated itself to improving its internal procedures and processes to ensure that OPR provides the practitioner community with the optimal amount of transparency so that practitioners know their ethical obligations and understand how to meet them.
General Information About OPR - Frequently Asked Questions
Standards of Practice for Tax Professionals
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