DEPARTMENT OF THE TREASURY (2004)

UNITED STATES

DEPARTMENT OF THE TREASURY

Director, Office of Professional Responsibility,

Complainant-Appellee

v.

COMPLAINT NO. 2004-9

Kevin Francis,

Respondent-Appellant

Decision on Appeal

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

the authority vested in him as Assistant General Counsel of the Treasury who is the

Chief Counsel of the Internal Revenue Service, through a series of Orders (most

recently an Order dated January 15, 2008) Donald L. Korb delegated to 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 (Rev. 7-2002)

(“Practice Before the Internal Revenue Service,” sometimes known and hereafter

referred to as “Treasury Circular 230”).

This is such an Appeal timely filed by Respondent-Appellant, Kevin Francis,

from the June 7, 2006 Opinion of Administrative Law Judge T. Todd Hodgdon (the

“ALJ”).1 Respondent-Appellant’s Appeal was filed on July 6, 2006 and

Complainant-Appellee’s Reply Brief was timely filed on July 31, 2006.2

1 A copy of the ALJ’s Decision in these proceedings appears as Attachment A to this Decision on Appeal.

(b)(3)/26 USC

USC 6103

6103

A copy of the Decision on Appeal in Director, Office of Professional Responsibility v. (b)(3)/26

Complaint No. 2003-2 (a proceeding made public by mutual agreement of the parties) appears as

Attachment B to this Decision on Appeal. To the extent relevant to these proceedings, these Attachments

are incorporated in this Decision on Appeal as if fully set forth herein.

2 Respondent-Appellant also sought to file a “Reply Brief’ on August 17, 2006 to which RespondentAppellant was not entitled under Treasury Circular 230. No consideration was given to this document, and

Complainant-Appellee was not accorded the opportunity to file a response to this document. These

proceedings already contained the most exhaustive administrative record of any proceedings I have been

asked to review as the Secretary’s Appellate Authority under Treasury Circular 230. More is not needed.

1

I. Appellate Authority Functions in Treasury Circular 230 Proceedings

The Appellate Authority in Treasury Circular 230 proceedings such as this

has a number of functions she/she must perform in reviewing the administrative

record of a proceeding and the Decision of an Administrative Law Judge that forms

the basis of an Appeal to the Appellate Authority. First, the Appellate Authority

must review each of the alleged violations charged by the Director, Office of

Professional Responsibility that form the basis of the Appeal to determine whether

the Director, Office of Professional Responsibility, has met his/her burden of proof

with respect to each element of the specific charged violation. Second, the Appellate

Authority must examine the record to determine whether the Director, Office of

Professional Responsibility has carried his burden of proof that the specific charged

violation was “willful,” or in the case of violations of §§ 10.33 or 10.34 of Treasury

Circular 230, either “willful,” “reckless,” or “grossly incompetent.” §§ 10.52(a) and

10.52(b) of Treasury Circular 230. 3

The standard of proof that the Director, Office of Professional Responsibility

must meet with respect to these two functions of the Appellate Authority differs

depending on what sanction the Director, Office of Professional responsibility seeks

to impose. If the Director, Office of Professional Responsibility, seeks to disbar a

practitioner, or (as here) seeks to suspend the practitioner for 6 months or more, the

Director, Office of Professional Responsibility, must carry his/her burden of proof

by clear and convincing evidence, a higher standard of proof than proof by a mere

preponderance of the evidence.

Third, the Appellate Authority must review each of the matters raised on

Appeal to determine whether any matter raised on Appeal forms a basis for

reversing or remanding the Decision of the ALJ.

In performing each of these three functions, the Appellate Authority is

subject to the standards of review set forth in §10.78 of Treasury Circular 230,

which provides that, except on issues that are exclusively matters of law (which are

review by the Appellate Authority de novo), the Decision of the Administrative Law

Judge is not to be reversed unless the Appellant proves that the ALJ’s decision is

3 §§ 10.52(a) or 10.52(b) of Treasury Circular 230 impose specific additional proof requirements

on the Director. Office of Professional Responsibility with respect to all charged violations of Treasury

Circular 230 when the Director. Office of Professional Responsibility seeks to censure, suspend or disbar a

practitioner. Hence I disagree with the ALJ’s statement that only some sections of Treasury Circular 230

require the Director, Office Of Professional Responsibility to prove that practitioner conduct was “willful.”

at least if the sanction to be imposed is censure, suspension or disbarment. See Attachment A. page 3. I also

disagree with the ALJ’s statement that state disciplinary precedents rather than Federal tax cases ought to

form the basis for determining whether practitioner conduct is "willful.” I also disagree with the ALJ’s

statement that the Federal tax law standard of “willfulness” or “knowing” acts or omissions encompass

conduct that the practitioner either “knew” or “should have known” was inappropriate. Only “knowing”

acts or omissions are “willful” within the meaning of § 10.52(a) of Treasury Circular 230. Id. However, for

the reasons mentioned later in this Decision on Appeal, that difference will make no difference in the

outcome to be reached on the charges under examination. See discussion of “willfill” and “knowing” at pp.

10-11, infra.

2

“clearly erroneous” in light of the evidence in the record and the applicable law.

Neither the specific violations sustained by the ALJ in his Decision in these

proceedings nor the question of whether Respondent-Appellant acted “willfully,”

“recklessly” or “through gross incompetence” with respect to any of the charges

sustained by the ALJ involve issues that are solely a matter of law. Accordingly, in

performing my first and second functions as Appellate Authority, I review the

ALJ’s decision applying a “clearly erroneous” standard. In reviewing the issues

raised by Respondent-Appellant on Appeal, I will either apply a “clearly erroneous”

standard of review (if the issue is factual or involves a mixed question of fact and

law) or a de novo standard of review (if the issue is exclusively a matter of law).

II. The ALJ’s Findings of Fact and Conclusions of Law with Respect to the

Charges

In his Decision, the ALJ examines in detail the facts surrounding each of the

charges that formed the basis for his sustaining the charges that formed the basis of

his judgment that the Respondent-Appellant should be suspended from practice

before the Internal Revenue Service for 2-1/2 years. The ALJ also set forth in detail

the arguments advanced by the parties with respect each of the charges, and

provided his findings of fact and conclusions of law with respect to each charge,

including his view of the credibility of the various witnesses and his reasons for

reaching his conclusions. Except to provide a brief summary of the charges and

references to the pages in the ALJ’s Decision where the ALJ discusses them, I

generally will not repeat in this Decision on Appeal the discussions contained in the

ALJ’s Decision. I will depart from that general practice only where I feel further

comment from me is required.

The ALJ’s Decision is organized to set forth all charges relating to

Respondent-Appellant’s representation of a particular taxpayer(s) together within

sub-headings relating to each representation. I will do the same.

A. Charges Pertaining to Respondent-Appellant’s Representation of

Corp. 1 (discussed at pp. 4-11 of the ALJ’s Decision).

Respondent-Appellant was charged with violations of §§10.20(a) and

10.23 of Treasury Circular 230 relating to the following Information

Requests directed to Respondent-Appellant with respect to Corp. 1:

1. Date 1 letter from Revenue Officer “A” (Joint Exh. 47 requested

that information be provided on or before Date 2);

2. Date 3 letter from Revenue Officer “A” (Joint Exh. 49 requested

that information be provided on or before Date 4);

3. Date 5 telephone request for information by Revenue Officer “B”

(Joint Exh. 51 - “B” notes of conversation, requesting information

be submitted before a scheduled meeting);

3

4. Date 6 telephone request from Revenue Officer “B” (Joint Exh. 54,

pp. 4-5);

5. Date 7 FAX from Revenue Officer “B” containing list of

outstanding information request items, requesting that the

information be provided by Date 8; and

6. Letter dated Date 9 from “C”, Area 1 Territory Manager,

extending the due date for outstanding information requests to

Date 10. and indicating that a failure to provide the requested

(b)(3)/26 USC 6103

information by that date

. The Date 9

letter also informed Respondent-Appellant that, unless the

requested information was provided, the Internal Revenue Service

would be unable to resolve these matters (b)(3)/26 USC 6103

In summarizing the Internal Revenue

Service’s more than 6 months of effort to obtain this information

from Respondent-Appellant, the Date 9 letter said that the

requested information was in many instances either not provided

at all, was incomplete or was not timely provided.

Respondent-Appellant offered several explanations for his non­

responses, incomplete responses and untimely responses, all or most of which

are discussed in the ALJ’s decision, but a few of which merit further

discussion.

First, Respondent-Appellant contended that his non-responses and

incomplete responses were the result of his clients’ failures to provide him

some or all of the requested information. In several respects, Respondent4

(b)(3)/26 USC 6103

4

Appellant’s contentions were supported by the hearing testimony of

Shareholder(s) 1 (Tr., pp. 959-1010). For the reasons stated in his Decision,

the ALJ found that, notwithstanding Shareholder(s) 1’s corroborating

testimony, Respondent-Appellant’s testimony lacked credibility and

explained the factors that led him to that conclusion.5

Second, Respondent-Appellant explained that many of the

information items requested were not in the possession or custody of

Respondent-Appellant or his clients but rather could only be obtained from a

third party.6 Yet, beyond his testimony, Respondent-Appellant offered no

(b)(3)/26 USC 6103

evidence to support his claims that,

Both administrative information requests and

Internal Revenue Service summonses typically extend to any information

items within the possession, custody or control of

the parties to which they

(b)(3)/26

USC

6103

are directed.

Respondent-Appellant correctly asserts that the Internal Revenue

Service’s authority to obtain information items through information requests

and summonses generally does not require the subject of the request or

summons to create anew a non-existent document containing the information

items requested. However, if a representative agrees to prepare such a

document and holds out the prospect of submitting such a document, and

delays IRS personnel’s access to underlying information that would permit

(b)(3)/. ..

them to prepare the document themselves (for example,

5 Both the ALJ's Decision and the testimony of Complainant-Appellee’s witnesses show a lack of

understanding of the ethical dilemma faced by practitioners when the failure is that of the client rather than

the practitioner. To be sure. when asked a specific question about the reason why particular information

has, in whole or in part, not been provided, absent some applicable privilege, the practitioner must provide

an accurate, truthful and complete response. But when IRS employees fail to ask why requested

information has not been provided, nothing in Treasury Circular 230 requires a practitioner to volunteer to

the IRS information potentially harmful to his/her clients' interests. Doing so would cause the practitioner

to violate the practitioner’s duty of loyalty to his/her client. If IRS personnel want to obtain that

information from the representative, they can include in their information requests language such as this:

“If your response to any of these information item requests is not complete, indicate the ways in which the

response is incomplete, the actions you have taken to date to obtain and provide the information, the

further actions you intend to take to obtain and provide the remaining information, and the date(s) when

you anticipate the remaining information will be provided to the Internal Revenue Service.”

6

(b)(3)/26 USC 6103

7 Respondent-Appellant did not claim to have made repeated attempts to get the information items from

(b)(3)/26 USC 6103

5

26 USC 6103 ), this limitation on the Service’s authority does not provide a

defense to the acts or omissions of a practitioner.

Having found that the ALJ’s Findings of Fact and Conclusions of Law

that Complainant-Appellee had established these violations of Treasury

Circular 230 by clear and convincing evidence are not clearly erroneous, I

AFFIRM the ALJ’s Findings and Conclusions on these charges. I further

find that the Complainant-Appellee has established that each of these

violations were “willful” within the meaning of §10.52(a) of Treasury

Circular 230.8

B. Charges Pertaining to Respondent-Appellant’s Representation of

Shareholder(s) 1 (discussed at pp. 11-16 of the ALJ’s Decision). I AFFIRM

the ALJ’s Findings of Fact and Conclusions of Law that ComplainantAppellee had established by clear and convincing evidence that each of the

misrepresentations cited constituted violations of §§10.51(f) and 10.51(i) of

Treasury Circular 230. I find that the ALJ’s Findings and Conclusions on

these charges are not clearly erroneous. I further find that the ComplainantAppellee has established that each of these violations were “willful” within

the meaning of §10.52(a) of Treasury Circular 230.9 I further note my belief

that these charges were perhaps the most serious charges leveled against

Respondent-Appellant in these proceedings and clearly constituted an

(b)(3)/26 USC 6103

attempt by Respondent-Appellant to represent

C. Charges Pertaining to Respondent-Appellant’s Representation of Corp. 2

(discussed at pp. 16-22 of the ALJ’s Decision). The ALJ found that the

Complainant-Appellee had met his burden of proof by clear and

convincing evidence that Respondent-Appellant’s acts and omissions

constituted violations of §§ 10.20(a) (two violations), 10.23 (two

violations), 10.22(a) (one violation), 10.22(b) (one violation) and 10.51(b)

(one violation) of Treasury Circular 230 in connection with the following

acts or omissions:

1. Respondent-Appellant’s failure to provide information requested

by Revenue Officer “D” on Date 11 by Date 12 and Date 13, as

requested (the basis for one of the §10.20(a) charges and one of the

§10.23 charges);

2. Respondent-Appellant’s failure to provide information

requested by Revenue Officer “D” on Date 14 by Date 15, as

requested (the basis for one of the §10.20(a) and one of the §10.23

charges); and

8 See discussion of “willful” and “knowing” at pp. 10-11. infra.

9 See discussion of “willful” and “knowing” at pp. 10-11. infra.

6

3. Respondent-Appellant’s alleged failure to exercise due diligence

and alleged submission of false and misleading statements in

(b)(3)/26 USC 6103

connection with

(the basis for the §§ 10.22(a), 10.22(b) and 10.51(b)

charges).

In his Decision, the ALJ found that Complainant-Appellant had met

his burden of proof by clear and convincing evidence as to each of these

charges (Attachment A, pp. 18 and 22).10 As to each charge, the ALJ found

the testimony of Respondent-Appellant to lack credibility. I find the ALJ’s

Findings and Conclusions with respect to items 1 and 2 above not to be

clearly erroneous. With respect to item 3 above, I also find that the ALJ’s

Findings and Conclusions are not clearly erroneous, both for the reasons set

forth in the ALJ’s Decision and for the reasons set forth below.

(b)(3)/26 USC 6103

Respondent-Appellant

(b)(3)/26 USC 6103

failed not to do so. Given other facts in the record

leaves one to question whether this failure was inadvertent. At the

least, this fact is added reason for finding that the ALJ’s Findings and

Conclusions on item 3 above are not clearly erroneous.

I further find that both the Findings and Conclusions with respect to

items 1, 2 and 3 above provide clear and convincing evidence that

Respondent-Appellant’s acts and omissions were “willful” within the

meaning of §10.52(a) of Treasury Circular 230.11

10 At p. 22 of the ALJ’s Decision (Attachment A), the ALJ fails to include a reference to §10.52 in his

conclusion that Respondent-Appellant made false statements with respect to (b)(3)/26 USC 6103

. Given his findings on the issue. I find that omission to have been

inadvertent.

11 See discussion of “willful” and “knowing” at pp. 10-11. infra.

7

D. Charges Pertaining to Respondent-Appellant’s Representation of

Client(s) 1 (discussed at pp. 22-33). The Complainant-Appellee charged

Respondent-Appellant with having violated §§10.20(a) (four alleged

violations), 10.22(b) (two alleged violations)12 and 10.23 (four alleged

violations) in connection with Respondent-Appellant’s acts and omissions

in representing Client(s) 1.

The alleged §§ 10.20(a) and 10.23 violations relate to four information

requests allegedly made on Date 18, Date 19, Date 20 and Date 21 relating to

(b)(3)/26 USC 6103

.These charges pertain to: (A) confusion surrounding (1)

(b)(3)/26 USC 6103

, (3) whether statements made by

Respondent-Appellant to Revenue Officer “E” related (b)(3)/26 USC 6103

(as Respondent-Appellant contends) or related both to

(b)(3)/26 USC 6103

“E’”s acknowledged inquiries

and to

(b)(3)/26 USC 6103

purported inquiries. “E” made

(as Revenue Officer “E” contends), and (4)

and (B)

(b)(3)/26 USC 6103

(b)(3)/26 USC 6103

(b)(3)/26 USC 6103

that was referenced at page 4 of

Respondent-Appellant’s Date 23 FAX to Revenue Officer “E” (Jt. Exh. 22,

page 4).

12 During the times here relevant. § 10.22(b) provided: “Each . . . enrolled agent. . . shall exercise due

diligence: (c) In determining the correctness of oral and written representations made by him to the

Department of the Treasury . ."

13 Respondent-Appellant contends that

(b)(3)/26 USC 6103

(b)(3)/26 USC 6103

Mr. “F”’s Date 4 letter

, providing some support for Respondent-Appellant's contentions.

8

With regard to whether Respondent-Appellant’s or Revenue Officer

(b)(3)/26 USC 6103

“E”’s recollection of whether their conversations

, I find Respondent-Appellant’s

version of events the more credible. First, the information submitted to

(b)(3)/26 USC 6103

Revenue Officer “E” on Date 23 clearly

Second, in her direct

testimony at the hearing, Revenue Officer “E” indicated that her

conversations with Respondent-Appellant, at least those that occurred on

(b)(3)/26 USC 6103

Date 24, focused on

(Tr. 84-85). Not until her rebuttal testimony did Revenue Officer

(b)(3)/26 USC 6103

“E” suggest that

. Given that she had already received

(b)(3)/26 USC 6103

find Revenue Officer “E”’s testimony on this matter to lack credibility. In

(b)(3)/26 USC 6103

addition, given that

I find Respondent(b)(3)/26 USC 6103

ellant

App ’s testimony that he did not

credible,

(b)(3)/26 USC 6103

particularly given “E”’s testimony that

(b)(3)/26 USC 6103

. But I do not place much of the blame for that on

Respondent-Appellant, perhaps because of my own frustrations in

(b)(3)/26 USC 6103

while I was in

private practice. Moreover, at various times relevant to these charges, both

(b)(3)/26 USC 6103

Respondent-Appellant and Revenue Officer “E”

As Counsel for Complainantellant

App has suggested,

(b)(3)/26 USC 6103

If Respondent-Appellant and Revenue

Officer “E” had cooperated in

(b)(3)/26 USC 6103

9

(b)(3)/26 USC 6103

I do not share the ALJ’s skepticism concerning RespondentAppellant’s stated willingness to allow Revenue Officer (b)(3)/26 USC 6103

. Revenue Officer “E” and

Respondent-Appellant seemed to be facing a common problem:

(b)(3)/26 USC 6103

by

Revenue Officer “E”. I also find the ALJ’s statement that (b)(3)/26 USC

6103

(b)(3)/26 USC 6103

erroneous.

By way of example,

(b)(3)/26 USC 6103

(b)(3)/26 USC 6103

. Granted.

. I find it

inconceivable that

(b)(3)/26 USC 6103

Based on the above, it is my belief that the ALJ’s findings and

conclusions that Complainant-Appellant had carried his burden of proof

with respect to the Client(s) 1 charges by clear and convincing evidence were

clearly erroneous. I therefore REVERSE the ALJ’s findings and conclusions

with respect to each of the Client(s) 1 charges.

E. Charges Pertaining to Respondent-Appellant’s Representation

of Client(s) 2 (discussed at pp.30-32). I affirm without further comment the

ALJ’s findings of fact and conclusions of law on the Client(s) 2 charges.

F. “Willful” and “Knowing” Conduct. As noted in footnote 3, infra, I find

that the sanction proposed by Complainant-Appellee can be sustained

only if Complainant-Appellee establishes by clear and convincing

evidence that each of Respondent-Appellant’s acts and omissions were

“willful” within the meaning of §10.52(a) of Treasury Circular 230. I

have also indicated my belief that the determination of whether conduct

is “willful” should be made on the basis of Federal tax law precedents

rather than on the basis of precedents interpreting similar language in

state court reviews of disciplinary proceedings involving lawyers and

certified public accountants. Id. I discussed the relevant Federal tax law

precedents at length in the Decision on Appeal in the

case,

(b)(3)/26 USC 6103

10

(b)(3)/26 USC 6103

referred to in footnote 1, supra, which appears in its entirety as

Attachment B to this Decision on Appeal. The discussion of the term

“willful” appears at pp. 40-67 of the Decision on Appeal in

. Of

particular importance in these proceedings is the distinction drawn by

Mr. Justice White in Cheek between defenses based on an honest but

mistaken and objectively unreasonable belief as to the meaning of

substantive provisions of the Internal Revenue Code (where the Court

ruled that in enacting the Code, Congress meant to negate the English

common law rule presuming knowledge of the law, and substitute a series

of specific intent standards) and defenses raising Constitutional claims

(where the Court found the English common law presumption of

knowledge of the law to remain inviolate). I find the charges in these

proceedings to be of the latter variety, and on this basis find each of

Respondent-Appellant’s acts and omissions (other than the Client(s) 1

charges) to have been “willful.”

III. Issues Raised By Respondent-Appellant on Appeal

In his timely filed Appeal, Respondent-Appellant asserted a number of

alleged errors in these proceedings, falling into four broad categories. The first

category, grouped by Respondent-Appellant into Group A, is composed 10 specific

allegations and one general allegation relating to purported denials of RespondentAppellant’s due process rights. The second category, grouped by RespondentAppellant into Group B, is composed of two specific allegations alleging that the

ALJ applied erroneous legal standards in his Decision. The third category, which

Respondent-Appellant denominated as Group A, alleges that the ALJ erred in not

granting Respondent-Appellant’s Motion to Strike, Motion for Summary Judgment

and Motion for a Directed Verdict. The fourth category, grouped by RespondentAppellant into Group D, is composed of six specific allegations with respect to the

ALJ’s findings of fact and conclusion of law relating to the charges against

Respondent-Appellant.

I will address each of the issues raised by Respondent-Appellant in Groups

A, B and C, infra. The issues raised in Group D are addressed in Section II of this

Decision on Appeal, supra.

A. The Due Process Claims.

1. “Illegal” By-Pass and Brow sing Claims. These claims are without merit.

As noted in Section 2.D, supra, I have recognized where appropriate how the

(b)(3)/26 USC 6103

This was among the factors that led me to reverse the ALJ’s

finds of fact and conclusions of law on the Client(s) 1 matter. As to the

“browsing” claim, I find that claim to be without merit. “Browsing” simply

did not occur here. Rather, Internal Revenue Service employees were

operating within the scope of their official responsibilities in looking into

11

other cases in which Respondent-Appellant acted as the representative where

Service employees found his conduct to be potentially in violation of

Treasury Circular 230.14 I find the consideration of other troublesome cases

in which a practitioner has been involved not only in cases involving

“patterns of conduct” charges, but in other cases where examining a

practitioner’s conduct in other cases permits an ALJ to better assess the

practitioner’s credibility on matters involving contested material facts and

the inferences to be drawn as to whether the practitioner’s conduct was

inadvertent or knowing.

2. Absence of Prompt Referral. This claim is without merit. RespondentAppellant has asserted that the fact that taxpayers are subject to a general 3year statute of limitations suggests that a similar statute of limitations should

apply to Treasury Circular 230 proceedings. There is no basis in law for this

claim, nor is there any other potentially applicable statute of limitations that

would time bar even the longest delay set forth at pp. 12 and 13 of

Respondent-Appellant’s Brief on Appeal.

3. Shifting Allegations. This claim is without merit and adds noting to

4. Respondent-Appellant’s “Absence of Prompt Referral” claim. It is

appropriate that Complainant-Appellee winnowed the charges to those he

felt merited the ALJ’s attention.

(b)(3)/

26 USC 6103

4. Denial of Discovery. This claim is without merit. A similar claim was

and is discussed at length at pp. 94-96 of the Decision on

raised in

(Attachment B). In particular, see the discussion of

Appeal in

Washburn v. Shapiro, 409 F. Supp. 3 (S.D. Fla. 1976) at p.96.

5. Intimidation of Witnesses. The purported “intimidation” claim was

14 Respondent-Appellant has argued that the fact that front line Internal Revenue Service employees did not

refer his conduct in their cases for consideration of Respondent-Appellant’s conduct by the Office of

Professional Responsibility was evidence that his conduct did not violate Treasury Circular 230. I do not

find their failure to refer their cases to OPR as an endorsement of Respondent-Appellant's conduct. Rather.

I think it demonstrates that the employees in question had so many primary functions to perform and so few

resources with which to perform them that they had no ability to meet the secondary responsibilities of their

jobs, even one as important as referring a practitioner to OPR when their conduct merited OPR's review.

15 The longest delay, measure from the time of the conduct to the time the alleged violation was added to

the OPR Complaint was 1,795 days. In another proceeding brought under Treasury Circular during a period

in which the Decisions on Appeal in Treasury Circular 230 proceedings were not made public absent

agreement of the parties and in which no such agreement was present. I had occasion to consider whether

28 U.S.C.§ 2462’s general 5-year statute of limitation had application to Treasury Circular 230 proceedings

instituted under 31 U.S.C. §330. I found that, generally, given the purposes of Treasury Circular 230

proceedings, the 5-year statute of limitations would not apply absent a finding that the primary purpose of a

particular proceeding was shown to be penal as opposed to protective. Compare Johnson v. S.E.C.. 87 F.3d

484 (D.C. Cir. 1996) and Profitt v. Federal Deposit Insurance Corporation ("FDIC"). 200 F.3d 855,(D.C.

Cir. 2000). two cases involving primarily penal proceedings. In any event, a 5-year statute would require a

time lapse of at least 1.825 days between the date of the alleged violation and the date the resulting chare

was added to the Complaint.

12

based on two facts, neither contested. First, that IRS employees were told

that if they decided they wanted to grant interviews to or Testify for

Respondent-Appellant, they would have to do so on their own time. Second,

that if they chose to be interviewed by or appear as a witness for RespondentAppellant, they should exercise care to assure that they did not violate

Section 6103 of the Internal Revenue Code or the Privacy Act. Neither of

these statements provide a basis for a claim of “witness intimidation,” and I

see nothing wrong with counseling Service employees with regard to their

obligations under the law. Like the ALJ, I am troubled by ComplainantAppellee counsel’s unwillingness to work with Respondent-Appellant’s

counsel to arrange reasonable times for Respondent-Appellant’s counsel to

interview potential witnesses at their offices. The ALJ gave RespondentAppellant’s counsel additional time to attempt to conduct interviews of

potential IRS witnesses and to convince them to testify near the end of the

hearing, but Respondent-Appellant’s counsel did not press the matter later

in the hearing, perhaps because he found nobody willing to testify,16 or

perhaps because their testimony would not have been helpful to RespondentAppellant. On this administrative record, I do not find these matters to be

the “stuff’ of reversible error grounded in a valid due process claim.17

6. Incomplete and Inaccurate FOIA Responses. Having reviewed the

Respondent-Appellant’s Motion to Supplement the Record and the

Complainant-Appellee’s Opposition thereto, I find this claim not to be the

“stuff’ of reversible error grounded in a valid due process claim.

7. The ALJ’s Evidentiary Rulings. Respondent-Appellant makes a number

of claims with respect to evidentiary rulings by the ALJ that kept testimony

out of the hearing that would have allowed the ALJ to develop a more

accurate view of whether the standards of conduct propounded by the IRS

witnesses that persons in the practitioner community would even recognize

(let alone have felt a duty to adhere to). Respondent-Appellant this resulted

in a one-sided and inaccurate account of practitioner obligations, a fact made

even more troubling by the ALJ’s relative inexperience in Federal tax

collection procedures. In particular, Respondent-Appellant took issue with

the ALJ’s decision not to permit him to call Expert 1 as an expert rebuttal

witness on standards and practices in Federal tax collection procedure. The

ALJ did not allow Expert 1 to testify, but did permit counsel for RespondentAppellant to make an offer of proof which detailed what Expert 1 would

have said had he been permitted to testify (Tr., pp. 1424-1428).

I state at the outset that I have no knowledge the degree of experience

the ALJ has in Federal tax collection matters. I also note my

16 The ALJ was without authority to compel them to testify.

17 If Respondent-Appellant decides to pursue these matters in a United States District Court, the District

Judge in those proceedings might elect to compel their testimony.

13

belief that the ALJ’s understanding of these matters may have been

improved had Expert 1 (or some other witness with a view differing from the

IRS witnesses) could have been permitted to testify. I share RespondentAppellant’s concerns about one-sided explanations of difficult issues

respecting practitioner conduct, particularly on matters such as those

involved in collection matters where the nature of the perceptions of a

practitioner’s alleged failings are formed through the all too human prism of

IRS employees’ inability to admit their own failings that may have either

caused or contributed to the problems being experienced.

Whatever the experience of the ALJ may be, suffice it to say that I am

no neophyte in the Federal tax collection process, having represented

corporations, other business entities and individuals in all variety of

collection matters, large and small. I also have significant experience in

representing debtors, secured and general creditors, and classes of creditors

in informal workouts, Federal and state receiverships, and Federal

Bankruptcy proceedings. Rather than reversing and remanding this matter

to the ALJ, I will address below each of the 8 areas that RespondentAppellant’s counsel suggested would have been the subject of Expert 1’s

testimony, and then determine whether the exclusion of Expert 1’s testimony

has so prejudiced Respondent-Appellant’s case as to constitute reversible

error.

First, Expert 1 would have testified that return preparation does not

constitute practice before the Internal Revenue Service. While I agree, I find

that fact irrelevant. Respondent-Appellant is authorized to practice and in

fact had practiced as an Enrolled Agent authorized to practice before the

Internal Revenue Service. That jurisdictional requirement having been

established, in determining a practitioner’s continued fitness to practice

before the Internal Revenue Service, violations of Treasury Circular 230 are

not limited to acts and omissions falling solely within the definition of

“practice before the Internal Revenue Service. See discussion at pp. 10-18 of

the

H Decision on Appeal (Attachment B). This claim is without merit.

(b)(3)/26 USC 6103

Second, Expert 1 would have testified that, with respect to the

(b)(3)/26 USC 6103

would meet or

exceed normal diligence under the circumstances. I would describe this

statement as a partial truth. It does not explain why Respondent-Appellant

(b)(3)/26 USC 6103

14

(b)(3)/26 USC 6103

. Further, in

determining the significance of these omissions, it is appropriate to keep one

(b)(3)/26 USC 6103

other thing in context.

. Among

the concerns of a Revenue Officer is assuring that assets that are subject to a

Federal tax lien do not disappear from the possession, custody or control of

the taxpayer/debtor. Given Respondent-Appellant’s prior inquiries

(b)(3)/26 USC 6103

concerning

In this context, I find Expert 1’s statement at the least incomplete and

perhaps misleading. In either event, I find that this claim lacks merit.

Third, Expert 1 would have testified that a practitioner has no

obligation to provide his work product for which he had not been paid (in

(b)(3)/26 USC 6103

this case,

) to the Internal Revenue

Service when it relates to a subject within the scope of his Power of Attorney

until it is summoned. The ALJ addresses at p. 32 of his Decision the fact

§10.28 did not exist as of the date of Respondent’s conduct and that the

circumstances of this case do not fall within the scope of §10.28 even after it

became effective. I concur in the ALJ’s statements. Had the issue been

addressed by Expert 1’s proposed testimony, I would have agreed that,

absent an undertaking to do so on behalf of a taxpayer, a practitioner has no

obligation to create a document that does not exist at the date of the request.

I find no authority that supports the assertion that a practitioner has no

obligation under Treasury Circular 230 to provide non-privileged documents

prepared by the practitioner to the Internal Revenue Service pursuant to a

lawful request prior to the date on which that request took the form of a

summons. So I disagree with the position attributed to Expert 1. Further, I

find that a document contained in a computer’s hard drive is an existing

document. I therefore find these claims to be without merit.

Fourth, Expert 1 would have testified that Respondent-Appellant

(b)(3)/26 USC 6103

should not be disciplined for a failure

Certainly,

(b)(3)/26 USC 6103

However, this fact does not

excuse a practitioner from secondary responsibility for

(b)(3)/26 USC 6103 during a period covered by his/her Power of Attorney

when he/she has agreed to do so, particularly when his/her undertaking is

communicated to the Internal Revenue Service. I find this claim without

merit.

15

Fifth, Expert 1 would have testified that (b)(3)/26 USC 6103

. I agree but do not see the relevance of the matter

to any of the charges in the Corp. 2 case, except insofar as this

(b)(3)/26 USC 6103

While I do not find that this claim constitutes reversible

error, I do believe that this fact is appropriately considered as a mitigating

factor and I will take it into account in determining the appropriate sanction

to apply in these proceedings.

Sixth, Expert 1 would have testified that Respondent’s

(b)(3)/26

USC 6103

constituted “due diligence” in that matter. I disagree. RespondentAppellant owed a further obligation to the IRS to assist IRS employees in

their efforts to secure the information and documents necessary to permit

(b)(3)/26 USC 6103

Having REVERSED

them to

the ALJ on all the Client(s) 1 charges, I see no need to further discuss this

claim.

Seventh, Expert 1 would have testified no practitioner would

understand that a failure to provide information in connection with

(b)(3)/26 USC 6103

could subject them to discipline under Treasury

Circular 230, I can only say that this practitioner would have. Depending on

the circumstances, failing to live up to any commitments made to provide

requested information could at a minimum cause the Service to unnecessarily

expend scarce compliance resources, and might also cause Service personnel

to forestall forced collection actions to the prejudice of the Federal fisc.

Eighth, Expert 1 would have testified that any suggestion that a

practitioner has an obligation to inform the IRS that the taxpayer failed to

provide requested information or documents “is nonsense,” and that a

practitioner’s obligation is to his client. With modifications, I agree. As I

have stated elsewhere in this Decision on Appeal, an authorized

representative has no obligation to volunteer that information to the IRS

without being asked. But absent an applicable privilege or another valid

defense to the request, if asked, an authorized representative has an

obligation to respond to such inquiries accurately, truly and completely, even

if his/her response may be harmful to his/her client’s interests. But that

obligation does not exist unless the IRS first elicits the information or

requests the documents. Where relevant to the specific charges made, I have

discussed this issue in Section II, supra. The claim merits no further separate

consideration here.

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Given my consideration of these claims on Appeal, I do not feel

that the ALJ’s failure to permit Expert 1 to testify constitutes

reversible error.

Independent of the issues that would have been raised by

Expert 1 had he been permitted to testify, Respondent-Appellant

claims that the ALJ erred by failing to allow the introduction of

testimony concerning a large number of cases in which RespondentAppellant had helped taxpayers successfully resolve collection matter

with the IRS. Respondent-Appellant argues that an examination of

those cases is relevant to the question of whether RespondentAppellant has engaged in patterns of inappropriate conduct in his

dealings with the IRS. Yet none of the charges made by OPR involve

pattern offenses. My review of the administrative record and the

ALJ’s Decision leads me to conclude that the primary impact of the

multiple cases examined was to influence the ALJ’s view of

Respondent-Appellant’s credibility. The fact that RespondentAppellant did not consistently violate Treasury Circular 230 when

representing taxpayers is not evidence of the fact that he did so with

sufficient frequency to draw into question any claim that he regularly

complied with his Treasury Circular 230 obligations, any more than

the fact that millions of Russians avoided the gulag can be cited as

relevant evidence that Josef Stalin was really a good guy. The ALJ’s

action excluding this testimony did not constitute error, let alone

reversible error.

8. The ALJ should have been someone with a tax background. ALJs are

purposely selected from a pool of ALJs at other Federal Agencies and

Departments to ensure that one person with important functions in the

overall Circular 230 proceedings is, in both fact and perception, totally

independent of the Internal Revenue Service. A necessary consequence of

selecting such individuals to act as the ALJs in these proceedings is having

ALJs that have not spent nearly all of their professional lives in the arcane

pursuit of understanding our Federal tax laws. In the Treasury Circular 230

process, tax expertise is normally provided by the Secretary of the

Treasury’s Appellate Authority who have been employees of the Department

of the Treasury or the Internal Revenue Service who have been selected

because of their integrity and stubborn independence, and because we have

spent substantial portions of our careers as practitioners of our “dark art.”

At some point in the process, therefore, practitioners get their cases reviewed

by a tax expert. This claim is without merit.

9. Incompetent Evidence. As Respondent-Appellant admits, this claim is

a rehash of an earlier claim already addressed. I see no need to comment

further on the same claim offered in a different wrapper.

17

10. The Exclusion of the Witness 1 and Expert 1’s Testimony. These claims

are adequately addressed through my consideration of the proffered

testimony of Expert 1. In light of my consideration, I find that the ALJ’s

exclusion of this testimony does not constitute reversible error.

11. Cumulative Effect. This claim merits no independent consideration.

B. The Erroneous Legal Standard Claims

1. Incorrect Standard of Willfulness. This claim is addressed at pp. 10-11

of this Decision on Appeal and in the cited pages appearing in the (b)(3)/

26 USC

USC

on Appeal (Attachment B). While I agree that the ALJ applied the

6103

6103

wrong legal standard for determining “willful” conduct, I affirm each of the

ALJ’s findings and conclusions under the appropriate standard of

“willfulness.” Accordingly, this claim lacks merit.

2. Incorrect Standard for Clear and Convincing Evidence. Certain aspects

of this claim have been discussed elsewhere in this Decision on Appeal. I

choose to comment on only one aspect of this “cluster” of inter-related

assertions, that a practitioner cannot be held responsible for failures to

furnish information and documents that are not within the practitioner’s

possession, custody, or control where the failures are caused by the

taxpayer or a third party and not by the practitioner. Assuming the

practitioner can demonstrate that to be the case and that he has exercised

due diligence in obtaining the information and documents from the

person who possesses them, I concur. But the problem RespondentAppellant faces is that the ALJ found Respondent-Appellant’s evidence

on this subject to lack credibility - not just in part but in whole. And in

most instances, the administrative record on these matters contains ample

evidence to support the ALJ’s determinations of credibility under my

standards of review. Accordingly, I find these claims to be without merit

under my standards of review.

C. Denial of the Respondent-Appellant’s Motion to Strike, Respondent-Appellant’s

Motion for Summary Judgment and Respondent-Appellant’s Motion for a Directed

Verdict. I find these claims to be without merit.

IV. Sanction and Conclusion

In view of the totality of the above, I reduce the period of RespondentAppellant’s suspension from 2-1/2 years to 1-1/2 years, commencing on the date of

entry of this Decision on Appeal. This Decision on Appeal constitutes FINAL

AGENCY ACTION in these proceedings.

18

David F. P. O’Connor

Special Counsel to the Senior Counsel

Office of Chief Counsel

Internal Revenue Service

(As Authorized Delegate of

Henry M. Paulson, Jr.

Secretary of the Treasury)

February 4, 2008

Washington, D.C.

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