Tax Analysts Blog

Is the IRS Office of Professional Responsibility in Decline?

Posted on Nov 4, 2014

In March of 2009, incoming American Bar Association Section of Taxation Chair Karen Hawkins was tasked with taking over the IRS Office of Professional Responsibility. It had been a tough few years for OPR, which struggled with changing professional standards from congressional legislation and a heavy backlog of cases. Hawkins almost immediately revitalized the office and, in fact, led it to new heights with the backing of former IRS Commissioner Douglas Shulman. However, after the government loss in Loving and a mounting number of other litigation setbacks to OPR's plans to more closely regulate return preparers, it's fair to ask whether the office’s golden age is now over.

Hawkins joined OPR with almost universal practitioner support. The ABA was, of course, disappointed to lose its next tax section chair, but Hawkins was hailed as a "thoughtful, highly intelligent, and experienced attorney with enormous insight into the rules under Circular 230 and how OPR should enforce those rules." The latter was clearly true, as she seemed determined to broaden the scope of Circular 230 and ensure that the tax community understood that OPR had teeth.

Within months of taking office, Hawkins and Shulman were hinting at broad new preparer regulations. Hawkins also pushed for increased use of monetary sanctions against firms and preparers. The backlog of cases at OPR began to shrink, and Hawkins made a point of publishing opinions, showing the type of misconduct and sanctions being considered by her office. Her first six months won her great acclaim and saw her forge close relationships with large groups such as the AICPA.

In January 2010 the cornerstone of Hawkins's plans for OPR was finally unveiled. In its recommendations for the regulation of paid return preparers, the IRS called for mandatory testing, registration, and the expansion of Circular 230 to all signing and non-signing preparers. It was a sweeping change. At the time, a few questioned whether the IRS had the authority for this broad new assumption of powers, but they were assured by Hawkins and other IRS officials that the new preparer regime was permissible under existing law. The initial announcement of the new rules was welcomed by the AICPA and then-Senate Finance Committee Chair Max Baucus (who also opined that the rules were legal).

But not everyone agreed. Many small return preparers thought the rules were too onerous, and they particularly objected to the continuing education requirements for a preparer tax identification number. Some of them coalesced into a group known as the Institute for Justice, which filed a lawsuit against the finalized preparer regulations in 2012. At first the plaintiff's case in Loving attracted little support, although a few analysts began to say that perhaps the IRS had gone too far.

However, in an opinion that shocked many in the preparer community, D.C. District Court Judge James E. Boasberg struck down the IRS preparer regime and permanently enjoined the agency from enforcing the rules. The decision was released late on a Friday, but that didn't soften the blow. The IRS lost a subsequent appeal and has now decided not to pursue its options in court. Its new tact is to push Congress for a statutory solution, something that doesn't appear likely anytime soon given the gridlock on tax legislation of all kinds.

Loving was a major blow to Hawkins's attempt to expand Circular 230. The case also began to unravel other aspects of OPR's oversight. Other litigation (including a recent decision in Sexton v. Hawkins, a Nevada district court case) has not gone OPR's way. Shulman's departure also deprived Hawkins of a key ally inside the IRS. It isn't clear whether Commissioner John Koskinen shares OPR's priorities (and he has been too distracted to give much assistance even if he did).

Hawkins's term has been successful in many ways. She has brought more order to the way OPR handles disciplinary cases, and she has reminded practitioners that if they fail in their Circular 230 obligations, there are consequences. But it might be fair to say that OPR has fallen from its 2009-2010 pinnacle. Courts have reined in its power, and practitioners have shown a greater willingness to challenge its decisions post-Loving than they did earlier in Hawkins's tenure. Hawkins’s legacy as OPR chief might end up being defined more for the IRS's overreach and what she didn't accomplish than the numerous things she has.

Read Comments (2)

travis rechNov 3, 2014

Which party, and for what ideological reasons, would be opposed to legislation
making the regulations statutory?

Then again, I highly suspect it is monetary interests and not ideological
interests at play here.

edmund dantesNov 5, 2014

Professional Responsibility has been conspicuously in decline among IRS
agents--perhaps that is where the attention should be focused?

Today as I retrieved some info from i was asked to take one of those
surveys about my experience with the website. Inserted among the questions
about layout and search terms were three questions about whether I considered
the IRS trustworthy and likely to do the right thing! With a 10-point scale!

They hardly need a survey to understand how the public feels about them and the
weaponization of the agency against the President's "enemies.".

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