Department of the Treasury (2010)

United States

Department of the Treasury

Director, Office of Professional Responsibility,

Complainant-Appellant

Complaint No. 2010-09

V.

(b)(3)/26 USC 6103 ,

Respondent-Appellee

Decision on Appeal

Authority

Under the authority of General Counsel Order No. 9 (January 19, 2001) and the

authority vested in him as the Chief Counsel of the Internal Revenue Service (IRS)

through a delegation order dated March 2, 2011, William J. Wilkins delegated the

undersigned the authority to decide disciplinary appeals to the Secretary of the Treasury

filed under Part 10 of Title 31, Code of Federal Regulations (Practice Before the Internal

Revenue Service, reprinted by the Treasury Department and hereinafter referred to as

Circular 230 - all references are to Circular 230 as in effect for the period(s) at issue).

This is such an appeal from a Decision and Order of Default (Default Order) entered

into this proceeding by Chief Administrative Law Judge Susan L. Biro (the ALJ) on June

15,2010.

Procedural History

This proceeding was commenced on April 13, 2010, when the Complainant-Appellant

Director of the Office of Professional Responsibility (OPR) filed a Complaint against

Respondent-Appellee (b)(3)/26 USC 6103 (" (b)(3)/26 USC 6103 "). The Complaint alleges

that (b)(3)/26 USC 6103 has engaged in practice before the IRS, as defined by §10.2(a)(1)

(b)(3)/26 USC 6103

of Circular 230, as an attorney. Further, that he

2

(b)(3)/26 USC 6103

as shown in tabular form below:

(b)(3)/26 USC

6103

(b)

(3)/2

(b)

6

(3)/26

(b)

USC

USC

(3)/26

(b)

6103

6103

USC

(3)/26

6103

USC

6103

(b)(3)/26 USC 6103

(b)(3)/26 USC 6103

(b)(3)/26 USC 6103

(b) 1

(3)/2

(b)(3)/26 USC 6103

6

(b)(3)/26 USC 6103

USC

(b)(3)/26 USC 6103

6103

(b)(3)/26 USC

6103

(b)(3)/26

USC 6103

(b)(3)/26

USC

6103

(b)(3)/26

USC 6103

(b)(3)/26

SC 6103

U(b)(3)/26

USC 6103

(b)(3)/26 USC 6103

(b)(3)/26 USC 6103

(b)(3)/26 USC 6103

(b)(3)/26 USC 6103

(b)(3)/26 USC

(b)(3)/26 USC 6103

(b)(3)/26 USC

6103

(b)(3)/26

USC 6103

(b)(3)/26 USC 6103

6103

(b)(3)/26

USC 6103

(b)(3)/26 USC 6103

(b)(3)/26 USC 6103

The Complaint states that, with respect to

(b)(3)/26 USC

6103 USC 6103

(b)(3)/26

(b)(3)/26 USC 6103

constituted incompetence and disreputable

conduct within the meaning of §10.51 of Circular 230 for which (b)(3)/26 USC 6103 may be

censured, suspended, or disbarred from practice before the IRS. The Complaint

requested a suspension from practice for a period of 48 months, with reinstatement

thereafter being at the sole discretion of OPR and, at a minimum, requiring that (b)

(b)(3)/26 USC 6103

(3)/

.

sua

(b)(3)/26 USC 6103 did not file an Answer to the Complaint. On June 15, 2010, the ALJ

sponte entered a Default Order suspending (b)(3)/26 USC 6103 indefinitely from practice

before the IRS, with reinstatement to practice thereafter at the sole discretion of OPR.

In entering the Order, the ALJ found that the five-year statute of limitations in 28 U.S.C

§2462 applied to this Circular 230 disciplinary proceeding. The ALJ also found that

(b)(3)/26 USC 6103

since the counts for 2001, 2002, and 2003 accrued on

, respectively, and the Complaint was filed on April, 13,

2010, more than five years later, those counts could not be grounds on which to enforce

a penalty. The Default Order reasons that because OPR had sought a four-year

(b)(3)/26 USC 6103

suspension for

and that since

(b)(3)/26 USC 6103

were time barred, an indefinite suspension was

warranted, which allows OPR "complete discretion to determine when (b)(3)/26 USC 6103

may be reinstated." Default Order at 7.

OPR filed an appeal asserting that the Default Order was in error as (i) 28 U.S.C. §2462

does not apply to OPR practitioner proceedings; (ii) even if §2462 applies, the claim did

not accrue until the "date of discovery," that is, when QPR learned of (b)(3)/26 USC 6103 ;

(b)(3)/26 USC 6103

and (iii) alternatively,

is a continuing violation and that the statute

of limitations is triggered only when the violative acts cease. OPR requests that the

sanction be modified to 48 months rather than an indefinite suspension, which it views

1

no bearing on the result herein.

(b)(3)/26 USC 6103

, which have

3

as more serious than an indefinite suspension. Further, OPR states that if §2462 is

found to apply, that time-barred violations should not be considered as an aggravating

factor in the sanction determination.

Findings of Fact

The Appellate Authority reviews the ALJ's findings of fact under a clearly erroneous

standard of review. Section 10. 78 of Circular 230. The ALJ's findings of fact are well

supported by the record and are not clearly erroneous.

Analysis as to §2462

The Appellate Authority reviews the ALJ's findings as to issues that are exclusively

matters of law de novo. Section 10. 78 of Circular 230. The application of §2462 is

exclusively a matter of law.

(i) Applicability of §2462 to this OPR Disciplinary Proceeding Generally.

28 U.S.C. §2462 provides in part:

Except as otherwise provided by Act of Congress, an action, suit or proceeding

for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise,

shall not be entertained unless commenced within five years from the date when

the claim first accrued ...

OPR argues that the authority to regulate practice before the IRS as set forth in 31

U.S.C. §330 and the implementing regulations contained in Circular 230 are remedial in

nature, and do not involve the enforcement of a civil fine, penalty, or forfeiture.2 A

previous Appellate Authority held in an unpublished decision that §2462 is generally not

applicable to OPR disciplinary proceedings absent a finding that the primary purpose of

a particular proceeding was penal. See Director, OPR v. Francis, Complaint No. 200409, p. 12, n. 15 (Decision on Appeal, February 4, 2008). OPR emphasizes that in this

particular case there were no findings that the primary purpose of this proceeding was

penal as opposed to remedial. In this connection, the ALJ recognized that the

suspension from practice is imposed in furtherance of the IRS regulatory duty to protect

the public interest and the Treasury Department by conducting business with

responsible persons only. Default Order at 5.

The five-year limitations period provided for in §2462 has been held to a';J'IY to

administrative proceedings such as this one. 3M Co. v. Browner, 17 F.3 1453 (D.C.

Cir. 1994). The question remains whether a suspension for (b)(3)/26 USC 6103 is

punitive, in which case the five year limitation period provided for in §2462 would apply,

or is remedial, in which case it would not apply.

2

However, that section specifically provides that the Secretary may impose a "monetary penalty" even

though such a penalty is not proposed here.

4

In Johnson v. Securities and Exchange Commission, 87 F.3d 484, 488-89 (D.C. Cir.

1996), the D.C. Circuit considered the imposition by the SEC of a six-month license

suspension on a securities industry supervisor for failing to adequately supervise a

subordinate to be a penalty within the meaning of §2462. The court found that a

penalty, within the meaning of §2462, is a form of punishment imposed by the

government for unlawful or proscribed conduct ''which goes beyond remedying the

damage caused to the harmed parties by the defendant's action." Id. at 488. "[T]he test

for whether a sanction is sufficiently punitive to constitute a 'penalty' within the meaning

of §2462 is an objective one, not measured from the subjective perspective of the

accused (which would render virtually every sanction a penalty)," but "the degree and

extent of the consequences to the subject of the sanction must be considered as a

relevant factor in determining whether the sanction is a penalty." Id. The court noted

that "[t]his sanction would less resemble punishment if the SEC had focused on

Johnson's current competence or the degree of risk she posed to the public," and that "it

is evident that the sanctions here were not based on any general finding of Johnson's

unfitness as a supervisor, nor any showing of the risk she posed to the public," but

rather her failure reasonably to supervise a subordinate. Id. at 489. The court explicitly

rejected a public policy exception for government agencies protecting public interests

(Id. at 492). The court found that the §2462 limitations period applied with respect to

the SEC's proposed suspension. 3

In Proffitt v. Federal Deposit Insurance Co., 200 F3d. 855 (D.C. Cir. 2000), the FDIC's

removal of a banker from his position and his expulsion from the banking industry was

held to constitute a penalty within the meaning of §2462. In Coghlan v. NTSB, 470 F.3d

1300, 1306 (11 th Cir. 2006), revocation of an airline transport pilot certificate was held to

be remedial as it implicated matters of air safety. In Meadows v. SEC, 119 F.3d 1219,

1228 (5th Cir. 1997), the temporary bar of a stockbroker who had misrepresented the

risks of investing to investors was held to be remedial where the ALJ made specific

findings as to lack of fitness and the danger posed to the investing public. In SEC v.

Microtune, Inc., 2011 U.S. Dist. LEXIS 14850 (N.D. Tex. 2011 ), the court followed

Johnson in considering an injunction penal, focusing on the degree and extent of the

sanctions as a factor in whether it is a penalty; permanent public disclosure evidences

SEC action as penal and a focus on past conduct also weighs in favor of considering

action as penal. It has been recognized that the distinction between punitive and

remedial measures is not always easy to make. See SEC v. Quinlan, 2008 U.S. Dist.

Lexis 95789 (E.D. Mich. 2008), affirmed, 2010 U.S. App. LEXIS 8205 (6th Cir. 2010).

Attorney disbarment proceedings have been recognized as not for the purpose of

punishment but to determine fitness to continue as an officer of the court and to prevent

the ministrations of unfit persons to practice. While offenses after a lengthy lapse of

time do not provide the sole foundation for a disbarment they may be considered with

3

For a critique of the Johnson application of §2462 to the suspension of a professional license see

McDonald, S., A Case of Statutory Misinterpretation: An 1839 Statute of limitation on a Form of Debt

Action is Being Misapplied to Limit Modern Regulatory Proceedings, 49 Am. U. L. Rev. 659, 701, 715-19

(2000).

5

more recent facts in a disciplinary proceeding at any time. See In the Matter of Echeles,

430 F.2d 347, 349, 355 (ih Cir. 1970).

(b)(3)/26 USC 6103

In applying the above law to a sanction for

,

several factors support that a suspension is remedial. They include (1) that OPR has a

duty to protect both taxpayers and the government from less than responsible

(b)(3)/26 USC 6103

, someone who earns his livelihood

practitioners, and

is dishonorable,

participating in the administration of the tax laws, (b)(3)/26 USC 6103

unprofessional, and adversely reflects upon fitness to practice (Default Order at 5 and

6) and it is an indicator of incompetence4 ; (2) QPR credibly states that its disciplinary

proceedings consider the practitioner's current fitness to practice and provide

(b)(3)/26 USC 6103

practitioners an opportunity to present their case and

prior to the

filing of a Complaint (see §10.60(c) of Circular 230), and in this case QPR worked with

(b)(3)/26 USC 6103 to try

(b)(3)/26 USC 6103

; and (3) that an OPR suspension only

bars practice before the IRS and, for most practitioners, practice before the IRS does

not comprise the bulk of their livelihood - (b)(3)/26 USC 6103 may continue to practice law

and he may even continue to represent his clients in the U.S. Tax Court during the

period of suspension.

The factors indicating that the sanctions proposed by OPR are punitive, at least insofar

(b)(3)/26 USC 6103

as the sanction is for

, include (1)

although OPR asserts that its sanctions are not designed to visit retribution for past

acts, past sanctions proposed by OPR have strongly focused on past conduct rather

than current competence, and disbarment and the duration of suspensions has strongly

(b)(3)/26 USC 6103

correlated with

carrying less weight the suspension to be imposed is for (b)(3)/26 USC

(b)(3)/26 USC 6103 which is personal conduct; (2) while there is a clear nexus6103

between

(b)(3)/26 USC 6103 and the competence and character needed to represent

others in a tax controversy practice, improper personal behavior has a limited

correlation with professional performance, particularly when there is a more than fiveyear gap between the improper personal behavior and the professional sanction; (3)

notwithstanding that many of those of us in tax administration mightily agree with

Justice Oliver Wendell Holmes that taxes are essential for a civilized society (see

Compania General De Tobaccos De Filipinas v. Collector of Internal Revenue, 275 U.S.

87, 100 ( 1927)), I believe that for the larger public the perceived degree of risk of

(b)(3)/26 USC 6103

representation by a practitioner

is far less than the

degree of risk to the public of an unqualified pilot (see Coghlan, supra), an unreliable

investment advisor, or the degree of risk associated with the other situations where the

sanction was found to be remedial 5 ; and (4) the sanction is made public.

4

(b)(3)/26 USC 6103

However, if the practitioner

preceding the

Complaint, the practitioner's having been subject to a suspension may be brought to the public's attention

as the result of an OPR proceeding (b)(3)/26 USC 6103 .

5

OPR's claim that a suspension is needed to protect the public is undercut by its not instituting this

proceeding until well over two years after substantiating (b)(3)/26 USC 6103 violations.

6

(b)(3)/26 USC 6103

The typical reported QPR case has been for

. If QPR proposed a suspension for a

(b)(3)/26 USC 6103

practitioner who

, the predominant purpose of that suspension would be penal rather than

remedial. The closer in time that a suspension for (b)(3)/26 USC 6103 occurs to the

errant conduct, the more the purpose is remedial.

In weighing the penal and remedial factors I find that although both penal and remedial

purposes are present in an QPR count for (b)(3)/26 USC 6103 , that the ALJ is correct: a

more than five years before

count instituted against a practitioner for (b)(3)/26 USC 6103

the institution of proceedings is, as a matter of law, a penalty within the meaning of

(b)(3)/26 USC 6103

§2462. 6 Further, I find that for the reasons stated below,

, is the date that commences the running of the §2462

limitations period and that the violation is not a continuing one.

(ii) Date of Commencement of §2462 Accrual.

A claim normally accrues when the factual and legal prerequisites for filing suit are in

place. See 3M Co. v. Browner, supra at 1460; Proffitt, supra at 862-63. Thus, where

the basis for a disbarment from federal practice is disbarment from another jurisdiction it

·

is the act of disbarment in the other jurisdiction that sets the statute of limitations

running. See Sheinbein v. Dudas, 465 F.3d 493,496 (Fed. Cir. 2006). Cf., Public

Interest Research Group of New Jersey, Inc. v. Powell Duffryn Terminals Inc., 913 F.2

64 (3rd Cir. 1990) (§2462 period begins when reports are filed with the EPA as public

(b)(3)/26 USC 6103

can't know of violation until a filing occurs; however,

). In 3M Co., the D.C. Circuit explicitly rejected the application of a

"discovery of violation" rule to §2462. Id. at 1460-61. The court specifically found that

under §2462 it is the breach of the duty, not the discovery of the violation by the federal

agency, that is controlling notwithstanding the difficulties that the federal agency may

have in discovering the violation or enforcing the law. Neither fraudulent concealment,

latent injuries, nor any of the other special statute tolling doctrines apply here.

Although it may be difficult as a practical matter for the IRS to know for certain that

(b)(3)/26

(b)(3)/26 USC 6103

, or to monitor all practitioner USC

6103 , the factual and legal prerequisites for

(b)(3)/26 USC 6103

.

the filing of a Complaint are in place when

Because §10.51 of Circular 230 describes the conduct giving rise to the sanction as

(b)(3)/26 USC 6103

which provides the factual and legal prerequisites for filing suit, a2nd

that date cannot be extended due to the inevitable difficulties in determining that a

(b)(3)/26 USC 6103

practitioner

, or until QPR receives information from an IRS

employee concerning the practitioner (see §10.53 of Circular 230). Accordingly,

6

Because the Default Order was entered based only on the Complaint, CPR did not present to the ALJ

its evidence in support of the Complaint. I have reviewed that evidence and it would not affect my

conclusion.

7

(b)(3)/26 USC 6103

, is the date that commences the

running of the §2462 limitations period.

USC

as a Continuing Violation.

(iii) (b)(3)/26

6103

Section 2462 provides that its limitations period begins to run "from the date when the

(b)(3)/26 USC 6103

claim first accrued" [italics added]. This is

. See

generally United States v. Kirkman, 755 F. Supp. 304,306 (D. Idaho 1991) (tax evasion

under 26 U.S.C. §7201 is not a continuing offense). The Supreme Court has

recognized that a statutory prohibition should only rarely be construed as a continuing

violation for statute of limitations purposes. Toussie v. United States, 397 U.S. 112, 115

(1970). In Toussie, the Court held that with regard to an individual legally obligated to

register for the draft on or five days after his 18th birthday who did not do so, his crime

was completed at that time and the applicable five-year statute of limitations began to

run at that time, barring his prosecution eight years later. See also 3M Company, supra

at 1455 n. 2. Although 26 U.S.C. §6501(c)(3) provides that when no return has been

filed that tax may be assessed or a proceeding may be begun to collect the tax without

assessment at any time, it does not address the time for filing a disciplinary proceeding.

Accordingly, I conclude that the limitations periods for bringing a disciplinary action for

(b)(3)/26 USC 6103

.

Appropriate Sanction

The Appellate Authority reviews the sanction sought by QPR and imposed by the ALJ

USC

, Complaint No. 2007-12 (April 21, 2009) at

de novo. See, e.g., Director, OPR v. (b)(3)/26

6103

(b)(3)/26 USC

p. 3; Director of OPR v.

Complaint No. 2006-23 (April 2008) at p. 3; Director,

6103

USC

(b)(3)/26

OPR v. (b)(3)/26

,

Complaint

No.

2007-08

(July 2008) at p. 4); Director, OPR v. USC

6103

6103 ,

(b)(3)/26

Complaint No. 2008-12 (January 20, 2010) at p. 6; Director, OPR v. USC 6103 , Complaint

No. 2008-19 (May 26, 2009) at p. 4). I modify the suspension imposed by the ALJ for

the reasons stated below.

(b)(3)/26 USC 6103

The Complaint requests a sanction of 48 months, based on

, but, as stated above, because of §2462, only the violations for

(b)(3)/26 USC 6103

may be properly charged. Because less counts were sustained,

the Default Order purports to impose a lesser sanction - it provides for an indefinite

suspension which allows QPR "sole discretion" to determine when (b)(3)/26 USC 6103

be reinstated. Default Order at 8. This would seem to allow OPR to suspend

(b)(3)/26 USC 6103

for exactly 48 months or for a shorter or conceivably a longer period within

its sole discretion. However, OPR has appealed the indefinite suspension as being less

severe than a 48 month suspension because (b)(3)/26 USC 6103 may seek readmission

immediately and repeatedly. OPR also expresses concern that that an indefinite

suspension will not provide clarity to practitioners regarding the severity of the sanction

for comparable misconduct.

8

A practitioner whose sanction is initiated through a disciplinary proceeding, as provided

for in §§10.60 et seq. of Circular 230, that is not resolved between the practitioner and

QPR consensually as provided for in §10.61 of Circular 230, should have his case

resolved by the ALJ as provided for in § 10. 76 of Circular 230, or by the agency on

appeal as provided for in § 10. 78 of Circular 230. The purpose of the disciplinary

proceeding is to have the sanction determined by the ALJ or the agency, not by QPR.

Section 10.82 of Circular 230 provides for an expedited suspension for a duration within

the control of QPR, but that section applies only under n·arrow and specifically defined

circumstances and is an interim measure that provides the practitioner with the ability to

obtain prompt resolution with a sanction determined by the ALJ or agency as described

above in a proceeding administered per §10.60 of Circular 230. I conclude that

practitioners such as (b)(3)/26 USC 6103 , and QPR, are entitled to a determinate sanction

by the ALJ under §10.76 of Circular 230, the application of which may be readily and

unambiguously understood and complied with by the practitioner and QPR, subject to

any specific conditions as provided in §10.79(d) of Circular 230.

Circular 230 does not provide specific guidance as to the application of aggravating or

mitigating factors in imposing an appropriate sanction and QPR has not provided any

aggravating or mitigating factors specifically applicable to (b)(3)/26 USC 6103 . QPR has

(b)(3)/26 USC 6103

requested that if §2462 is found to bar the counts for

not be considered as aggravating factors in

(b)(3)/26

imposing a sanction (Cf., Director, QPR v. USC

Complaint No. 2008-12 (Decision on

6103

Appeal, January 20, 2010) at p. 3, wherein QPR alleged (b)(3)/26 USC 6103 prior to the

counts alleged in the Complaint as "background facts."). Since (b)(3)/26 USC 6103 has not

responded and it is in his interest, I will assume that he does not disagree.

Accordingly, I will determine the sanction based on the counts for (b)(3)/26 USC 6103 ,

(b)(3)/26 USC 6103

without any consideration of (b)(3)/26 USC 6103 . Based on

(b)(3)/26 USC 6103

, I hereby impose a

(b)(3)/26 USC 6103

suspension of 40 months provided that

. Had all of the counts been sustained, I would have imposed a

(b)(3)/26 USC 6103

suspension of 48 months. I impose this sanction because

by

a tax practitioner is a serious offense, and the four counts sustained together comprise

a significant breach of a practitioner's responsibilities. The reason that the reduction in

(b)(3)/26 USC 6103

suspension is not proportionate with the number of counts

(b)(3)/26 USC 6103

, and so should be given greater weight, and

(b)(3)/26 USC 6103

, all other things being equal.

I have considered all of the arguments made by QPR and to the extent not mentioned

herein, I find them to be irrelevant or without merit.

Conclusion

For the reasons stated above, (b)(3)/26 USC 6103 is suspended from practice before the

IRS for a period of 40 months provided that (b)(3)/26 USC 6103 will be reinstated thereafter

9

on application to OPR, if he has at that time proven to OPR that

(b)(3)/26 USC 6103

, and

subject to conditions as imposed by OPR under §10.79(d) of Circular 230. This

constitutes FINAL AGENCY ACTION in this proceeding.

Bernard H. Weberman

Appellate Authority

Office of Chief Counsel

Internal Revenue Service

(As Authorized Delegate of the

Secretary of the Treasury)

May 26, 2011

Lanham, MD

CERTIFICATE OF SERVICE

I hereby certify that the Decision on Appeal dated May 26, 2011 in Complaint No. 201009 was sent this day by UPS Next Day Air and by First Class U.S. Mail to the addresses

listed below:

UPS Next Day Air:

(b)(3)/26 USC 6103

First Class U.S. Mail:

Honorable Susan L. Biro

Chief Administrative Law Judge

U.S. Environmental Protection Agency

Office of Administrative Law Judges

Mail Code 1900L

1200 Pennsylvania Avenue, N.W.

Washington, D.C. 20460

Karen L. Hawkins

Director, Office of Professional Responsibility

Internal Revenue Service

1111 Constitution Avenue, NW - Room 7238

Washington, DC 20224

Michael Salyards, Attorney

Internal Revenue Service

Office of Chief Counsel, General Legal Services

MS 2400 NDAL

4050 Alpha Road, 14th Floor

Dallas, TX 75244-4203

sf&:-:tJtL0:n ~

Appellate Authority

Office of Chief Counsel

Internal Revenue Service

(As Authorized Delegate of the

Secretary of the Treasury)

May 26, 2011

Lanham, MD