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How to Lose Your Right to Practice Before the IRS

Western CPE Staff

Your credential does more than hang on the wall. For a CPA, enrolled agent, or attorney, it is what lets you stand between your client and the IRS. That privilege comes with a rulebook, Circular 230. The referee is the IRS Office of Professional Responsibility, and yes, it can take your right to practice away.

Good news, practitioners who lose that right are rarely malicious. Practitioners are more likely to accidentally cross a line or make a mistake than intentionally take an action that amounts to misconduct. We’ll be looking at the lines you might cross and how to avoid them.

Who Is on the Hook

Circular 230 governs practice before the IRS, which is not the same thing as preparing a return. After Loving, et al. v. IRS, et al., No. 13-5061 (D.C. Cir. 2014), the courts held that preparing returns on its own is not practice before the IRS, which invalidated the registered tax return preparer regime.

What counts is representation, standing in for a client in an examination, a collection matter, or an appeal. Attorneys, CPAs, and enrolled agents are covered whenever they represent a taxpayer, and unenrolled preparers can take on limited representation rights, and the Circular 230 obligations that come with them, through the Annual Filing Season Program. By signing the Declaration of Representative on Form 2848, you affirm that you are subject to Circular 230.

What Triggers Circular 230?

When people picture losing a license, they picture fraud. Those cases exist, and several are spelled out in Section 10.51, which lists 18 kinds of incompetence and disreputable conduct such as felony convictions, tax evasion, and willfully failing to file your own returns. Plenty of the risk sits in the everyday duties Circular 230 imposes elsewhere, where a violation is just as sanctionable:

Mishandling an IRS request for records: the rules on what you must hand over, and the narrow cases where privilege applies, are easy to get wrong
Fee missteps: contingent fees are permitted only in specific situations, and charging one in the wrong context is a violation
Weak written advice: falling short of the standards that govern the guidance you put in writing
Looking past a client’s error: knowing about an omission on a return and failing to handle it correctly

None of these require bad intent. They require only that you did not know or remember the rule, which is why they often catch well-intentioned practitioners.

Suspension and Penalty

If a state board suspends or revokes your CPA license for cause, that alone gives the OPR grounds to suspend you from practice before the IRS, on an expedited basis. Section 10.82 is the expedited route, and it reaches conduct within five years before the show cause order is served. Any one of these opens it:

Your state license. An attorney, CPA, or actuary license suspended or revoked for cause, not counting unpaid licensing fees. State board discipline is separately disreputable conduct under §10.51(a)(10), so one order can produce two federal problems.
A conviction. A Title 26 crime, any crime involving dishonesty or breach of trust, or a disqualifying felony, irrespective of whether an appeal has been taken.
Breaching post-sanction conditions. Violating conditions imposed under §10.79(d).
A court sanction in a tax matter. For pursuing delay, for frivolous or groundless arguments, or for not exhausting administrative remedies.
A filing pattern. Missing an annual return in four of the last five tax years, or five of the last seven periods where filing is more frequent, which pulls in quarterly payroll returns.

IRS Makes the Penalized Public

OPR’s sanctions run from censure to suspension to outright disbarment, plus monetary penalties. The IRS publishes its final decisions, names and towns included, and reinstatement generally cannot even be requested until five years have passed. The published decisions even include practitioners who kept representing clients, or kept holding themselves out as a CPA, after they had already lost the right to do so.

Respect Circular 230

Every case of misconduct is avoidable. Dramatic offenses are easy to steer clear of, because everyone already knows better. The dangerous ones are the quiet procedural rules, the fee technicalities, and the records-request judgment calls that never come up until an examiner or the OPR is the one asking. Knowing where the lines sit ahead of time is the whole game.

Want to know more about Circular 230 and OPR enforcement? Check out Mark Seid’s webcasts: