State Bar of California
Super Lawyers

Office of Professional Responsibility (OPR) Investigation Defense

The IRS Office of Professional Responsibility (OPR) is charged with regulating tax professionals including tax lawyers, CPAs, and Enrolled Agents. It is important to note that OPR takes the position that persons who are not licensed CPAs, tax attorneys, or enrolled agents are also subject to the jurisdiction of OPR. During the first 6 months of 2016, OPR received over 400 new cases. 

The rules governing practice before the IRS are set forth in title 31, Code of Federal Regulations, part 10. The IRS publishes a pamphlet know as Treasury Department Circular 230 which contains a copy of these rules. Most tax attorneys and CPAs simply refer to these rules as Circular 230. OPR is headed up by a director. The current director of OPR (as of 2016) is Stephen Whitlock. 

If a tax professional violates Circular 230, he may be subject to discipline including suspension or total and permanent disbarment from practice before the IRS. Since practice before the IRS is now defined to include the preparation of tax returns, suspension or disbarment can result in a complete loss of livelihood for a tax accountant, tax lawyer or tax preparer. If that wasn't enough, a tax practitioner who is disbarred or suspended may not work for any firm who practices before the IRS since no other tax practitioner may "accept assistance" from a disbarred or suspended tax practitioner if the assistance relates to a matter deemed to be practice before the IRS including the preparation of tax returns

The problems get worse since the Office of Professional Responsibility provides notice of sanctions to appropriate state licensing authorities such as state  bar associations and accountancy licensing boards. This could result in the loss of the ability to practice law or accounting entirely, not just tax law, or tax accounting. 

For these reasons, it is critical to mount a rigorous and immediate defense to any OPR allegations of misconduct. Many tax preparers could have avoided serious discipline if they simply took inquiries from OPR more seriously. Even better, it helps to head off an investigation by the Office of Professional Responsibility before it starts. For example, in the course of a tax audit, an IRS revenue agent may determine that a tax preparer has violated Internal Revenue Code (IRC) Section 6694 by taking "an unrealistic position" on a tax return. The penalty is fairly small -- generally limited to $250, but rising to $1,000 under IRC Section 6694(b) if the understatement on the tax return is due to recklessly or intentional disregard of the rules. Some tax practitioners have paid the $1,000 penalty rather than incur the expense of fighting it, only to discover that violation of Section 6694(b) will result in an automatic referral to the Office of Professional Responsibility. 

Other penalties which require mandatory referral to OPR include: 

  • Penalties for promoting so-called abusive tax shelters pursuant to IRC Section 6700
  • The entry of an injunction against a tax return preparer pursuant to IRC Section 7407
  • Aiding and abetting the understatement of a tax liability in violation of IRC Section 6701(a)
  • Entry of an injunction under the authority of IRC Section 7408 related to tax shelters or reportable transactions 
There is other conduct which does not result in an automatic referral to OPR, however, there may be a referral to OPR nonetheless; especially if the IRS detects a pattern of this type of behavior occurring across multiple taxpayers. These include: 
  • Accuracy-related penalties imposed under IRC Section 6662
  • Penalties imposed under IRC Section 6695 including the failure to furnish a copy of a tax return, the failure to sign a tax return, and the failure to keep a copy of tax return or list of taxpayers
  • Frivolous tax return penalties imposed under IRC Section 6702
Responding to an OPR allegation or even a tax preparer penalty investigation should never be handled by the tax professional who is under the scrutiny of the IRS. It is often said that a lawyer (even a tax lawyer) who represents himself has a fool for a client. As the United States Supreme Court has stated: 

"Even a skilled lawyer who represents himself is at a disadvantage in contested litigation. ...He is deprived of the judgment of an independent third party, in framing the theory of the case, evaluating alternative methods of presenting the evidence, cross-examining hostile witnesses, formulating closing arguments, and in making sure that reason, rather than emotion, dictates the proper tactical response to unforeseen developments in the courtroom." Kay v. Ehrler, 499 U.S. 432, 437-438 (1991). 

The same is true of the tax preparer who represents himself. An effective tax defense to an OPR disciplinary action requires knowledge of far more than substantive tax law. It necessitates a mastery of Circular 230, IRS rules of practice and procedure, and the Internal Revenue Manual (IRM), as well as the rules of evidence. For that reason, it is better left to the experts. For more information on the contours of an OPR defense, please read our article

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