Six months into her tenure as director of the IRS Office of Professional Responsibility (OPR), Karen Hawkins has an approach that differs sharply from that of her predecessors. Her extensive experience working with practitioners has led Hawkins to encourage the office to adopt more real-world methods of enforcing ethical conduct among individuals who practice before the IRS. So far she has received favorable reviews from many in the tax community who in the past have been less than pleased with OPR's handling of disciplinary actions.
Hawkins has a desire to be reasonable when possible, but she isn't afraid to go after those who engage in callous or egregious noncompliance. Channeling a bit of Teddy Roosevelt, Hawkins promised to "whack" practitioners when it is clear they committed willful violations of Circular 230 or failed to cooperate with OPR. "I really prefer to speak very softly, but that doesn't mean I don't have a baseball bat in the trunk," Hawkins said at a June event in New York.
Hawkins's move to OPR was a coup for IRS Commissioner Douglas Shulman, who pushed hard for her to take the position after Michael Chesman stepped down last November. Slated to become chair of the American Bar Association Section of Taxation this year, Hawkins instead agreed to take the OPR director post for the next four years. As a member of the OPR advisory subcommittee of the IRS's Information Reporting Program Advisory Committee (IRPAC), Hawkins was active in working with OPR to develop recommendations for public guidance and workable enforcement mechanisms.
Hawkins had no prior government service but was a principal for more than 25 years in the boutique tax law firm of Taggart & Hawkins in Oakland, Calif. She received her JD and MBA in taxation from Golden Gate University in San Francisco. Hawkins spent much of her time working on pro bono projects and was instrumental in securing reforms to innocent spouse provisions in the tax code. (For a profile of Hawkins while in private practice, see Doc 2007-17919 or 2007 TNT 153-3 .)
Hawkins's four-year commitment to OPR not only ensures continuity during the rest of Shulman's term but also brings stability to the office after a quick succession of predecessors. A practitioner told Tax Analysts that Hawkins has perhaps the best chance in recent memory to expand OPR's influence and bring about a lasting change in the office's role. With the recent hiring of new staff, as well as strong support from Shulman, Hawkins should be able to lay out her philosophy and "put an imprint on the office," the practitioner said.
The New Sheriff
Since arriving at OPR in April, Hawkins has gone on a speaking spree, taking time to attend numerous events sponsored by both the IRS and private organizations. By year-end, Hawkins will have participated in more than 20 public events. Part of what drives her appearances is the coming set of recommendations that a panel she cochairs will make to the Obama administration and Congress on regulating return preparers. Hawkins scheduled informal town hall meetings to hear from unlicensed and unenrolled return preparers at all six of the IRS National Tax Forums, personally conducting four of them. She also comoderated three public forums held to solicit feedback from specific return preparation constituencies.
Part of Hawkins's appeal to so many in the tax community is her candor. After many years representing taxpayers, including both individuals and small businesses, Hawkins adheres to an "I'll be tough but realistic" approach of handling ethical violations by tax professionals. In remarks made at the 38th annual American Law Institute-ABA tax controversy conference in San Antonio in May, she summed up OPR's role: "This is a very important office. We have people's careers in our hands, and we should never take that lightly or cavalierly."
Hawkins was immediately thrust into a firestorm in April. In her first week on the job, OPR published sanction guidelines for noncompliance cases that had been in the works for months. Practitioners complained that the guidelines represented a checklist that OPR attorneys would blindly follow without regard to the facts of a case. The guidelines were revised shortly thereafter to clarify some of the examples and emphasize the role of mitigating and aggravating circumstances in determining appropriate punishments for practitioner noncompliance under Circular 230. Hawkins said frequently that while she was opposed to the penalty grid, the exercise was instructional. Moreover, the uproar created "exactly the kind of dialogue that this office has been missing out on for years," she said in May.
Sleeves Rolled Up
One of Hawkins's first initiatives was quickly clearing out the backlog of 700 disciplinary cases she inherited, most of which were related to compliance. To that end, OPR has been sending out a variety of notices to practitioners with open cases, either giving them a short time to get compliant or providing a private reprimand.
Hawkins also established an early-notification procedure to inform practitioners when an ethics complaint has been made against them. The goal is to send a notice of allegation to a practitioner within two weeks of the referral or complaint being received, advising of the allegations made and inviting an early response explaining mitigating circumstances. "I want practitioners to know immediately that their name is floating around OPR," she said at the fall meeting of the ABA tax section.
Making OPR more transparent is another goal for Hawkins. She continues to make final disciplinary cases available online and expects the OPR portion of the Internal Revenue Manual to be available before the end of the year.
Although it wasn't part of Hawkins's job description on coming to OPR, Shulman soon gave her an added responsibility to help IRS Deputy Commissioner (Operations) Mark Ernst lead the IRS's return preparer review. After the review, which was announced in June, the IRS intends to offer recommendations to the administration and Congress on ways to provide better oversight over the largely unregulated sea of paid return preparers.
Hawkins has taken on the role with enthusiasm. From July through October, she participated in several preparer review forums and has been seeking input from a wide range of stakeholders. She received an outpouring of advice, and work is ongoing to draft a practical framework to submit by the year-end deadline. But what those recommendations look like in final form could put her at odds with people who are traditionally some of her biggest supporters in the tax community.
Hawkins has taken an unpopular position in supporting initial testing of all paid return preparers. At a September meeting, Hawkins said she was "not convinced that [attorneys and CPAs] should be exempted from testing by the mere fact that they are licensed by their state bar or their state accountancy board."
Also at the meeting, Hawkins announced that practitioners who were taking advantage of the IRS foreign bank account voluntary disclosure program would not be given a pass by OPR. To the extent that there are practitioners in the pool of final voluntary disclosures, Hawkins said, their facts and circumstances would be reviewed as in any other referred case. "They better have some great mitigating stories to tell," she said.
Although regularly lauded for her practitioner-friendly approach to Circular 230 violations, when it comes to preparer regulation, Hawkins's sympathies seem to align more with those of National Taxpayer Advocate Nina Olson, who has been seeking regulation measures for years.
Monetary penalties are one Circular 230 tool Hawkins has repeatedly said she intends to use more. In a recent statement, she indicated she is making her staff more aware of opportunities to apply monetary sanctions. Although penalties can be imposed against individuals, Hawkins told a July Tax Talk Today audience that she prefers using them primarily against firms. "The best way to go after firms is through their pocketbooks," she said.
Getting guidance out in the IRM, an issue she championed while on IRPAC, is also a priority. Although delayed, the IRM provisions should be released soon, she said in September. OPR will work with the Office of Chief Counsel on preparer penalty regulations under Circular 230 section 10.34(a), now that preparer penalty regulations under code section 6694 have been finalized, Hawkins said in September.
A Recent Example
Robert Kenny, a tax attorney, recently gained firsthand experience of OPR's changed attitude and Hawkins's influence on the office. When a revenue agent told some of Kenny's taxpayer clients that they didn't need, and shouldn't seek out, representation in exams by the IRS, he complained to the Treasury Inspector General for Tax Administration. The acrimony increased when the revenue agent referred Kenny to OPR -- a move Kenny believes was retaliatory. After extensive review of the facts and circumstances, Hawkins decided to close the file without taking any action against Kenny.
"She's a breath of fresh air," Kenny told Tax Analysts. While pleased with the result in his case, Kenny said he believes the IRS bureaucracy will restrain Hawkins's efforts. "Overall, Karen is trying to do the right thing," he said, "but the bureaucracy has been here a lot longer than she has."
"I'm grateful Karen put a stop to unwarranted investigations into practitioner files, but I'm concerned that this took place in the first place," Kenny said. "It's kind of like OPR is the Gestapo for the IRS. What if the next director is not as worried about civil rights?" There should be written procedures that OPR follows so that the process is not left to the discretion of the OPR director, he said.
Sense of Right and Wrong
Conrad Davis of Ueltzen & Co. LLP, former chair of the Internal Revenue Service Advisory Council's professional responsibility subcommittee, said Hawkins is "effecting real change in policy and timeliness of OPR matters by setting a really good example of what she would expect out of the office as a practitioner." She has "a sense of urgency that comes from realizing people's lives are wrapped up in OPR's work; it's not just paperwork," he said.
Davis told Tax Analysts that practitioners are often wary of the government wielding powerful tools because of the unintended damage that can affect innocent parties. But Hawkins's four-year commitment gives her the chance to make changes to Circular 230 and the office that will "address what is right and wrong while putting into place appropriate safeguards," he said.
"I am very pleased that her history and great work on the committee was recognized by the IRS and she ended up being chosen to head the office," Davis said.
Kevin Thorn of the Thorn Law Group and a former senior enforcement attorney at OPR said Hawkins's emphasis on staff training was an important step in changing OPR's mindset. "Training has been lacking in the past," he said. Thorn said that as a result of the instruction staff have received since April, he has noticed a clear difference in interactions with OPR: "My clients have been treated fairly."
"Karen has a clear vision, and the tax community is all the better for it," Thorn said.
Charles Rettig of Hochman, Salkin, Rettig, Toscher & Perez PC agreed that Hawkins's approach was needed. "Karen has a strong sense of right and wrong," he said. "Those who are deserving of discipline will receive it, but those deserving of discretion and understanding of things that can occur unintentionally in the 'tax trenches' will receive it."
Hawkins understands that "the tax profession needs guidance and an occasional strong hand, sometimes offered with the proverbial olive branch," Rettig said. He said he expects Hawkins to work well with the practitioner community in developing a workable professional relationship and rules of practice.