tax analysts

 

 

Tax Notes Today

 

 

 

 

 

Circular 230 Proposals Generate Little Heat at Reg Hearing
by Sheryl Stratton


Practitioner groups at a June 21 reg hearing lobbied the IRS to reconsider its proposals on contingent fees, changes to enforcement procedures for Circular 230 violations, and limiting practice before the IRS, but the hearing was mostly a tame affair.

Date: Jun. 22, 2006

Full text published by taxanalysts

Practitioner groups at a June 21 reg hearing in Washington lobbied the IRS to reconsider its proposals on contingent fees, changes to enforcement procedures for Circular 230 violations, and limiting practice before the IRS.

While not as controversial as the opinion standards regs, proposed changes to Circular 230 had elicited a spirited response from the tax practitioner community. The IRS received extensive written comments to the proposed regs (REG-122380-02) on practice before the IRS, and many panels have been devoted to the proposals over the past several months. (For REG-122380-02, see Doc 2006- 2202 [PDF] or 2006 TNT 24-19.)

Even with 10 witnesses, however, the reg hearing was a tame affair, and questions from government panelists did not provide much insight into their thinking on the topics that have generated the most debate.


Contingent Fees


The proposed regs generally would preclude a practitioner from charging a contingent fee for most services rendered in connection with any matter before the IRS, except in a few limited circumstances. Many of the commentators, including the American Bar Association Section of Taxation, the American Institute of Certified Public Accountants, and the American College of Tax Counsel, strongly criticized the restrictions in their written submissions. (For prior coverage, see Doc 2006-11854 [PDF], 2006 TNT 118-4 2006 TNT 118-4: News Stories.)

The few questions that the government panelists asked of the contingent fee proposal's critics would indicate that the IRS is most concerned with practitioner independence and serving small taxpayers.

Two of the speakers argued that the practice of charging contingent fees for performance-based services, including account reviews for interest and penalty calculations, does not present an audit lottery risk; nor is it contrary to IRS policy objectives supporting the limitation. Mark Ely, on behalf of the TAARP (Tax Account Analysis Review Practice) Group, said that the work done for his clients, mostly Fortune 1,000 companies, is the result of an IRS determination of interest and that interest specialists closely scrutinize refund claims.

Patrick Malayter of the accounting and consulting firm known as BKD LLP said his firm serves mostly small and mid-size businesses on a contingency fee basis for doing research credit studies, among other things.

Both Ely and Malayter emphasized that their clients have to manage the costs of pursuing their legal entitlements by paying on a contingency fee basis.

Richard Goldstein, special counsel to the IRS associate chief counsel (procedure and administration), asked Ely to reconcile the objectives stated in the preamble of the existing contingent fee provisions -- to help small taxpayers pursue claims -- with the fact that Ely's clients are big corporations.

Good tax administration requires all taxpayers to be treated equally, Ely responded. Neither large nor small taxpayers should be required to pay more than their fair share of tax, he said. Given the complexity of the interest calculation work, most corporations cannot afford to do it in-house or on a fixed fee basis, he said, but all taxpayers are entitled to pay interest based on correct determinations.

Goldstein pressed Malayter on his alternate suggestion of limiting aggregate contingent fees for a particular amended return to a fixed dollar amount, such as $100,000 per year, contrasting it with the government's 2002 proposal to base a limitation on a taxpayer's gross income.

It would depend on how "small" is defined for purposes of limiting contingent fees, Malayter responded. It is possible that there are companies that have gross revenues over $200 million that still could not invest money in fee-based programs, he said.

Martin Davidoff of the American Association of Attorney- Certified Public Accountants stressed that in addition to encouraging higher quality work and discouraging frivolous claims, contingent fees balance the scales between the formidable IRS and the average taxpayer.

Brinton Warren, another special counsel to the IRS associate chief counsel (procedure and administration), asked about duty of independence owed to the client and the unity of interest between a taxpayer and practitioner.

"No one's going to risk their license" to pursue a refund claim that is not legitimate, Davidoff answered. A contingent fee arrangement does not cloud or change a practitioner's judgment on that point, he said.


Enforcement Proceedings


Several commentators, including the ABA Tax Section and the AICPA, are troubled by the proposals that would make disciplinary proceedings public after a complaint has been filed. (For prior coverage, see Doc 2006-1993 [PDF], 2006 TNT 24-12 2006 TNT 24-12: News Stories.)

The timing seems premature, asserted Thomas Purcell on behalf of the AICPA.

Goldstein talked about the practitioner public's need to know more about the types of cases that the IRS Office of Professional Responsibility (OPR) is pursuing and the decisions being rendered. How helpful would it be, he asked, to release only cases in which the OPR's determinations were upheld?

Eve Elgin, on behalf of the AICPA, urged the IRS to seek a middle ground between publicizing cases so early in the process and not publishing anything at all. The public is interested in statistical information about the types of cases, she said. There must be a way to get information about the types of cases out there without violating the Service's duty to keep tax information confidential under section 6103, she said.

The proposed regulations would extend an expedited sanctioning process to practitioners who are determined by the IRS to be in "egregious" noncompliance with their tax obligations. Several commentators, including the AICPA, took issue with the proposal.

The expedited suspension rules would operate virtually at the sole discretion of the OPR, said Purcell. Expedited suspension could occur in situations in which the OPR in its sole discretion determined that the practitioner had demonstrated a pattern of egregious conduct by failing to file returns or pay tax, he said.

All practitioners have the right to a due process hearing before they are considered to be in noncompliance, said Joan LeValley of the National Society of Accountants.

Anita Soucy of the Treasury Office of Tax Policy asked whether the concern is with the proposal's new grounds for expedited sanctioning or the discretion involved.

"Both," said Elgin. The proposal talks about not filing returns or paying tax, she said; it would be better to change "or" to "and" before expedited sanctioning is warranted. But it is troubling that the procedures do not involve an independent determination by an independent body, she said.


Limiting and Expanding Practice


Several practitioner groups have weighed in on the proposed change that would not allow unenrolled return preparers to represent taxpayers before the IRS. Frank Degen appeared on behalf of the National Association of Enrolled Agents to support the limitation, while several other groups, including the National Association of Tax Professionals and the National Society of Accountants, took the opposing view.

Several practitioners came to the hearing to urge the government to move forward on creating a new designation, enrolled retirement plan agent (ERPA), for practice before the IRS for qualified retirement plan practitioners. Richard Hochman of McKay Hochman and Brian Graff of the American Society of Pension Professionals & Actuaries and the National Institute of Pension Administrators emphasized the importance of and need for the new designation.

While government panelists had no questions on the limited- practice issue, Goldstein said he was interested in hearing about groups that have been developing credentialing procedures for the ERPA designation.

Documents

The following comment letters are available from Tax Analysts: