Department of the Treasury (2014)

United States

Department of the Treasury

Director, Office of Professional Responsibility,

Complainant-Appellee

Complaint No. 2014-04

v.

(b)(3)/26 USC 6103

Respondent-Appellant

Decision on Appeal

Pursuant to the Secretary of the Treasury's designation, General Counsel Order No. 9

(January 19, 2001) and Office of Chief Counsel Notice CC-2018-007 (July 3, 2018), I

decide disciplinary appeals to the Secretary of the Treasury filed under 31 C.F.R. Part

10, Practice Before the Internal Revenue Service (IRS), commonly referred to as

Circular 230 (all references are to Circular 230 as in effect for the periods at issue).1

This is such an appeal from an Initial Decision and Order (hereinafter Decision) entered

in this proceeding by the Honorable Curtis E. Renoe, Administrative Law Judge (the

ALJ) on June 15, 2018.

Background

On March 12, 2015, Complainant-Appellee Director of the Office of Professional

Responsibility (Complainant) initiated this proceedinq by filing a Complaint against

Respondent-Appellant (b)(3)/26 USC 6103 (Respondent). Complainant filed the

Complaint, however, with the incorrect Administrative Law Judge, who returned it

unfiled to Complainant. On April 15, 2015, Complainant filed an identical second

Complaint with the correct Administrative Law Judge. Respondent submitted an

Answer to the incorrect Administrative Law Judge and served it on Complainant but

never filed it with the correct Administrative Law Judge. Complainant filed a Motion for

Default Decision, which the Administrative Law Judge granted by Order dated October

15, 2015. On November 25, 2015, Respondent appealed to the Treasury Appellate

Authority. Complainant filed a Motion to Dismiss Appeal as Untimely, which Appellate

Authority Thomas J. Travers denied by Order dated April 6, 2016. On June 6, 2017,

Appellate Authority Thomas J. Travers issued a Decision on Appeal, finding, among

other things, that Complainant had timely received a copy of Respondent’s Answer to

1 Portions of Circular 230 were amended on June 12, 2014. See 79 Fed. Reg. 33685 (June 12, 2014);

Circular 230 (Rev, 6-2014). These proceedings were instituted after that date and are governed by

subpart D and E of Circular 230 as revised. See 31 C.F.R. § 10.91 (2014). Respondent’s past conduct is

governed by the regulatory provisions in effect at the time the conduct occurred. See id.

2

the first Complaint, that Respondent’s Answer to the first Complaint set forth a new

address of record for Respondent, and that Complainant did not properly serve the

second Complaint, a Notice of Failure to Properly File Answer, or the Motion for Default

Decision on Respondent’s new address of record. Accordingly, Appellate Authority

Thomas J. Travers reversed the Default Decision and remanded the matter for a

hearing on the merits.

ALJ’s Decision and Complainant’s Motion to Dismiss Respondent's Appeal

On December 20, 2017, Complainant filed a Motion for Summary Adjudication in the

remanded proceedings, seeking an order that Respondent be disbarred from practice

before the IRS. Thereafter, Respondent filed a Response to the Motion, and

Complainant filed a Reply. On February 28, 2018, the ALJ issued an Order granting in

part and denying in part the Complainant’s Motion for Summary Adjudication. The

Order granted summary adjudication on Counts 1 through 5 and Count 8 but found that

there were material facts in dispute with respect to Counts 6 and 7 and with respect to

the appropriate sanction. On March 13, 2018, the ALJ held a hearing on the remaining

issues. Respondent did not appear at the hearing. Both parties filed timely post­

hearing briefs. On June 15, 2018, the ALJ issued the Decision, sustaining the

remaining counts and determining that the appropriate sanction was disbarment.

On June 15, 2018, the Decision was served on Respondent via email and via USPS

First Class Mail to two addresses: Respondent’s last known address where

Complainant served the first Complaint and Respondent’s new address of record as set

forth in Respondent’s Answer to the first Complaint. The Decision informed

Respondent that he could appeal to the Secretary of the Treasury within 30 days from

the date of service.

Respondent’s appeal was due on July 16, 2018.2 On July 23, 2018, Respondent filed

his Appeal. Respondent did not offer any explanation as to why he filed his appeal late.

On August 23, 2018, Complainant filed a Motion Seeking Leave to File a Motion to

Dismiss Respondent’s Appeal as Untimely and to Extend Complainant’s Deadline for

Filing an Opposition to Appeal. The parties to a proceeding under Circular 230 that is

on appeal to the Treasury Appellate Authority may only file an appeal brief and a

response brief and must file a motion for leave in order to file a motion or other brief or

response. Section 10.77(d) of Circular 230. Accordingly, Complainant’s motion sought

leave to file a motion to dismiss and attached Complainant’s Motion to Dismiss Appeal

as Untimely as an exhibit. Additionally, Complainant’s motion requested an extension

of the deadline to file a response brief until 30 days after the Treasury Appellate

Authority issues a decision regarding the attached motion to dismiss, given that a

decision dismissing the Appeal as untimely would render a response brief moot.

Respondent never filed a response to Complainant’s motion, nor did Respondent file a

motion seeking leave to respond.

2 The 30th day after June 15, 2018, was July 15, 2018, a Sunday.

3

The Appeal in this case was untimely, and therefore the Appeal is dismissed.

Merits of the Disciplinary Proceeding

In a proceeding for sanctions against an IRS practitioner, the ALJ may render a decision

on a motion for summary adjudication if the pleadings, depositions, admissions, and any

other admissible evidence show that there is no genuine issue of material fact and that

a decision may be rendered as a matter of law. Section 10.76(a)(2) of Circular 230.

Where there is a genuine issue of material fact, the ALJ will render a decision after

holding a hearing. Section 10.76(a)(1) of Circular 230. Before disbarring a practitioner,

the ALJ must find that allegations of fact are proven by clear and convincing evidence in

the record. Section 10.76(b) of Circular 230. The Appellate Authority reviews the ALJ’s

findings of fact under a clearly erroneous standard of review and reviews matters of law

de novo. Section 10.78 of Circular 230.

The Complaint alleged eight counts of incompetent and disreputable conduct, namely

(b)(3)/26 USC 6103

(b)(3)/26

USC ______

6103

______

______

(Counts 1 through 4, respectively); that Respondent willfully

failed to exercise due diligence in determining the correctness of representations made

to the Department of Treasury that he was a Certified Public Accountant (CPA) and an

Enrolled Agent (EA), when he did not validly hold those statuses (Count 5); that

Respondent made false or misleading representations that he was a CPA and an EA

with the intent to deceive clients or prospective clients in order to procure employment,

or alternatively, that Respondent willfully failed to exercise due diligence in determining

the correctness of his representations to clients that he was a CPA and an EA (Count

6); that Respondent willfully prepared tax returns without a valid Preparer Tax

Identification Number (PTIN) (Count 7); and that Respondent willfully charged an

unconscionable fee in connection with a matter before the IRS (Count 8). The

Complaint requested that Respondent be disbarred from practice before the IRS.

Counts 1, 2, 3, and 4

Incompetence and disreputable conduct for which a practitioner may be sanctioned

includes “[w]illfully failing to make a Federal tax return in violation of the Federal tax

laws." Section 10.51(a)(6) of Circular 230.

(b)(3)/26 USC 6103

(b)(3)/26 USC 6103

3 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the year

in issue.

(b)(3)/26 USC 6103

(b)(3)/26 USC 6103

(b)(3)/26 USC 6103

(b)(3)/26 USC 6103

Moreover, the

obligation to timely file Federal tax returns is a fundamental aspect of our tax system.

See, e.g., Boyle v. United States, 469 U.S. 241,251 (1985) (“[O]ne does not have to be

a tax expert to know that tax returns have fixed filing dates ....”). (b)(3)/26 USC 6103

(b)(3)/26 USC 6103

(b)(3) / 26 USC 6103

Respondent persists in advancing arguments with respect to

(b)(3)/26 USC 6103

Count 5

A practitioner may be sanctioned for willful violation of the Circular 230 regulations,

including section 10.22(a)(2) of Circular 230. Section 10.52(a)(1) of Circular 230.

Section 10.22(a)(2) of Circular 230 requires practitioners to exercise due diligence in

determining the correctness of oral or written representations made by the practitioner

to the Department of the Treasury.

It is undisputed that Respondent filed three Forms 2848, Power of Attorney and

Declaration of Representative, with the IRS that represented that he was duly qualified

to practice as a CPA in California during periods of time when his CPA license had

expired. Similarly, it is undisputed that one of the Forms 2848 that Respondent filed

with the IRS also represented that he was enrolled as an agent under the requirements

of Circular 230 during a period of time when his status as an EA had expired.

Respondent argued before the ALJ that the fact that his CPA license had expired did

not preclude him from holding himself out as a CPA. Similarly, Respondent argued

before the ALJ that the fact that his EA status had expired did not preclude him from

holding himself out as an EA.

The ALJ correctly determined that Respondent’s arguments are legally incorrect. Under

California law, a person is not duly qualified to practice as a CPA in California, and may

not hold him or herself out as such, unless that person has a valid, unexpired California

CPA license. See Cal. Bus. & Prof. Code §§ 5050(a) (providing generally that “no

person shall engage in the practice of public accountancy in [California] unless the

person is the holder of a valid permit to practice public accountancy”), 5051(a) (defining

the practice of public accountancy as including, among other things, holding oneself out

to the public as qualified to render professional service as a public accountant), 5070.5

(providing rules governing when a CPA permit expires and what a person must do to

renew an unexpired permit). Additionally, under Circular 230, a person may not practice

before the IRS as an EA unless that person has a valid, unexpired EA card or

certificate. Section 10.6(b) and (d) of Circular 230.

Complainant came forward with evidence that Respondent was aware of the Circular

230 regulations, consisting of Respondent’s acknowledgement to that effect on Form

2848. And Respondent does not deny that he knew of his obligation to exercise due

diligence in determining the correctness of representations he made to the IRS.

Complainant also came forward with clear and convincing evidence that Respondent

did not exercise due diligence in determining whether he could hold himself out as a

CPA or as an EA during the periods at issue. For instance, during his deposition,

Respondent testified that he did not recall looking at anything to determine the status of

his CPA license after it had expired and he had not renewed it. Similarly, Respondent

testified that he did not recall conducting any research on whether he could hold himself

out as an EA after the end of his enrollment cycle when he had not renewed his EA

status.

Respondent did not come forward with any evidence that he in fact exercised due

diligence. Respondent persists in arguing that he could hold himself out as a CPA and

as an EA during periods of time in which his CPA license and EA status were expired.

This persistence is not evidence that he has ever exercised due diligence, if anything, it

indicates just the opposite. The ALJ had ample reason to find that there was no

genuine issue of material fact as to whether Respondent willfully failed to exercise due

diligence and that the Complainant was entitled to summary adjudication on Count 5.

Count 6

Incompetence and disreputable conduct for which a practitioner may be sanctioned

includes using false or misleading representations with intent to deceive a client or

prospective client in order to procure employment. Section 10.51(a)(5) of Section 230.

Alternatively, a practitioner may be sanctioned for willful violation of the Circular 230

regulations, including section 10.22(a)(3) of Circular 230. Section 10.52(a)(1) of

Circular 230. Section 10.22(a)(3) of Circular 230 requires practitioners to exercise due

diligence in determining the correctness of oral or written representations made by the

practitioner to clients with reference to any matter administered by the IRS.

In his Order on summary adjudication, the ALJ held that, interpreting the evidence in the

light most favorable to Respondent, there were genuine issues of material fact as to

whether Respondent had the “intent to deceive” clients or prospective clients “to procure

employment.” After the hearing, the ALJ held that the record failed to establish this

element of Count 6 by clear and convincing evidence. The ALJ held, however, that

Complainant proved its alternative theory of Count 6 by clear and convincing evidence,

namely that Respondent willfully failed to exercise due diligence in determining the

correctness of representations he made to his clients that he was a CPA and an EA

during periods of time in which his CPA license and EA status had expired.

It is undisputed that Respondent entered into over 150 written fee agreements with

clients while his CPA license and EA status were expired and that the agreements

nevertheless represented that he was a CPA and an EA. For the same reasons as

described above with respect to Count 5, the record clearly and convincingly

establishes that Respondent knew of his obligation to exercise due diligence in

determining the correctness of representations he made to clients and that he willfully

failed to exercise that due diligence in determining whether he could hold himself out as

a CPA or as an EA during the periods at issue. The ALJ had ample reason to find that

Complainant proved Count 6 by clear and convincing evidence.

Count 7

Incompetence and disreputable conduct for which a practitioner may be sanctioned

includes willfully preparing all or substantially all of, or signing, a tax return or claim for

refund when the practitioner does not possess a current or otherwise valid preparer tax

identification number or other prescribed identifying number. Section 10.51(a)(17) of

Circular 230.

In support of its Motion for Summary Adjudication, Complainant submitted a summary

indicating that 56 Federal income tax returns were prepared in 2013 under

Respondent's expired PTIN number. In response, Respondent argued that he mostly

filed applications for extension of time to file rather than tax returns, that he filed no

more than five tax returns during 2013, and that he prepared and filed the applications

for extension without compensation. In his Order on summary adjudication, the ALJ

held that, interpreting the evidence in the light most favorable to Respondent, there

were genuine issues of material fact as to whether Respondent substantially prepared

or signed the tax returns at issue and whether he did so for compensation.

At the hearing, Complainant produced copies of IRS records showing that Respondent

prepared 56 tax returns or claims for refund under his expired PTIN or his Social

Security Number in 2013. Complainant also produced copies of IRS records relating to

two of the taxpayers whose tax return Respondent prepared and of checks issued by

those two taxpayers to Respondent, showing that Respondent prepared those two tax

returns for compensation under his expired PTIN (or in one case, his expired PTIN but

for a typographical error). Respondent argued before the ALJ and argues again on

appeal that the compensation he received from these two taxpayers was not for tax

return preparation but for other services. Respondent did not come forward with any

evidence to support his argument The ALJ reasonably found that Complainant clearly

and convincingly established Count 7 as to the Federal income tax returns that

Respondent prepared for these two taxpayers.4 The ALJ’s factual findings were not

clearly erroneous.

Count 8

A practitioner may be sanctioned for willful violation of the Circular 230 regulations,

including section 10.27(a) of Circular 230. Section 10.52(a)(1) of Circular 230. Section

10.27(a) of Circular 230 prohibits practitioners from charging an unconscionable fee in

connection with any matter before the IRS.

It is undisputed that

(b)(3)/26 USC 6103

(b)(3)/__

26 USC ______

6103

___________________

It is undisputed

that Respondent prepared amended tax returns for 2007 and 2008 that would have

resulted in a total refund for both tax years of $171,707. And it is undisputed that

Respondent charged the taxpayer a total of $161,500 in fees. Finally, it is undisputed

that the taxpayer has only paid Respondent a portion of the fees charged and that the

amended tax returns were never filed.

Respondent argued before the ALJ that most of the fees were for “forensic tax records

reconstruction” and that the Department of Treasury has no authority to regulate those

fees because they do not constitute a “matter before the IRS.” The ALJ found that

Respondent’s admissions and statements in his deposition testimony and in his

Response to Complainant’s Motion for Summary Adjudication clearly demonstrated that

these services were a part of Respondent’s preparation of the amended tax returns and

therefore that they constituted a “matter before the IRS” as defined in section

10.27(c)(2) of Circular 230. The ALJ found that Respondent did not come forward with

any evidence showing that he conducted "forensic tax records reconstruction” for any

matter other than the amended tax returns. Consequently, the ALJ held that these

services were subject to the prohibition on unconscionable fees.

Respondent argued that because he was never fully paid, he did not actually “charge” .

an unconscionable fee. The ALJ held that whether Respondent ever actually received

the amount he charged is irrelevant to whether he charged the unconscionable fees.

4 The Complainant argued before the ALJ that the evidence described above in conjunction with other

evidence in the record clearly and convincingly established Count 7 as to all 56 tax returns, but the ALJ

found that the record did not clearly and convincingly establish Count 7 as to the other 54 tax returns.

Finally, Respondent compared the amount of the fees he charged to the combined

value of the taxpayer’s deceased husband’s estate and the value of the taxpayer’s

assets in order to argue that the amount of the fees was not unconscionable. In

contrast, the ALJ compared the amount of the fees Respondent charged to the amount

of the refunds claimed on the amended tax returns and concluded that it is

unconscionable to charge fees encompassing approximately 94 percent of such a

significant amount claimed as refunds. The ALJ had ample reason to find that there

was no genuine issue of material fact as to whether Respondent willfully charged an

unconscionable fee in connection with a matter before the IRS and that the Complainant

was entitled to summary adjudication on Count 8.

Appropriate Sanction

The ALJ found that the only appropriate sanction for Respondent’s misconduct is

disbarment. Because I have found that this Appeal should be dismissed as untimely, I

do not have the authority to change the Order of disbarment. In any event, I find

Respondent’s misconduct to warrant disbarment.

I have considered all of the arguments made by the parties, and to the extent not

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

Conclusion

For the reasons stated, Complainant’s Motion Seeking Leave to File a Motion to

Dismiss Respondent’s Appeal as Untimely and to Extend Complainant’s Deadline for

Filing an Opposition to Appeal is GRANTED in that Complainant’s Motion to Dismiss

Appeal as Untimely is filed and is DENIED AS MOOT in that no response brief need be

filed.

Further, Complainant’s Motion to Dismiss Appeal as Untimely is GRANTED. Because

Respondent did not timely file his Appeal of the ALJ’s Decision, the ALJ’s Decision

disbarring Respondent from practice before the IRS effective June 15, 2018, became

FINAL AGENCY ACTION on July 16, 2018. Respondent (b)(3)/26 USC 6103 is

disbarred from practice before the IRS and may petition for reinstatement after 5 years

following disbarment as provided by section 10.81 of Circular 230.

Kirk M. Paxson

Appellate Authority

Office of Chief Counsel

Internal Revenue Service

(As Authorized Delegate of the

Secretary of the Treasury)

October 25, 2019

Seattle, WA

CERTIFICATE OF SERVICE

I hereby certify that the DECISION ON APPEAL dated October 25, 2019 in Complaint No. 2014-04 was

sent this day by UPS Next Day Air and by First Class U.S. Mail to the addresses listed below:

Certified mail:

(b)(3)/26 USC 6103

(b)(6)

UPS Next Day Air:

(b)(3)/26 USC 6103

First Class U.S. Mail:

Timothy E. Heinlein

Senior Counsel

Office of Chief Counsel (IRS)

100 First Street, Suite 1800

San Francisco, CA 94105

Elizabeth Kasten berg

Acting Director, Office of Professional Responsibility

Internal Revenue Service

1111 Constitution Avenue, NW

SE:OPR, Room 7238/IR

Washington, DC 20224

ALJ Docketing Center

United States Coast Guard

United States Custom House, Room 412

40 South Gay Street

Baltimore, MD 21202

Honorable Curtis E. Renoe

Administrative Law Judge

United States Coast Guard

Coast Guard Island

Building 54A

Alameda, CA 94501

(b)(3)/26 USC 6103

Kirk M Paxson

Appellate Authority

Office of Chief Counsel

Internal Revenue Service

Seattle, WA