Tax pros and IRS OPR overreach

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Has the IRS attempt to regulate tax preparers diminished the credentials of CPAs, enrolled agents and attorneys? Beanna Whitlock, former director of National Public Liaison at the IRS, thinks so – and a recent court case may support her position.

“I believe the IRS lost its way,” she said. “The great extension of IRS authority through the Office of Professional Responsibility was really an overreach. Tax representation does not include tax preparation – they are two different skill sets.”

“Because Circular 230 talks about IRS representation, the IRS has taken the position of extending that representation to those enrolled in the Annual Filing Season Program,” she said. “They are enabled to represent taxpayers at the initial exam of a return if they prepared it, and also before the Taxpayer Advocate. They are stopped only at Collection and Appeals. That has greatly diminished the credentials of CPAs, EAs, and attorneys.”

The District Court for the District of Nevada recently buttressed Whitlock’s opinion by granting a disbarred attorney judgment on the pleadings against the former director of the IRS Office of Professional Responsibility in Sexton and Esquire Group LLC v. Hawkins, District Court for the District of Nevada, March 17, 2017.

James Sexton was disbarred in South Carolina after pleading guilty to four counts of mail fraud and one count of money laundering, and was subsequently suspended from practice before the IRS in 2008. Prior to and during his suspension, Sexton offered professional tax services as president of Esquire Group LLC, where he assists with the preparation of tax returns for individual clients of Esquire. His duties with Esquire also include management, marketing and client relations.

Sexton prepared the returns of Louise Kern for 2010 and 2011. After Sexton offered to send her a written memorandum analyzing her options regarding her business tax obligations, Kern found out about his disbarment and made a complaint to the OPR in September 2012. The OPR initiated an investigation as to whether Sexton was violating his suspension from practicing before the IRS.

The OPR requested a wide range of information from Sexton, which it subsequently amended after Sexton requested it to limit the scope of its original request. Sexton brought an action seeking both declaratory and injunctive relief on the grounds that he is not a practitioner as defined by federal law, and that the OPR lacks “statutory authority to enact, promulgate or enforce demands or authority over him and/or his employer Esquire as a result of Sexton’s activities;” and that the IRS and its agents “are prohibited from regulating the providing of tax advice general, except as specifically provided by statute and conferred upon them by Congress.”

Sexton asked the court to permanently enjoin the IRS from seeking to enforce Section 10.20 of Circular 230 against him and his company and requiring them to provide documents and information upon demand. The court granted Sexton’s motion for judgment on the pleadings.

“This court reiterates here its agreement with the analysis of Loving [Loving v. IRS, 742 F.3d 1013 (DC. Cir. 2014)] that the IRS does have the authority to regulate representatives or practitioners before it, but that this authority does not extend to tax preparers or suspended former practitioners who are not tax preparers,” the court stated. “The fact that an individual was formerly a practitioner before the IRS cannot expand IRS jurisdiction into an area where no jurisdiction previously existed.”

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