Deleted OPR References in Circular 230 Regs Draw Suspicion

Some practitioners are worried that the IRS has given itself new means to discipline tax return preparers considered to have acted unethically by shifting the power to sanction and discipline practitioners from the IRS Office of Professional Responsibility to the administrative divisions of the agency.

Following the recent release of the final regulations under Circular 230, some practitioners are worried that the IRS has given itself new means to discipline tax return preparers considered to have acted unethically by shifting the power to sanction and discipline practitioners from the IRS Office of Professional Responsibility to the administrative divisions of the agency.

The final Circular 230 regs, issued May 31, made numerous changes to the way the IRS ensures that those who practice before the agency meet ethical standards. One of the most dramatic changes made by Treasury was adoption of the new registered tax return preparer category, requiring previously unenrolled preparers who prepare returns for compensation to obtain a preparer tax identification number, take a competency test, and attend continuing education classes. (For the final regs (T.D. 9527), see Doc 2011-11674  or 2011 TNT 105-10 . For prior coverage, see Doc 2011-11713  or 2011 TNT 105-1 .) 

Also included in the regulation changes was the removal of references to OPR, substituting "Internal Revenue Service" or "Commissioner." Those substitutions, in theory, give the agency authority to allow any designated agent or division the ability to issue complaints alleging noncompliance with Circular 230. What particularly irks practitioners is that the changes were not laid out in the proposed regs. (For the proposed regs (REG-138637-07), see Doc 2010-18447  or 2010 TNT 161-3 .)

For example, the old version of Circular 230 section 10.60 regarding institution of a disciplinary proceeding placed the authority to reprimand or start a sanction proceeding against a practitioner with the director of OPR. The new version of the same section removes any direct reference to OPR and instead makes initiated proceedings subject to the rules of revised Circular 230 section 10.62 (letting complaints come from any "authorized representative of the Internal Revenue Service") and section 10.50 (authorizing sanctions by the "Secretary of the Treasury, or delegate," while also providing that the "Internal Revenue Service may accept a practitioner's offer of consent to be sanctioned" in lieu of traditional proceedings).

The preamble to the final regs explained the removal of references to OPR as a way to "accommodate the internal structure" of the IRS, which includes a new Return Preparer Office organized to handle some of the administrative aspects of the expanded return preparer oversight. Final delegation of responsibilities between the two offices has not yet been determined.

Addressing concerns by the tax bar that the IRS was not ensuring OPR's independence in the course of policing practitioner behavior, the preamble said that OPR is "central to the IRS' goal of maintaining high standards of ethical conduct for all practitioners and that the Office must operate independently from IRS functions enforcing Title 26 requirements." (For prior analysis, see Doc 2011-3709  or 2011 TNT 36-1 .)

In an e-mail obtained by Tax Analysts circulating among tax professionals, at least one practitioner expressed concern that under the reg changes, someone other than the OPR director could be authorized by the IRS commissioner to initiate disciplinary proceedings. The practitioner went on to say that "it seems fairly clear to me that under the new regulations, the Commissioner has retained discretion to shift" disciplinary power away from OPR.

Others are not so sure the IRS has an improper motive for the changes. "The IRS has to be looking at new areas with the return preparer oversight," Kevin E. Thorn of the Thorn Law Group said. "They're dealing with some novel issues. I don't see anything sinister here."

Charles J. Muller of Chamberlain, Hrdlicka, White, Williams & Martin said the IRS's position in the final regs was a surprise. "What concerns me is the way this change was made, which should have been part of the proposed reg notice and comment period to allow appropriate review," he said. Practitioners will remain uneasy if the IRS is able to initiate complaints against Circular 230 practitioners outside OPR, he said.

In a statement provided to Tax Analysts, the IRS said: "Some practitioners may be reading too much into this technical change. The regulation spells out that: 'The Office of Professional Responsibility will continue to enforce the Circular 230 provisions relating to practitioner conduct and discipline.'"