Practitioner Disbarment from Practice Before the IRS (11/26/12)

The Treasury Department regulates IRS practice before the IRS.  Under Circular 230, here, practitioners may be sanctioned for inappropriate conduct and disbarred from practice before the IRS.  I cover that process   (I cover that process in my Federal Tax Procedure Book at pp. 31-38 of the footnoted version and pp. 26 of the nonfootnoted version).  The ultimate sanction is, of course, disbarment.  That can severely impact a practitioner's ability to earn a living.  Hence, it would behoove practitioners to avoid the conduct that would draw any sanction, particularly the disbarment sanction.

In Banister v. United States Department of the Treasury, 2012 U.S. App. LEXIS 24179 (9th Cir. 2012), here, an unpublished opinion,  the Ninth Circuit affirmed the district court's decision affirming the disbarment of Mr. Banister from practice before the IRS.  The Court opens:

Banister admitted to advising clients that they were not liable for income taxes based on his belief that the Sixteenth Amendment was not properly ratified and his understanding that Section 861 of the Internal Revenue Code, 26 U.S.C. § 861, and the regulations thereunder ("Section 861") exempted the clients from having to pay income taxes. He also admitted to signing a client's tax returns as the returns' preparer when the returns stated that the client was not liable for income taxes under Section 861. We have jurisdiction pursuant to 28 U.S.C. § 1291. We affirm.

The ho-hum, routine, nonprecedential affirmance is not surprising given the claims that Banister made.  But, I think the Court's discussion if Banister's Cheek good faith defense is noteworthy, as a reminder.  The Cheek defensen is that the defendant did not know the law and therefore could not have violated a known legal duty.  Cheek was a criminal case interpreted the statutory element for tax crimes that the defendant have acted "willfully."  Cheek interpreted that term as the intentional violation of a known legal duty.  Cheek embellished that this defense was not available to a person who knows the law but claims the law is invalid.  That was Mr. Banister's problem in asserting the belief that the Sixteenth Amendment had not been properly ratified.

But, Mr. Banister had another arrow in his quiver -- that Section 861, properly read, exempted the persons he counseled from the income tax.  The question here was the role of the reasonableness of his belief.  Readers will recall that Cheek established the even an unreasonable belief that the law, properly interpreted, did not apply is a defense, but that the trier of fact (there the jury) could consider the unreasonableness of the belief as bearing upon whether the defendant actually knew the law's command and intentionally violated the command.  The Ninth Circuit said:

IRS Proposes New Practitioner Rules for Opinions and Advice (9/20/12)

The IRS has proposed new regulations for Circular 230, 31 CFR Part 10, regarding tax practitioner opinions and advice.  See REG-138367-00, 77 FR 57055 (9/17/12),here.  Here is a good summary of certain key aspects of the proposed new regulations (excerpted from Michael Cohn, IRS Proposes New Rules for Covered Opinions and Tax Advice (Accounting Today 9/14/12), here):

The proposed regulations will streamline the existing rules for written tax advice by removing the current Section 10.35 and applying one standard for all written tax advice under a proposed Section 10.37. The proposed Section 10.37 provides that the practitioner must base all written advice on reasonable factual and legal assumptions, exercise reasonable reliance, and consider all relevant facts that the practitioner knows or should know.  The proposed removal of Section 10.35 will eliminate the requirement that practitioners fully describe the relevant facts (including the factual and legal assumptions relied upon) and the application of the law to the facts in the written advice itself, and the use of Circular 230 disclaimers in documents and transmissions, including e-mails. 

Other provisions, including Sections 10.31, 10.36, and 10.82, are also being updated at this time to reflect the current practice environment, the IRS noted.  In addition, a general competence standard is being proposed in the new Section 10.35. “The proposed regulations also clarify that the Office of Professional Responsibility has exclusive responsibility for matters related to practitioner discipline, including disciplinary proceedings and sanctions,” said the IRS.

Caveat:  These are proposed regs only.  The do not have effect until promulgated and, based on the comments received, may be modified.  Since they are proposed only, they do not affect the current Federal Tax Procedure book.