Court Case Highlights IRS Process Change

A recent court case highlights reasons behind a change in IRS procedure in how the Office of Professional Responsibility (OPR) deals with complaints.

The court decision from U.S. District Court concerns an allegation the IRS improperly withheld information the OPR had received about a certain tax practitioner that had come from another part of the IRS. Because the original complaint about the practitioner concerned representation of a taxpayer before the IRS, the case file information was subject to Section 6103.

“The OPR has authority under Section 6103 to disclose tax information to a practitioner during an open investigation of a possible Circular 230[1] violation or during a disciplinary proceeding, but could not comply with this practitioner’s request for information because by then the case was closed,” the IRS states in its release.

Between the time of the OPR receipt of the information and the Freedom of Information Act (FOIA) suit being filed in U.S. District Court, the Office of Professional Responsibility modified its process to give the practitioner in cases like this a chance to get such information before the case closes.

This provides affected practitioners a better opportunity to understand why a case was opened—and respond if they so choose.

The Court Case Unfolds

Here’s how the IRS says the original case went down: The Office of Professional Responsibility received a report of possible practitioner misconduct and reviewed it. The OPR sent the practitioner what it terms a “soft letter” which generally described the allegations and also informed the practitioner that the OPR decided not to take any action. The letter also informed the practitioner the investigation had been closed.

The practitioner filed a Freedom of Information Act request to get further information about the investigation, but the OPR said it could not comply because Section 6103 limited them to disclosures in open investigations. At that point the suit was filed by the practitioner in U.S. District Court, which upheld the IRS position.

“In hindsight, the OPR found this result inconsistent with its commitment to provide practitioners a full and fair opportunity to respond to allegations, and in 2016 modified its processes to address the problem,” the IRS said.

“OPR now sends a letter to the practitioner advising of the issues presented in the matter under investigation and gives the practitioner an opportunity to comment, and, then, when it’s an appropriate disposition of the case, sends a second letter with the ‘soft’ closing language.”

The IRS says the two-letter process gives a practitioner an opportunity to get more information about any pertinent allegations before the OPR closes the matter, while fitting within the framework of Section 6103.

[1] Editor’s note: Circular 230 includes language regarding the conduct of a tax professional representing a client before the IRS. According to the IRS, applicable provisions govern items like due diligence (10.22, 10.34, and 10.37), providing false or misleading information (10.51[a][4]), and helping a client engage in tax evasion (10.51[a][7]). A “possible Circular 230 violation” would likely pertain to these guidelines and, if pursued, could lead to censure, monetary sanction, or even disbarment.