Monday, February 15, 2010

More on Collateral Consequences for Practitioners

I recently blogged here a surprisingly light slap on the wrist from OPR for what appears, on its face, to have been very serious tax misconduct. That slap on the wrist came from a negotiated settlement with OPR. Now, I want to address what does or can happen if the practitioner does not settle with OPR.

In a recent proceeding here, OPR and the practitioner, a prominent tax attorney, failed to settle a dispute over whether the taxpayer's failure to file timely (substantially delinquent returns were filed for 5 years) and the practitioner's failure to file at all (for one year) constitute disreputable conduct. The pertinent provision of Circular 230, Section 10.51(f)  provides that incompetence and disreputable conduct includes "[w]illfully failing to make a Federal tax return in violation of the revenue laws of the United States . . ."

OPR found the practitioner's conduct at least in failing to file the return altogether to sanctionable under this provision. OPR wanted a 48 month disbarment. The practitioner wanted no disbarment because of extenuating circumstances (notwithstanding the fact that, during the period, the taxpayer did file for extensions and was otherwise competently representing his clients before the IRS).

In such cases where the practitioner and OPR do not agree, the OPR can bring a proceeding before an ALJ who then makes a preliminary determination on the issue. In this particular case, the ALJ determined that the returns that were delinquent were not disreputable conduct, apparently thinking that filing the delinquent returns established that the taxpayer had not willfully failed to file.

On appeal, the Appellate Authority found (succinctly stated):
Respondent filed his 2000, 2001, 2003, 2004, and 2005 returns late and failed to file his 2002 return. I find that these failures, if willful, are all disreputable conduct under section 10.51(f).
The Appellate Authority raised by dicta the question of whether filing a delinquent return was disreputable conduct and what standard to apply. Remember that the pertinent provision requires that the practitioner willfuly fail to file.  Here's the Appellate Authority's analysis:
The ALJ found that the language of section 10.51(f) does not include late filing of returns. The ALJ focused on the initial language of "willfully failing to make a Federal tax return" and did not address the language "in violation of the revenue laws of the United States" which immediately follows. I.R.C. §§ 6011 and 6012 set forth the general requirements for filing returns and who must file an income tax return. I.R.C. § 6072 sets forth the time for filing income tax returns. I.R.C. § 6081 provides that the Secretary may grant a reasonable extension of the time for filing returns but no more than six months. Failing to file a return within the time requirements of I.R.C. §§ 6072 and 6081 is in violation of the revenue laws of the United States even if the return is ultimately filed. Accordingly, willfully failing to timely file a return is disreputable conduct within the express language of section 10.51(f). The Appellate Authority has held that repeated failure of a practitioner to file his or her Federal income tax returns in a timely manner constitutes a willful violation of sections 10.51(f) and 10.52. See Director, OPR v. Martin M. Chandler, C.P.A., Complaint No. 2006-23 (Decision on Appeal, May 14, 2008) (In which the Appellate Authority increased the length of suspension determined by the Administrative Law Judge). See also OPR v. Yoder, Complaint No. 2007-33 (in which another Administrative Law Judge found that willful failure to timely file a return was disreputable conduct within section 10.51(f)).

Respondent filed his 2000, 2001, 2003, 2004, and 2005 returns late and failed to file his 2002 return. I find that these failures, if willful, are all disreputable conduct under section 10.51(f).

Willfulness is not defined in Treasury Circular 230. The Appellate Authority previously has applied the definition of willfulness used in criminal cases, in particular Cheek v. United States, 498 U.S. 192 (1991) and United States v. Pomponio, 429 U.S. 10 (1976). I question whether the criminal standard is the appropriate standard to apply in the context of a civil proceeding to determine whether disciplinary action should be taken for professional misconduct. Neither party has briefed the issue regarding the proper definition of willfulness under Treasury Circular 230. This is most likely because the Appellate Authority has previously adopted the standards defined in Cheek and Pomponio. Therefore, for the purposes of this case, I will apply the definition of willfulness as described in Cheek and Pomponio. I invite the parties in future cases to brief what the appropriate definition for willfulness should be under Treasury Circular 230.

As described in Cheek and Pomponio, willful means the voluntary, intentional violation of a known duty. It does not require any showing of motive. Since 1993, Respondent has worked full time either as a tax attorney for the Internal Revenue Service or as a tax attorney in private practice. He has an L.L.M. in tax and considers himself one of the most highly regarded tax controversy attorneys in Boston. He was aware of the requirement to file returns, and the requirement to file returns timely. For each of the tax years at issue, Respondent filed extensions of time in which to file his individual income tax returns. This further establishes that he knew about the time deadlines for filing returns. Respondent's failure to file the 2002 return and failure to timely file the returns for the years 2000, 2001, 2003, 2004, and 2005 was a violation of a known duty. I find that Respondent willfully violated section 10.51.
Practitioners are all a twitter about the suggestion that a lighter test of disreputable conduct may now be in he offing even though that lighter test (whatever precisely it is) was not applied in that case. As far as I know, the Cheek willfulness test was used both in criminal cases and in civil cases where willfulness was at issue (for example in the civil fraud penalty context). The difference was the level of proof the Government must establish -- beyond a reasonable doubt in the criminal case and by clear and convincing evidence in a civil case. But the definition was the same. Although OPR is in a different context, but the word used has a settled meaning.  Since the the standard is defined by the term willfulness, I don't understand why that well understood term should be redefined.

Finally, in my earlier blog, I noted the very light slap on the wrist given the practitioner. This may be a lesson to negotiate hard with the OPR so that it does not get to the ALJ or the Appellate Authority.


  1. You regretfully refer to this attorney as "prominent" and he refers to himself as "one of the most well regarded tax controversy attorneys in Boston." I, like most of your readers and colleagues, likely never, ever heard of him at all, yet alone as either of those.

    You are too kind and gentlemanly. He is simply either the back end of a horse, a clown, or much worse. (Of course, to this administration, with his prior "experience" in government, he may be thus qualified to be the new AAG-Tax!)

    Here's why disbarment is the appropriate sanction, coupled with required written disclosure to all of his clients for the prior 10 years. While he was "representing" clients before an agency, he was knowingly violating laws enforced by that agency. His conduct is prima facie, criminal. His zeal and candor in such representation is clearly now called into question. Bar action should follow with a suspension of at least one year. (I think it appears he failed to make timely payments of tax also?).

    In representing clients over some 35 years, I have been asked by prospective clients several times about my personal experiences with the IRS. I respond that all audits have produced returns accepted as filed and that I have never filed untimely or any return known to be incorrect or with a balance due that was not paid properly and promptly.

  2. I second your point about negotiating with OPR while you can.

    I have now listened to two or three presentations by Karen Hawkins (head of OPR). Nice person. Extremely smart. In a few years she will return to the Side of Righteousness I am sure. :-)


    Sitting through her presentations, I see no ambiguity here. Practitioners who have troubles should Come to Jesus with OPR. File tax returns, pay the tax or make an installment plan arrangement.

    While Karen is running the show at OPR I think she'll approach these situations with the eye of a private lawyer and solve things expeditiously. The great thing about having her ato OPR? She. Isn't. A. Civil. Servant.

    The downside of an OPR problem is first that you can't practice before the IRS. Well, fine. I'll go do workers' comp for a few years, I hear you say. :-) Nope. They also tell the State Bar that you've had a problem, and it is then likely that your local State Bar will want to yank your ticket entirely.

    That's the real threat of running afoul of OPR. Which of course has a deterrent effect on a random practitioner's willingness to be an effective advocate. But that's a horse of a different color and we'll boil that kettle of fish when we get to the bridge we're trying to cross.



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