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May 06, 2009

Internal Revenue Service – Office of Professional Responsibility

The IRS's Office of Professional Responsibility (“OPR”) recently published its Guide to Sanctions for violations of Circular 230.  It provides for progressive suspensions, up to and including disbarment, based upon an individual's mitigating or aggravating factors and the number of violations, and current fitness to practice.  According to the Service, in considering whether a corrective sanction is warranted, all relevant factors must be given careful consideration. The Guide to Sanctions provides guidance in determining the proper corrective sanction.  It is not intended to establish a rigid standard or imply that a greater or lesser corrective sanction is inappropriate.

Background

 

According to the Service, choosing a corrective sanction that is reasonable and appropriate for the circumstances involved is extremely important.  All relevant factors must be given careful consideration. The Guide to Sanctions is just that, a guide for determining the proper corrective sanction, and is not intended to establish a rigid standard or to imply that a greater or lesser corrective sanction is inappropriate.  A corrective sanction that is below the range indicated could be appropriate where there are compelling mitigating factors.  A corrective sanction that is above the range indicated could be appropriate for particularly egregious misconduct or for cases where there are significant aggravating factors.

 

Even for offenses where disbarment is not listed, disbarment for a first offense is not precluded. The guide may be deviated from depending upon the individual circumstances that may be involved.  Each case will be considered individually and dealt with on its merits.  Deviations from the guidelines will be documented in the file. Mitigating factors, set forth below, must be considered when proposing and deciding disciplinary and adverse sanctions.  Multiple offenses, offenses which violate more than one section of Circular 230, and repeated offenses normally will be grounds for a more severe sanction than is warranted for a single offense.

 

Disbarment and Other Punishment

 

In general, a reprimand or censure is appropriate where that sanction is all that is necessary to correct the behavior. Where the determination of suspension is 6 months or less, reprimand or censure may be appropriate.  Suspensions up to 24 months are appropriate where a suspension is necessary to bring home to the practitioner the severity of his or her violation of Circular 230. Suspensions in excess of 24 months are appropriate where the misconduct indicates that the practitioner may be perpetrating an on-going harm to the taxpaying community or where the misconduct, for example, multiple instances of violations, indicates a current lack of fitness to practice that would not be rectified by a shorter suspension.  The suggested suspensions are for each individual violation. Disbarment will be sought for any violation where the determination of suspension is at least 5 years.

 

Mitigating Factors

 

A corrective sanction that is below the indicated range could be appropriate where there are compelling mitigating factors.  The following factors must be considered when proposing and deciding disciplinary and adverse sanctions, including:

1.      For tax non-compliance cases, correction of the violation before contact with IRS or the OPR, or within a reasonably short period after contact by OPR;

2.      Illness, incapacitation, or personal hardship of the practitioner, his family or others close to the practitioner, that directly correlate to the action or inaction violating Circular 230;

3.      Personal or professional financial distress correlating to non-payment of taxes, but not non-payment of Form 941 employment tax obligations;

4.      Extrinsic circumstances (e.g., natural disasters) directly correlating to the action or inaction violating Circular 230;

5.      Recognition of action or inaction violating Circular 230 and commitment to future compliance;

6.      For firms, commitment to establishing internal controls to prevent recurrences of the violation;

7.      Preventative measures in effect prior to the misconduct/and or measures put into place after the misconduct to prevent future violations;

8.      Age of allegations.

Aggravating Factors

A corrective sanction that is above the range indicated could be appropriate for particularly egregious misconduct or for cases where there are significant aggravating factors. These factors include:

1.      Failure to respond to OPR contact;

2.      For tax non-compliance cases, failure to correct the issue after contact from IRS or OPR;

3.      For tax non-compliance cases, multiple tax issues related to noncompliance on multiple types of forms in the same tax period, including penalties;

4.      For tax non-compliance cases, sum of money at issue;

5.      Motive, especially those indicating personal gain;

6.      Pattern of action or inaction violating Circular 230;

7.      Assertion of legal arguments previously ruled frivolous by the courts;

8.      Confrontational behavior outside the bounds of zealous defense;

9.      Previous incidents of violation of Circular 230;

10.  Number of offenses;

11.  Failure to understand or recognize that actions constituted a violation of Circular 230;

12.  Negative effect on tax administration.

Multiple offenses, offenses which violate more than one section of Circular 230, and repeated offenses normally will be grounds for a more severe sanction than is warranted for a single offense.

 

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May 06, 2009

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