The Internal Revenue Service’s Office of Professional Responsibility said it has changed its procedures for how it handles investigations of tax practitioners who may have violated Circular 230 rules, giving them information about the exact nature of the allegations, but only before the investigation has been closed.

The change was prompted by an unidentified practitioner who had to file a Freedom of Information Act request to learn what the specific allegations were. The IRS’s Office of Professional Responsibility had sent the practitioner a “soft letter” that generally described the allegations and told him or her the OPR had decided not to take action on the matter. But it had closed the investigation by the time the practitioner filed the FOIA request, and because the allegations involved representation of a taxpayer before the IRS, OPR couldn’t provide more information on the case because it was subject to taxpayer privacy rules. A federal district court recently upheld the IRS' s withholding of certain information from the tax practitioner, but the IRS noted that it changed its procedures in 2016 to disclose the information in such cases before they have been closed.

“The OPR has authority under section 6103 to disclose tax information to a practitioner during an open investigation of a possible Circular 230 violation or during a disciplinary proceeding, but could not comply with this practitioner’s request for information because by then the case was closed,” said the IRS’s Office of Professional Responsibility in an email Tuesday. “The OPR has modified its process to give the practitioner in cases like this an opportunity to seek information before it closes the case, providing an affected practitioner a fuller opportunity to understand and respond if the practitioner chooses to do so.”

The IRS explained that when its Office of Professional Responsibility issued the original “soft” closing letter to the practitioner involved in the case, it didn’t foresee that the tax pro would request information that it couldn’t act on because of the closed status of the case.

“In hindsight, the OPR found this result inconsistent with its commitment to provide practitioners a full and fair opportunity to respond to allegations, and in 2016 modified its processes to address the problem,” said the IRS. “OPR now sends a letter to the practitioner advising of the issues presented in the matter under investigation and gives the practitioner an opportunity to comment, and, then, when it’s an appropriate disposition of the case, sends a second letter with the 'soft' closing language. This two-letter process gives a practitioner who wants to know more about the allegation(s) an opportunity to make a request before the OPR closes the matter, thus fitting within the framework of the 6103 provision. The revised 'soft letter' process follows longstanding communication processes used by the OPR in investigations that could result in action under Circular 230, such as a reprimand, censure, suspension or disbarment.”

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Michael Cohn

Michael Cohn

Michael Cohn, editor-in-chief of AccountingToday.com, has been covering business and technology for a variety of publications since 1985.