INSTRUCTIONS. Open and “surf” Circular 230 (available at iCollege under the sub-module, “Graded Assignment: CTW Paper”). CHRISNOTES ON CIRCULAR 230. What is Circular 230? Circular 230 comprises IRS regulations governing tax-related practices. The underlying issue in all Circular 230 cases is the tax professional’s “fitness to practice” before the IRS. What is the Office of Professional Responsibility (OPR)? OPR is the governing body responsible for interpreting and applying Circular 230. It has exclusive responsibility for practitioner conduct and discipline, including instituting disciplinary proceedings and pursuing sanctions. It functions independently of the taxpayer and tax practitioner penalties provided in the Internal Revenue Code. Who is subject to Circular 230 jurisdiction? State licensed Attorneys and Certified Public Accountants authorized and in good standing with their state licensing authority who interact with tax administrative at any level and in any capacity. Persons enrolled to practice before the IRS- Enrolled Agents, Enrolled Retirement Plan Agents, and Enrolled Actuaries. Persons providing appraisals used in connection with tax matters (e.g., charitable contributions; estate and gift assets; fair market value for sales gain, etc.). Unlicensed individuals who prepare any portion of a document pertaining to any taxpayer’s tax liability for submission to the IRS. Unlicensed individuals who represent taxpayers before the examination, customer service and the Taxpayer Advocate Service in connection with returns they prepared and signed. Licensed and unlicensed individuals who give written advice with respect to any entity, transaction, plan or arrangement; or other plan or arrangement, which is of a type the IRS determines as having a potential for tax avoidance or evasion. For this purposes “written advice” contemplates all forms of written material, including the content of an email, given in connection with any law or regulation administered by the IRS. Any person submitting a power of attorney in connection with limited representation or special authorization to represent before the IRS with respect to a specific matter before the Agency. What sanctions are authorized by Circular 230 against tax practioners? The following sanctions may be imposed on the practitioner: Reprimand. A reprimand is a private letter to a tax practitioner discussing inappropriate conduct. The reprimand is not shared with any inside or outside parties. It remains part of the practitioner’s file in case of future Circular 230 malfeasance. Censure.: A censure is a public reprimand that discloses in the Internal Revenue Bulletin the practitioner’s name, location, and section of Circular 230 the practitioner violated. Deferred Disciplinary Agreement. In a deferred disciplinary agreement with OPR, the practitioner promises to remain compliant with Circular 230 for a set time. If the practitioner remains compliant, the case is closed (but monetary penalties may be imposed – see below). If the practitioner again violates Circular 230 within the time provided under the agreement, suspension will be automatic. These deferred disciplinary agreements are more common in tax compliance cases to allow practitioners a chance to become and remain compliant. Suspension. Suspensions stop practitioners from practicing before the IRS for the suspension period. After the suspension period, the practitioner’s practice before the IRS may be subject to conditions. Typically, in tax compliance cases, for each year practitioners fail to file a tax return, they can expect a one-year suspension, absent mitigating factors. However, a practitioner with five or more years of unfiled tax returns is almost always automatically disbarred. For practitioner misconduct, suspensions are not as readily determinable. Disbarment. If a practitioner is disbarred, he or she will not be allowed to practice before the IRS unless and until authorized by the IRS. Disbarred practitioners may petition for reinstatement after five years. Monetary Penalties. Monetary penalties may be imposed up to the gross income derived or to be derived from the conduct giving rise to the penalty. OPR’s policy is to not allow practitioners to buy their way out of trouble by satisfying a monetary sanction to avoid one of the nonmonetary sanctions. Practitioners who violate Circular 230 should expect one of the previously mentioned sanctions to apply, rather than a monetary sanction, which is applied where OPR cannot correct conduct with one of the nonmonetary sanctions. What are examples of misconduct by a practitioner? Examples include, but are not limited to: Inaccurate or unreasonable entries/omissions on tax returns, financial statements and other documents. A lack of due diligence exercised by the practitioner. A willful attempt by the practitioner to evade the payment/assessment of any Federal tax. Cashing, diverting or splitting a taxpayer’s refund by any means, electronic or otherwise. “Patterns” of misconduct involving multiple years, multiple clients or inappropriate/unprofessional conduct demonstrated to multiple IRS employees. Potential conflict of interest situations, such as representation of both spouses who have a joint liability or when representation is affected by competing interests of the practitioner. Any willful violation of Circular 230 provisions. Taking a position on a tax return without a realistic possibility of the position being sustained on its merits. Unreasonably delaying prompt disposition of any matter before the IRS. Charging the client an “unconscionable fee” for representation. Soliciting business using false statements. Cashing checks issued by the U.S. Treasury to a client or splitting a refund with a client for whom the return was prepared. For how many years may Circular 230 sanctions be imposed? The statute of limitation for OPR tax compliance cases is five years. OPR takes the view that this statute of limitation applies only to tax noncompliance by tax practitioners and NOT to cases involving the conduct of tax practitioners. Accordingly, tax practitioners could be open to Circular 230 sanctions for any misconduct ever committed (not just over five years). Practically however, OPR would not likely challenge the five-year statute of limitation for tax conduct and would limit monetary sanctions to actions in the past five years. TAXES-R-US CASE ASSIGNMENT. Facts. Taxes-R-Us (TRU) is a medium-size tax firm that generates approximately $1,000,000 a year in gross receipts from tax preparation and has net income of about $100,000 a year. TRU has three levels of employees. It is headed by a CPA, and under the head of the firm are four CPAs in managerial roles. Everyone below manager is an entry-level employee currently taking the CPA exam. The firm mails tax organizers to its clients each tax season. These organizers provide the firm with essentialinformation to prepare the returns. The tax returns are then prepared from the information provided by the clients. The firm does not check the information for accuracy but only relies on the clients’ information. The firm then reviews the tax returns at three levels for any typos or other errors before final approval. For the past 10 years, TRU’s sole method of advertising has been hiring a local firm that runs the same local television ad each year. The advertisement states, “Our licensed attorneys and CPAs will guarantee the largest refund you can get.” The ad is also posted on YouTube. However, the firm does not, in fact, employ any attorneys. The firm’s owner reviews and approves the advertisement. In a recent customer survey, 75% of the clients said they came to the firm because of the ad, and the other 25% of the clients came because of word of mouth. Assignment. Assume the role of an OPR professional. During the regular course of business you find the ad on YouTube. Solely because of the ad, you decide to open a case on the firm. Write an internal memo (maximum two pages) to your boss, the IRS Deputy Commissioner for Services and Enforcement. The memo should include the following: Describe potential violations of Circular 230. Identify the party(ies) responsible for each separate violation and explain why the party(ies) identified should besubject to Circular 230 sanctions. Recommend the “appropriate” (i.e., neither too lenient nor too excessive) nonmonetary and/or monetarysanctions to impose on the party (ies) identified. Offer a personal perspective on the ethical nature of the case. Further Instructions: Carefully read the grading rubric below. Assume that your boss is familiar with the fact of the case. Therefore, do not repeat the facts of the case. Instead, use the facts to explain why certain provisions of Circular 230 may or may not apply. Support your position on each issue with reference to specific sections of Circular 230. Better to paraphrase these sections in your own words than to “copy & paste” them. Adhere to the “ASSIGNED WRITING PARAMETERS/GUIDELINES” provided near the end of this document. Skip the space-wasting formalities of a memo (i.e., “To:”, “From:”, “Subject”, “Date”, etc.) and get to the points of your internal memo. Deadline. The open “window” for submitting the paper into iCollege “Assessments”/”Assignments” is provided in the syllabus. Rationale for Taxes-R-Us Case Assignment. Tax practitioners should be mindful of Circular 230 and enforcement actions available to the IRS Office of Professional Responsibility (OPR). Enforcement action is most often attributable to civil matters such as tax practitioners engaging in unethical practices (e.g., false advertising and negligent return preparation). OPR also conducts criminal investigations. According to the IRS, over the past three years, 1,075 criminal investigations of tax preparers have been initiated. This has resulted in an 80% incarceration rate with an average time to serve of 26 months. The TRU case assignment should be viewed as a potential civil matter, not a criminal matter. It involves the subject of practitioner conduct. While the facts are hypothetical, the analysis is drawn from actual cases. GRADING RUBRIC. The CTW paper counts approximately 3.3% of the overall course grade (a maximum of 10 points out of 300 total possible course points). The grade will be posted on a 100-point scale prior to the last class session. It is anticipated that this will be an internal memo and not a formal research paper. Therefore, any sources used should be presented within the narrative rather than with footnotes. The paper will be evaluated according to the following grading rubric: Maximum Points Description # Pts. % Points Identify & explain TRU’s Circular 230 violation(s) 2 20% Identify party(ies) violating Circular 230 & recommend sanctions 2 20% Offer a perspective on ethical considerations 2 20% Communicate to the IRS Deputy Commissioner (your boss) 4 40% Maximum number of points 10 100% The following guidance explains how full credit is earned from this rubric. 1. Describe Each Circular 230 Violation (20%). Full credit is awarded to papers that Identify and explains the key Circular 230 violations accurately and appropriately. Demonstrate a clear and complete understanding of Circular 230 by (1) accurately citing and paraphrasing the appropriate authority and (2) effectively linking it to the position regarding violations identified. The focus should be on potential violations of Circular 230, Sections 10.22, 10.30(a), 10.30(d), and 10.36(b). To fully grasp these violations and whether OPR should pursue them, it is best to look at each violation independently to determine why there is a violation AND to whom it relates. Your position should be supported with specific provisions of Circular 230. 2. Identify party(ies) violating Circular 230 & recommend sanctions (20%). Full credit is awarded to papers that Demonstrate a clear and complete understanding of Circular 230 sanctions by accurately citing and paraphrasing the appropriate authority to accurately support the party(ies) identified and sanction(s) recommended. Provide a thorough analysis of potential monetary sanctions and states clearly and specifically whether they would apply to the party (ies) in violation of Circular 230. This section should not only identify the party(ies) responsible for each separate violation, but should explain why the party(ies) identified should be subject to Circular 230 sanctions. Note that for OPR to enforce any sanction, the person who committed a violation of Circular 230 must fall under OPR’s jurisdiction. Circular 230, Section 10.3 provides a listing of “Who may practice.” This listing represents practitioners who are subject to Circular 230 sanctions. Section 10.8(c) extends the reach of Circular 230 sanctions to certain non-CPA preparers. This section should also recommend the “appropriate” (i.e., neither too lenient nor too excessive) nonmonetary and/or monetary sanctions to impose on the party(ies) identified. Sanctions are provided under Circular 230, Section 10.50. Your position should be supported with specific provisions of Circular 230. Any potentialmonetary sanctions must include a specific dollar amount and must explain how it was determined (i.e., clearly labeled computations). 3. Offer Personal Perspective On Ethical Nature Of The Case (20%). Full credit is awarded to papers that Evaluate the ethical implications of TRU’s conduct clearly and thoroughly. Offer several insightful recommendations on how TRU might ensure that high ethical standards are maintained. This component of the rubric has been added in order to meet a University directive on ethics. Therefore it is to be included in the internal memo. Since ethical considerations seem to coincide with regulatory considerations under Circular 230, the focus of this component should be on what TRU can do in order to maintain a high ethical standard and, in so doing, avoid OPR scrutiny. Some useful ideas might be found at Circular 230, Sections 10.33 (b) and 10.36(a). 4. Communicate to the IRS Deputy Commissioner (Your Boss) (40%). Full credit is awarded to papers that Demonstrate a mastery of writing conventions. Provide complete sentences that vary in length and style appropriate for the context. Present a writing style that is fluent with precise transition words and phrases, appropriate paragraphing and properly formatted and descriptive headers. Adhere to the assigned writing parameters/guidelines without errors or deviations. (See below.) ASSIGNED WRITING PARAMETERS/GUIDELINES. The following writing parameters must be followed: Length. Not more than two pages—but more than a page; Spacing. Single-spaced; Font type: Times New Roman; Font size: #12 font size; Margins: 1″ margins; block the right-hand margins. Right-hand blocking is simple but effective for a polished business communication. It merely requires scanning the contents and pressing the block-formatting command. Using grammar-check & spell-check. Obvious grammatical errors and spelling errors (“From my understanding the transactions we [sic] that have occurred,” “… received a load [sic] from First National Bank,” “Per you [sic] question,” “Here is a few information … ,” “This difference will be show [sic] as either …,” “singed” for “signed,” et. al.) should be avoided with Microsoft Word’s check- controls. Using headers effectively. Long, multiple paragraphs should be preceded by short, concise headers that let the reader know what you’re about to say. (Hint: Consider making headers from the first three parts of the grading rubric above and sub-headers for each component of the header.) Writing in third person. Write all solutions in third person; avoid writing in first (“I, me”) or second person (“you”). Third person conveys an air of objectivity, an essential professional standard of CPAs. Avoiding casual or subjective language. Try to avoid using language that may be viewed by the reader as casual or subjective (e.g., “First off … ,” or “… there are a few things that will worry the IRS,” “… so you do not need to fret right now …,” et. al.) Avoiding run-on sentences. Try to avoid run-on sentences such as this 61-word sentence: “However, because $3 million goes toward retiring the outstanding balance of the short term note, the remaining $7 million goes toward the contraction costs for year 2, and $0 is used to replenish the cash used byABC company is able to exclude the full amount of the short-term note payable from the current liability section of its year 1 balance sheet.” Citing sources or supporting authority. An analysis is not complete without reference to sources or supporting authority. For this case assignment, authoritative sources are limited to Circular 230 – NOT the ChrisNotes or the CCH text. Writing with emphasis on the “journey,” not the “destination.” Short, choppy conclusions score poorly in both academic and professional environments. Better to support conclusions with a thorough analysis.
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