NATIONAL TAX PRACTICE INSTITUTE LEVEL 1 Overview …az9194.vo.msecnd.net/pdfs/120801/01_handout.pdf · · 2012-09-07... including at IRS Tax Forums. She is editor-in-chief of the

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NATIONAL TAX PRACTICE INSTITUTE™

LEVEL 1 Overview of Representation

August 5, 2012

Claudia Hill, EA, MBA

Claudia Hill, EA, MBA is a nationally recognized tax professional and frequent lecturer on taxation of individuals, tax planning, and representation before IRS, including at IRS Tax Forums. She is editor-in-chief of the CCH, Inc., Journal of Tax Practice and Procedure. Hill has testified before both the Senate Finance Committee and House Ways and Means Committee. Hill served on the 1987 Commissioner’s Advisory Group to the National Office of the Internal Revenue Service. She is often called upon by the media for comments about tax issues. Hill was recently named a Top Ten Nominee by Tax Analysts for 2011 Person of the Year. She is an NTPI Fellow and Level 1 and Graduate Level in Representation instructor.

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Claudia Hill, EA i Overview of Representation

Table of Contents

Introduction to Tax Controversy .......................................................................................1 Part I – What is Practice Before the IRS? .........................................................................2 What are the Rules of Practice? .............................................................................................3 Rules, Duties and Responsibilities .........................................................................................5

Duties Duty to Advise Due Diligence

Restrictions ............................................................................................................................6 Conflict of Interest .................................................................................................................7 Return of Client Records .......................................................................................................7 Statutory [Federally Authorized Tax Practitioner] Advisor-Client Privileges ......................8 Restrictions Requirements Limitations Exhibit: Comparison of Attorney vs. Non-attorney Privilege ...............................................11 Incompetence and Disreputable Conduct ....................................................................12 Sanctions for Violation of the Regulations ............................................................................14 Part II - You must be authorized to represent your client The Purpose of an Authorization ..........................................................................................14 When Is a Power of Attorney Not Required? ........................................................................15 Acts performed under a Power of Attorney ...........................................................................15 Preparation of Form – Helpful Hints .....................................................................................16 The Centralized Authorization File (CAF) – Authorization Rules ........................................18 Common Reasons for Power of Attorney Rejections ............................................................19 Dated Signature Required .....................................................................................................19 Other authorization products (besides Forms 2848, 8821 and 706) ......................................20

Third Party Designee (Checkbox) Authorization Oral Disclosure Consent Oral Tax Information Authorization

Retention/Revocation of Prior Powers of Attorney ..............................................................21 Withdrawal of Representative ................................................................................................22 Exhibit: Third Party Authorization, Level of Authority ......................................................22 Exhibit: FOIA Request for CAF Representative/Client Listing ...........................................24 Exhibit: Form 2848, Power of Attorney and Declaration of Representative ........................25 Part III – Overview of the Internal Revenue Service Statutory Authority ................................................................................................................27 Exhibit: IRS Organization Chart ..........................................................................................28 Today’s IRS Organization & Structure ..................................................................................29 At-a-Glance: IRS Divisions and Principal Offices

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Claudia Hill, EA ii Overview of Representation

Wage & Investment Division.....................................................................................30 Small Business/Self-Employed Division ...................................................................33 Large Business & International Division ...................................................................35 Tax Exempt & Government Entities Division ...........................................................36

Other Principal Offices Office of Chief Counsel .............................................................................................38 Taxpayer Advocate Service .......................................................................................38 Office of Professional Responsibility ........................................................................40 Return Preparer Office ...............................................................................................41 Criminal Investigation ...............................................................................................41 Appeals ......................................................................................................................42 Communications and Liaison ....................................................................................43 Whistleblower Office .................................................................................................44 Office of Privacy, Governmental Liaison and Disclosure .........................................44

Part IV – Protecting Taxpayer Rights ....................................................................45 Exhibit: IRS Pub 1 – Your Rights as a Taxpayer .................................................................47 Using the Taxpayer Advocate Service ...................................................................................49

Updated case criteria ..................................................................................................50 Exhibit: Form 911, Request for Taxpayer Advocate Service Assistance .............................51 Reprint: Overview of Tax Practice and Procedure1

1 ACKNOWLEDGEMENT: The cited material, as well as other portions of this workbook, are reprinted with the publisher’s permission from the CCH Expert Treatise Library: Tax Practice & Procedure authored by Claudia Hill, Charles Rettig & William Wiggins; published by CCH, a Wolters Kluwer business.

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Claudia Hill, EA 1 Overview of Representation

Tax controversy covers an entire range of a representative's interaction with taxpayers and the Internal Revenue Service. It begins as early as pre-controversy tax advice and the opinions provided prior to taking positions on tax returns. Responding to notices and inquiries from the IRS follows return preparation. Engagements to shepherd examinations of returns can proceed to preparation of protests for administrative appeal (including Alternative Dispute Resolution), negotiations with Appeals, Freedom of Information Act requests, and summons enforcement actions. When cases cannot be resolved through administrative channels within the IRS, tax controversy practice continues with responses to assessment efforts directed at pre-trial settlement and, when necessary, litigation.

Once a return is submitted and a balance due is unpaid or an examination is resolved with an unpaid deficiency, tax controversy practice continues with collection mitigation representation. This area includes negotiations regarding the taxpayer's ability to pay, installment agreements, offers in compromise, requests for innocent spouse relief, audit reconsiderations, collection due process hearings and appeals, penalty appeals and relief, and trust fund recovery penalty defense.

Representation of taxpayers under criminal investigation can proceed to civil litigation in the United States Tax Court, Federal District Courts, or the Court of Federal Claims, criminal tax litigation in Federal District Court, and associated litigation in state courts, as well as appellate advocacy in the United States Court of Appeals and the Supreme Court of the United States.

Considerable judgment, discretion, and caution are required when representing clients before the IRS. Knowledge of the controversy process and the nuances of tax procedure can be invaluable in this arena. Often, unknown, potentially sensitive issues may unexpectedly arise. Throughout, the representative must balance his duties to the client with ethical and legal obligations to our tax system. Effective representation requires an understanding of the scope of issues that might arise before the IRS and the inherent limitations involved at each level of the administrative process. Additionally, the representative must be able to acknowledge the inherent limitations in his own personal skills.

A representative should never underestimate the government's ability, desire, or resource allocations. It must always be assumed that the government will conduct its examinations or proceed with collection actions in a professional, although sometimes aggressive, manner calculated to determine the accuracy of the information that has been reported on the taxpayer's returns or to protect the government's revenue. The government will devote all necessary resources to the determination of proper tax liability2

2 ¶3.01, Overview—Tax Controversy Practice is reprinted with the publisher’s permission from the CCH Expert Treatise Library: Tax Practice & Procedure authored by Claudia Hill, Charles Rettig and William Wiggins; published by CCH, a Wolters Kluwer business.

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Part I - What Is Practice Before the IRS3

Practice before the IRS covers all matters relating to any of the following.

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• Communicating with the IRS for a taxpayer regarding the taxpayer's rights, privileges, or liabilities under laws and regulations administered by the IRS.

• Representing a taxpayer at conferences, hearings, or meetings with the IRS. • Preparing and filing documents, including tax returns, with the IRS for a taxpayer. • Providing a client with written advice which has a potential for tax avoidance or evasion.

Simply furnishing information at the request of the IRS or appearing as a witness for the taxpayer is not practice before the IRS. These acts can be performed by anyone. While traditionally the act of preparing a tax return was not considered practice under the regulations as set out in Treasury Department Circular No. 230 (Circular 230), with the August 2011 revisions, they now are. In October 2010, IRS announced the creation of the Return Preparer Office ("RPO") established to administer the return preparer initiative, handle issues related to registration, administer PTIN applications, mechanics of return preparer education, and competency testing for tax return preparers. This office reports directly to the IRS deputy commissioner for services and enforcement. The RPO is responsible for matters related to the authority to practice, including acting on applications for enrollment and administering competency testing and continuing education. RPO will exert hands-on efforts to improve the accuracy and quality of filed tax returns and to heighten awareness of preparer responsibilities. Their mission is to improve taxpayer compliance by providing comprehensive oversight and support of tax professionals, including enrollment, testing, and administrative processing of those subject to its jurisdiction. With the establishment of RPO, the Office of Professional Responsibility (OPR) refined its focus on practitioner conduct and retains exclusive responsibility for discipline, including disciplinary proceedings and sanctions. OPR recently released a new vision statement: "To be the standard-bearer for integrity in tax practice" and their new mission statement: “Interpret and apply the standards of practice for tax professionals in a fair and equitable manner4

.” OPR’s vision, mission, strategic goals and objectives support effective tax administration by ensuring all tax practitioners, tax preparers, and other third parties in the tax system adhere to professional standards and follow the law. With the changes in responsibilities, OPR is better able to focus its efforts on enforcement of Circular 230’s standards of conduct.

All return preparers, whether they are Enrolled Agents, CPAs or Attorneys, are subject to regulations and overview by both organizations. Ethical practice is expected in all elements of 3 IRS Publication 947, Practice Before the IRS and Power of Attorney 4 http://www.irs.gov/taxpros/agents/article/0,,id=176297,00.html

http://www.irs.gov/taxpros/agents/article/0,,id=176297,00.html�

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our interactions with the Service and clients from the giving advice to preparation or returns to representation related to those returns or the collection of related deficiencies.

Transition to New Governance Structure

Return Preparer Office David Williams, Director

Office of Professional Responsibility Karen Hawkins, Director

PTIN System Practice Standards Oversight Initial Suitability Testing Independent Investigations Continuing Education Propose Discipline Compliance Administrative Hearing & Appeals What Are the Rules of Practice? An attorney, CPA, enrolled agent, other enrollee, or Registered Tax Return Preparer (RTRP) authorized to practice before the IRS (referred to hereafter as a practitioner) has the duty to perform certain acts and is restricted from performing other acts. In addition, a practitioner cannot engage in disreputable conduct (discussed later). Any practitioner who does not comply with the rules of practice or engages in disreputable conduct is subject to disciplinary action. RTRPs must comply with the rules of practice and conduct to exercise the privilege of limited practice before the IRS5

Tax professionals owe an obligation to the client: competence in the services they provide and integrity, confidentiality and loyalty in the manner they provide them. Tax professionals also owe an obligation to the tax system: to respect the laws and the system and to assist clients in complying with the law.

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The conduct-related provisions of Circular 230 govern all who practice before the Internal Revenue Service6

. The Office of Professional Responsibility (OPR) establishes and enforces consistent standards of competence, integrity and conduct for tax professionals. Section 10.34 of Circular 230 provides the starting point for ethical interactions with the Service.

As to submission of tax returns, Section 10.34 provides7

(a) Tax Returns :

(1) A practitioner may not willfully, recklessly, or through gross incompetence—

5 IRS Publication 470 addresses the special rules for limited practice by unenrolled preparers. 6 CCH Expert Treatise Library: Tax Practice & Procedure, ¶3.06, Ethical Considerations of Tax Practice; ¶3.06[A] Code of Conduct is reprinted with the publisher’s permission from the CCH Expert Treatise Library: Tax Practice & Procedure published by CCH, a Wolters Kluwer business. 7 31 C.F.R. § 10.34 (standards with respect to tax returns and documents, affidavits and other papers)

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(i) Sign a tax return or claim for refund that the practitioner knows or reasonably should know contains a position that—

(A) Lacks a reasonable basis; (B) Is an unreasonable position as described in section 6694(a)(2) of the Internal Revenue Code (Code) (including the related regulations and other published guidance); or (C) Is a willful attempt by the practitioner to understate the liability for tax or a reckless or intentional disregard of rules or regulations by the practitioner as described in section 6694(b)(2) of the Code (including the related regulations and other published guidance).

(ii) Advise a client to take a position on a tax return or claim for refund, or prepare a portion of a tax return or claim for refund containing a position, that—

(A) Lacks a reasonable basis; (B) Is an unreasonable position as described in section 6694(a)(2) of the Code (including the related regulations and other published guidance); or (C) Is a willful attempt by the practitioner to understate the liability for tax or a reckless or intentional disregard of rules or regulations by the practitioner as described in section 6694(b)(2) of the Code (including the related regulations and other published guidance).

(2) A pattern of conduct is a factor that will be taken into account in determining whether a practitioner acted willfully, recklessly, or through gross incompetence.

(b) Documents, affidavits and other papers (1) A practitioner may not advise a client to take a position on a document, affidavit or other paper submitted to the Internal Revenue Service unless the position is not frivolous. (2) A practitioner may not advise a client to submit a document, affidavit or other paper to the Internal Revenue Service—

(i) The purpose of which is to delay or impede the administration of the Federal tax laws; (ii) That is frivolous; or (iii) That contains or omits information in a manner that demonstrates an intentional disregard of a rule or regulation unless the practitioner also advises the client to submit a document that evidences a good faith challenge to the rule or regulation.

(c) Advising clients on potential penalties (1) A practitioner must inform a client of any penalties that are reasonably likely to apply to the client with respect to—

(i) A position taken on a tax return if— (A) The practitioner advised the client with respect to the position; or (B) The practitioner prepared or signed the tax return; and

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(ii) Any document, affidavit or other paper submitted to the Internal Revenue Service.

(2) The practitioner also must inform the client of any opportunity to avoid any such penalties by disclosure, if relevant, and of the requirements for adequate disclosure. (3) This paragraph (c) applies even if the practitioner is not subject to a penalty under the Internal Revenue Code with respect to the position or with respect to the document, affidavit or other paper submitted.

(d) Relying on information furnished by clients. A practitioner advising a client to take a position on a tax return, document, affidavit or other paper submitted to the Internal Revenue Service, or preparing or signing a tax return as a preparer, generally may rely in good faith without verification upon information furnished by the client. The practitioner may not, however, ignore the implications of information furnished to, or actually known by, the practitioner, and must make reasonable inquiries if the information as furnished appears to be incorrect, inconsistent with an important fact or another factual assumption, or incomplete. Rules, Duties, and Responsibilities of Tax Practice8

The general duties and responsibilities set forth in Circular 230 of a practitioner representing a taxpayer include:

Duties. Practitioners must promptly provide records or information requested by the IRS unless a practitioner reasonably and in good faith believes that such records or information is privileged9

Where the requested records or information are not in the possession of, or subject to the control of, the practitioner or the practitioner's client, the practitioner must promptly notify the requesting IRS officer or employee and the practitioner must provide any information that the practitioner has regarding the identity of any person who the practitioner believes may have possession or control of the requested records or information. The practitioner must make reasonable inquiry of his or her client regarding the identity of any person who may have possession or control of the requested records or information, but the practitioner is not required to make inquiry of any other person or independently verify any information provided by the practitioner's client regarding the identity of such persons

The representative is not required to inquire of others or independently verify information provided by the client.

10

When a proper and lawful request is made by a duly authorized officer or employee of the IRS concerning an inquiry into an alleged violation of the regulations in this part, a practitioner must provide any information the practitioner has concerning the alleged violation and testify

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8 ¶3.06[B] Rules, Duties, and Responsibilities of Tax Practice is reprinted with the publisher’s permission from the CCH Expert Treatise Library: Tax Practice & Procedure published by CCH, a Wolters Kluwer business. 9 31 C.F.R. § 10.20(a)(1). 10 31 C.F.R. § 10.20(a)(2).

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regarding this information in any proceeding instituted under this part, unless the practitioner believes in good faith and on reasonable grounds that the information is privileged11

Duty to Advise. A representative who knows that his client has not complied with the applicable revenue laws or has made an error in or omission from any return, document, affidavit, or other required paper has the responsibility to promptly advise the client of the noncompliance, error, or omission

.

12

Due Diligence. Representatives must exercise due diligence:

. This should not be mistaken as a duty to actually file the return, document or affidavit with the government. It is merely a duty to advise the client of the noncompliance, error, or omission. Advice rendered should be clear and it is important for the client to understand the advice provided as well as the reason the advice is being provided.

(a) in preparing or assisting in the preparation of, approving, and filing returns, documents, affidavits, and other tax-related papers relating to IRS matters;

(b) in determining the correctness of oral or written representations made to the IRS; and (c) in determining the correctness of representations made to clients with reference to any

matter administered by the IRS13

A practitioner will generally be presumed to have exercised due diligence if the practitioner relies on the work product of another person and the practitioner used reasonable care in engaging, supervising, training, and evaluating the person, taking proper account of the nature of the relationship between the practitioner and the person

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14

Restrictions. Practitioners are restricted from engaging in certain practices, including:

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(a) Delays. A practitioner must not unreasonably delay the prompt disposition of any matter or audit before the IRS15

(b)

. Practitioners should promptly respond to all IRS inquiries even if to merely indicate that the requested information is not yet available, etc. Assistance from Disbarred or Suspended Persons and Former Employees of the Taxing Authority. A practitioner must not knowingly, directly or indirectly:

(i) employ or accept assistance from any person who is under disbarment or suspension from practice before the IRS if the assistance relates to a matter or matters constituting practice before the IRS;

(ii) accept employment as associate, correspondent, or subagent from, or share fees with, any such person; or

(iii) accept assistance from any former government employee where provisions of these regulations or any applicable law would be violated16

.

11 31 C.F.R. § 10.20(a)(3). 12 31 C.F.R. § 10.21 13 31 C.F.R. § 10.22(a) 14 31 C.F.R. § 10.22(b) 15 31 C.F.R. § 10.23 16 31 C.F.R. § 10.24

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(c) Performance as a Notary. If the practitioner, who is a notary public, is employed as counsel, attorney, or agent in a matter before the IRS, or has a material interest in the matter, he must not engage in any notary activities related to the matter17

(d) .

Negotiations of Taxpayer Refund Checks. Representatives who are income tax return preparers must not endorse or otherwise negotiate (that is, cash) any refund check issued to the taxpayer18

Conflict of Interest. The OPR has been especially zealous in attempting to enhance awareness of Circular 230 Section 10.29, Conflicting interests.

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(a) Conflicting Interests. A practitioner a practitioner shall not represent a client before the IRS if the representation involves a conflict of interest. A conflict of interest exists if (1) the representation of one client will be directly adverse to another client; or (2) there is a significant risk that the representation of one or more clients will be materially limited by the practitioner's responsibilities to another client, a former client or a third person, or by a personal interest of the practitioner.

(b) Notwithstanding the existence of a conflict of interest, the practitioner may represent a client if (1) the practitioner reasonably believes that the practitioner will be able to provide competent and diligent representation to each affected client; (2) the representation is not prohibited by law; and (3) each affected client waives the conflict of interest and gives informed consent, confirmed in writing by each affected client, at the time the existence of the conflict of interest is known by the practitioner. The confirmation may be made within a reasonable period of time after the informed consent, but in no event later than 30 days19

Copies of the written consents must be retained by the practitioner for at least 36 months from the date of the conclusion of the representation of the affected clients, and the written consents must be provided to any officer or employee of the IRS on request

.

20

All potential conflicts and ramifications must be fully disclosed and the taxpayer's consent to such representation must be in writing. Consider having the party separately represented by counsel before obtaining their written consent

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21

Return of Client Records. A practitioner must generally, at the request of a client, promptly return any and all records of the client that are necessary for the client to comply with his or her federal tax obligations

. The issues involved may be complex and there could later be inquiries as to whether the consent was truly "knowing and intelligent." In most situations, consider withdrawing from the representation of both parties having a conflict.

22

17 31 C.F.R. § 10.26

. The practitioner may retain copies of the records returned to a client. The existence of a dispute over fees generally does not relieve the practitioner of his or her

18 31 C.F.R. § 10.31 19 31 C.F.R. § 10.29(a) and (b) 20 31 C.F.R. § 10.29(c) 21 ¶3.06[B] Rules, Duties, and Responsibilities of Tax Practice is reprinted with the publisher’s permission from the CCH Expert Treatise Library: Tax Practice & Procedure published by CCH, a Wolters Kluwer business. For an example of how an attorney's failure to notify a client about his conflict of interest in an I.R.C. § 6015 case can affect the taxpayers involved, see Harbin v. Comm'r, 137 T.C. No. 7. 22 31 C.F.R. § 10.28.

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responsibility under this section. Nevertheless, if applicable state law allows or permits the retention of a client's records by a practitioner in the case of a dispute over fees for services rendered, the practitioner need only return those records that must be attached to the taxpayer's return. The practitioner, however, must provide the client with reasonable access to review and copy any additional records of the client retained by the practitioner under state law that are necessary for the client to comply with his or her federal tax obligations.

Records of the client include all documents or written or electronic materials provided to the practitioner, or obtained by the practitioner in the course of the practitioner's representation of the client, that preexisted the retention of the practitioner by the client23

Statutory [Federally Authorized Tax Practitioner] Advisor-Client Privileges

. The term also includes materials that were prepared by the client or a third party (not including an employee or agent of the practitioner) at any time and provided to the practitioner with respect to the subject matter of the representation. The term also includes any return, claim for refund, schedule, affidavit, appraisal or any other document prepared by the practitioner, or his or her employee or agent, that was presented to the client with respect to a prior representation if such document is necessary for the taxpayer to comply with his or her current federal tax obligations. The term does not include any return, claim for refund, schedule, affidavit, appraisal or any other document prepared by the practitioner or the practitioner's firm, employees or agents if the practitioner is withholding such document pending the client's performance of its contractual obligation to pay fees with respect to such document. Consider whether any dispute over the return of client records is justified by the effort required to contest the return of such records.

24

The IRS Restructuring and Reform Act of 1998 created a limited privilege for federally-authorized tax practitioners providing tax advice. However, this statutory privilege does not apply for nontax advice or for noncivil tax matters, and many states have not enacted conforming legislation. Code Section 7525 creates a statutory confidentiality privilege for communications from a taxpayer to any federally authorized tax practitioner concerning "tax advice25

23 31 C.F.R. § 10.28(b)

." Although this communications privilege is partly defined by reference to, and is no broader than, the common law attorney-client privilege, it is clearly a different privilege, created solely by statute, and defined as much by the statutory language as by reference to the common law attorney-client privilege. The confidentiality protection of Code Section 7525 applies to communications that

24 This excerpt from Chapter 3, ¶3.09 [B] Statutory (Federally Authorized Tax Practitioner) Advisor-Client Privileges is reprinted with the publisher’s permission from the CCH Expert Treatise Library: Tax Practice & Procedure published by CCH, a Wolters Kluwer business. 25 Any person described in Circular 230 who is an attorney, certified public accountant, enrolled agent, enrolled actuary, or appraiser is a "federally authorized tax practitioner." "Tax advice" is advice given by a federally authorized tax practitioner acting within the scope of authority to practice before the IRS. Tracking the general approach in this area, several cases have held that "tax advice" does not include communications regarding "tax return preparation." See, e.g., United States v. BDO Seidman, 337 F.3d 802, 810 (7th Cir. 2003); United States v. Frederick, 182 F.3d 496, 502 (7th Cir. 1999).

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would be considered privileged if they were between the taxpayer and an attorney and that relate to non-criminal tax matters before the IRS or tax proceedings brought in federal court by or against the United States. Restrictions26

The Code Section 7525 confidentiality privilege does not apply to (1) information disclosed to a tax practitioner for the purpose of preparing a return; (2) written communications between the tax practitioner and a director, shareholder, officer, employee, agent, or representative of a corporation that promotes the direct or indirect participation of the corporation in any tax shelter as defined in Code Section 6662(d)(2)(C)(iii); (3) information that is also available from non-privileged sources; and (4) communication between the taxpayer's tax practitioner and a third party who provides information about the taxpayer to the practitioner

27. Furthermore, this statutory privilege cannot be used in any administrative proceeding with an agency other than the IRS28

.

Requirements29

The taxpayer must assert the confidentiality privilege; it is not automatic

30

. The taxpayer can only assert the confidentiality privilege in any non-criminal tax matter before the IRS, and any non-criminal tax proceeding in federal court with respect to such matter. A case is a non-criminal tax matter before the IRS until the matter is referred to IRS Criminal Investigation for the assignment of a special agent to the matter. Once the matter ceases to be a non-criminal tax matter, the taxpayer may no longer assert the statutory privilege created under Code Section 7525. Thus, the IRS may obtain all of the information previously withheld under a claimed Section 7525 privilege.

To become privileged, a communication must be made in confidence; to remain privileged, the communication must remain confidential. A disclosure of confidential communications to third parties, including government agencies, constitutes a waiver both as to the disclosed communication and as to other communications relating to the same subject or transaction (often referred to as "opening the door"). If otherwise privileged communications are utilized in a manner inconsistent with maintaining their confidentiality, the privilege may be deemed to have been waived. As a general rule,

26 ¶3.09[B][1] Restrictions, reprinted with the publisher’s permission from the CCH Expert Treatise Library: Tax Practice & Procedure published by CCH, a Wolters Kluwer business. 27 United States v. Ackert, 169 F. 3d 136 (2d Cir. 1999). 28 I.R.M. 4.11.55.2.3.1 (04-20-2010). 29 ¶3.09[B][2] Requirements reprinted with the publisher’s permission from the CCH Expert Treatise Library: Tax Practice & Procedure published by CCH, a Wolters Kluwer business. 30 I.R.M. 4.11.55.2.3.2 (04-20-2010).

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disclosure of privileged communications to a person outside the attorney-client relationship manifests indifference to confidentiality and waives the protection of the privilege. The primary determination is whether there has been an objective attempt to safeguard the confidential nature of the communications. With respect to "tax advice," pursuant to Code Section 752531

, the same common law protections of confidentiality that apply to communications between a taxpayer and an attorney also apply to communications between a taxpayer and any "federally authorized tax practitioner" to the extent the communication would be considered a privileged communication if it were between a taxpayer and an attorney.

Limitations. The statutory privilege may only be asserted in noncriminal tax matters before the IRS and noncriminal tax proceedings in federal court brought by or against the United States. It does not apply to any other federal or state regulatory agencies or to state tax litigation proceedings (unless the state conforms to this provision)32

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Federally Authorized Tax Practitioners. A "federally authorized tax practitioner" is any individual authorized under federal law to practice before the IRS if the practice is subject to federal regulation under the United States Code, Title 31, Section 33033

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Tax Advice. The term "tax advice" means advice given by an individual with respect to a matter which is within the scope of the individual's authority to practice before the IRS34

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Corporate Tax Shelters. The statutory privilege does not apply to written communications with a representative of a corporation in connection with the promotion of the direct or indirect participation of the corporation in any tax shelter (as defined in Code Section 6662(d)(2)(C)(iii))

35. A "tax shelter" is any partnership, entity, plan, or arrangement, a significant purpose of which is the avoidance or evasion of income tax36

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31 I.R.C. § 7525(a)(1) provides: "With respect to tax advice, the same common law protections of confidentiality which apply to a communication between a taxpayer and an attorney shall also apply to a communication between a taxpayer and any federally authorized tax practitioner to the extent the communication would be considered a privileged communication if it were between a taxpayer and an attorney." 32 I.R.C. § 7525(a)(2). 33 I.R.C. § 7525(a)(3)(A). 34 I.R.C. § 7525(a)(3)(B). 35 I.R.C. § 7525(b). 36 United States v. KPMG, LLP, 316 F. Supp. 2d 30, 35 (D.D.C. 2004) ("nothing in the statute suggests that these nonlawyer practitioners are entitled to privilege when they are doing other than lawyers' work").

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Work Product. The statutory privilege does not extend to a tax practitioner's "work product" in preparing a return or to "communications between a tax practitioner and a client simply for the preparation of a tax return." Unauthorized Practice of Law. The statutory privilege provisions relate only to matters of privileged communications and no inference is to be intended as to whether aspects of federal tax practice covered by the statutory privilege constitute the authorized or unauthorized practice of law under various state laws.

Practice Pointer! Know the difference between client confidential communications and protected communications. While all communications with a client may be confidential, if those communications take place while you are preparing a tax return the presumption is that it occurred while gathering information for the purpose of disclosure. If IRS determines you have information they want, those communications are likely to not be protected. Be careful not to “listen too long” before you advise your client to seek legal counsel with sensitive matters.

Comparison of Attorney vs. Non-attorney Privilege37

37 Exhibit 3-1Comparison of Attorney vs. Federally Authorized Tax Practitioner Privilege reprinted with the publisher’s permission from the CCH Expert Treatise Library: Tax Practice & Procedure published by CCH, a Wolters Kluwer business

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Incompetence and Disreputable Conduct38

Any practitioner or enrollee may be disbarred or suspended from practice before the IRS, or censured, for incompetence and/or disreputable conduct. Incompetence and disreputable conduct for which a practitioner may be sanctioned under § 10.50 includes, but is not limited to --

(1) Conviction of any criminal offense under the Federal tax laws.

(2) Conviction of any criminal offense involving dishonesty or breach of trust.

(3) Conviction of any felony under Federal or State law for which the conduct involved renders the practitioner unfit to practice before the Internal Revenue Service.

(4) Giving false or misleading information, or participating in any way in the giving of false or misleading information to the Department of the Treasury or any officer or employee thereof, or to any tribunal authorized to pass upon Federal tax matters, in connection with any matter pending or likely to be pending before them, knowing the information to be false or misleading. Facts or other matters contained in testimony, Federal tax returns, financial statements, applications for enrollment, affidavits, declarations, and any other document or statement, written or oral, are included in the term "information."

(5) Solicitation of employment as prohibited under § 10.30, the use of false or misleading representations with intent to deceive a client or prospective client in order to procure employment, or intimating that the practitioner is able improperly to obtain special consideration or action from the Internal Revenue Service or any officer or employee thereof.

(6) Willfully failing to make a Federal tax return in violation of the Federal tax laws, or willfully evading, attempting to evade, or participating in any way in evading or attempting to evade any assessment or payment of any Federal tax.

(7) Willfully assisting, counseling, encouraging a client or prospective client in violating, or suggesting to a client or prospective client to violate, any Federal tax law, or knowingly counseling or suggesting to a client or prospective client an illegal plan to evade Federal taxes or payment thereof.

(8) Misappropriation of, or failure properly or promptly to remit, funds received from a client for the purpose of payment of taxes or other obligations due the United States.

(9) Directly or indirectly attempting to influence, or offering or agreeing to attempt to influence, the official action of any officer or employee of the Internal Revenue Service by the use of threats, false accusations, duress or coercion, by the offer of any special inducement or promise of an advantage, or by the bestowing of any gift, favor or thing of value.

38 Subpart C -- Sanctions for Violation of the Regulations 31 C.F.R. § 10.51 Incompetence and disreputable conduct.

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(10) Disbarment or suspension from practice as an attorney, certified public accountant, public accountant or actuary by any duly constituted authority of any State, territory, or possession of the United States, including a Commonwealth, or the District of Columbia, any Federal court of record or any Federal agency, body or board.

(11) Knowingly aiding and abetting another person to practice before the Internal Revenue Service during a period of suspension, disbarment or ineligibility of such other person.

(12) Contemptuous conduct in connection with practice before the Internal Revenue Service, including the use of abusive language, making false accusations or statements, knowing them to be false or circulating or publishing malicious or libelous matter.

(13) Giving a false opinion, knowingly, recklessly, or through gross incompetence, including an opinion which is intentionally or recklessly misleading, or engaging in a pattern of providing incompetent opinions on questions arising under the Federal tax laws. False opinions described in this paragraph (a)(13) include those which reflect or result from a knowing misstatement of fact or law, from an assertion of a position known to be unwarranted under existing law, from counseling or assisting in conduct known to be illegal or fraudulent, from concealing matters required by law to be revealed, or from consciously disregarding information indicating that material facts expressed in the opinion or offering material are false or misleading. For purposes of this paragraph (a)(13), reckless conduct is a highly unreasonable omission or misrepresentation involving an extreme departure from the standards of ordinary care that a practitioner should observe under the circumstances. A pattern of conduct is a factor that will be taken into account in determining whether a practitioner acted knowingly, recklessly, or through gross incompetence. Gross incompetence includes conduct that reflects gross indifference, preparation which is grossly inadequate under the circumstances, and a consistent failure to perform obligations to the client.

(14) Willfully failing to sign a tax return prepared by the practitioner when the practitioner's signature is required by the Federal tax laws unless the failure is due to reasonable cause and not due to willful neglect.

(15) Willfully disclosing or otherwise using a tax return or tax return information in a manner not authorized by the Internal Revenue Code, contrary to the order of a court of competent jurisdiction, or contrary to the order of an administrative law judge in a proceeding instituted under § 10.60.

(16) Willfully failing to file on magnetic or other electronic media a tax return prepared by the practitioner when the practitioner is required to do so by the Federal tax laws unless the failure is due to reasonable cause and not due to willful neglect.

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(17) Willfully preparing all or substantially all of, or signing, a tax return or claim for refund when the practitioner does not possess a current or otherwise valid preparer tax identification number or other prescribed identifying number.

(18) Willfully representing a taxpayer before an officer or employee of the Internal Revenue Service unless the practitioner is authorized to do so pursuant to this part.

Sanctions for Violation of the Regulations39

The Secretary of the Treasury, or delegate (Director, Office of Professional Responsibility), after notice and an opportunity for a proceeding, may censure, suspend, or disbar any practitioner from practice before the Internal Revenue Service if the practitioner is shown to be incompetent or disreputable (within the meaning of § 10.51), fails to comply with any regulation in this part (under the prohibited conduct standards of § 10.52), or with intent to defraud, willfully and knowingly misleads or threatens a client or prospective client. Censure is a public reprimand.

The Director, OPR, may after notice and an opportunity for a proceeding, may impose a monetary penalty on any practitioner who engages in conduct subject to sanction under paragraph (a) of this section. If the practitioner subject to sanctions listed above was acting on behalf of an employer or any firm or other entity in connection with the conduct giving rise to the penalty, OPR may impose a monetary penalty on the employer, firm, or entity if it knew, or reasonably should have known, of such conduct.

Part II - You Must be Authorized to Represent Your Client40

The Purpose of an Authorization. There are two major reasons for granting a third party authorization for the purpose of resolving federal tax issues. The first reason for granting an authorization is for the purpose of allowing a person to represent taxpayers in matters before the IRS. This authorization is a "Power of Attorney" and is submitted using Form 2848. The second reason is to allow another person, an appointee, to exchange information with the IRS for the taxpayer’s benefit. Form 8821, Tax Information Authorization (TIA), is submitted to authorize an appointee, including but not limited to, legal, tax and accounting firms, to inspect and/or receive confidential tax account information including copies of notices and account transcripts. In lieu of Form 8821, an Oral Tax Information Authorization can be placed with Practitioner Priority Services (1.866.860.4259).

39 31 C.F.R. § 10.50 Sanctions 40 Much of this content is taken from Pub. 947 (Rev. 05/2012), Practice Before the IRS and Power of Attorney http://www.irs.gov/publications/p947/ar02.html

http://www.irs.gov/publications/p947/ar02.html�

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When Is a Power of Attorney Not Required? A power of attorney is not required when the third party is not dealing with the IRS as your representative. The following situations do not require a power of attorney.

• Providing information to the IRS. • Authorizing the disclosure of tax return information through Form 8821, Tax Information

Authorization, or other written or oral disclosure consent. • Allowing the IRS to discuss return information with a third party via the checkbox

provided on a tax return or other document. • Allowing a tax matters partner or person (TMP) to perform acts for the partnership. • Allowing the IRS to discuss return information with a fiduciary.

A Power of Attorney is the written authorization an individual uses for the purpose of allowing a tax professional (attorney, CPA, enrolled agent, etc.) to represent and act on their behalf, including negotiating with the IRS and arguing facts or law. Typically, the individual is requesting the practitioner perform at least one of the following acts on their behalf.

1. Represent you at a meeting with the IRS. 2. Prepare and file a written response to the IRS.

If the authorization is not limited, the individual can generally perform all acts the individual can perform. [Note that the authority granted to a registered tax return preparer or an unenrolled preparer is limited.] Form 2848, Power of Attorney and Declaration of Representative, is used to appoint a representative to act on behalf of another before the IRS. This form is only used to name a person to represent that is recognized to practice before the IRS. Persons recognized to practice before the IRS are listed under Part II, Declaration of Representative, of Form 2848. Non-IRS powers of attorney. The IRS will accept a non-IRS power of attorney, but a completed transmittal Form 2848 must be attached in order for the power of attorney to be entered on the Centralized Authorization File (CAF) system.

Acts performed under a Power of Attorney. Any representative, other than a RTRP or unenrolled return preparer, can usually perform the following acts.

1. Represent a taxpayer before any office of the IRS. 2. Sign an offer or a waiver of restriction on assessment or collection of a tax deficiency, or

a waiver of notice of disallowance of claim for credit or refund. 3. Sign a consent to extend the statutory time period for assessment or collection of a tax. 4. Sign a closing agreement.

Signing a taxpayer’s return. The representative named under a power of attorney is not permitted to sign the income tax return unless:

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1. The signature is permitted under the Internal Revenue Code and the related regulations (see Regulations section 1.6012-1(a)(5)).

2. The taxpayer specifically authorizes this in their power of attorney.

For example, the regulation permits a representative to sign a return if the taxpayer is unable to sign the return due to:

• Disease or injury • Continuous absence from the United States (including Puerto Rico) for a period of

at least 60 days prior to the date required by law for filing the return • Other good cause if specific permission is requested of and granted by the IRS

When a return is signed by a representative, it must be accompanied by a power of attorney (or copy) authorizing the representative to sign the return. For more information, see the Form 2848 instructions. Limitation on substitution or delegation. A recognized representative can substitute or delegate authority under the power of attorney to another recognized representative only if the act is specifically authorized on the power of attorney. After a substitution has been made, only the newly recognized representative will be recognized as the taxpayer's representative. If a delegation of power has been made, both the original and the delegated representative will be recognized by the IRS to represent. Disclosure of returns to a third party. The representative cannot execute consents that will allow the IRS to disclose tax return or return information to a third party unless specifically delegated this authority to the representative on line 5 of Form 2848. Incapacity or incompetency. A power of attorney is generally terminated if the taxpayer becomes incapacitated or incompetent. The power of attorney can continue, however, in the case of incapacity or incompetency if such is authorize this on line 5 “Other” of the Form 2848 and if a non-IRS durable power of attorney meets all the requirements for acceptance by the IRS. Preparation of Form — Helpful Hints

The following hints are summaries of some of the line-by-line instructions for Form 2848.

• Line 1—Taxpayer information. If a joint return is involved, the husband and wife each file a separate Form 2848 if they both want to be represented. If only one spouse wants to be represented in the matter, that spouse files a Form 2848.

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Line 2—Representative(s). Only individuals may be named as representatives. If the representative has not been assigned a CAF number, enter “None” on that line and the IRS will issue one. If the representative's address or phone number has changed since the CAF number was issued, check the appropriate box. Enter the representative's fax number if available. Authorizations regarding tax matters are recorded on the Centralized Authorization File (CAF).

If more than three representatives are to be named, attach additional Form(s) 2848. The IRS can send copies of notices and communications to two representatives.

Practice Pointer! The boxes on line 2 of the Form 2848 must be checked if IRS is requested to routinely send copies of notices and communications to the representatives. If the boxes are not checked, the representatives will not routinely receive copies of notices and communications.

• Line 3—Tax matters. Provide type of tax matter, i.e., income, employment, tax form number, i.e., 1040, 941, and year(s) or period(s). Any tax years or periods that have already ended as of the date taxpayer signs the power of attorney may be listed. Taxpayers may also include on a power of attorney only future tax periods that end no later than 3 years after the date the power of attorney is received by the IRS. The 3 future periods are determined starting after December 31 of the year the power of attorney is received by the IRS. Avoid general references such as “all years” or “all taxes.” A dash is acceptable in lieu of the word through, i.e. 2000-2009. Up to 3 future years may be submitted on Form 2848; however, an Unenrolled Return Preparer cannot submit future year(s) or period(s). For jointly filed authorizations, when requesting tax years, the taxpayer’s must have filed a joint return, i.e., tax years requested 2000-2009, for all tax years the taxpayer’s must have filed a joint return.

• Line 4—Specific use not recorded on Centralized Authorization File (CAF). Certain matters cannot be recorded on the CAF system. Examples of such matters include, but are not limited to, the following.

o Requests for a private letter ruling or technical advice. o Applications for an employer identification number (EIN). o Claims filed on Form 843, Claim for Refund and Request for Abatement. o Corporate dissolutions. o Requests for change of accounting method. o Requests for change of accounting period. o Applications for recognition of exemption under sections 501(c)(3), 501(a), or

521 (Forms 1023, 1034, or 1028). o Request for a determination of the qualified status of an employee benefit plan

(Forms 5300, 5307, or 5310). o Application for Award for Original Information under section 7623.

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o Voluntary submissions under the Employee Plans Compliance Resolution System (EPCRS).

o Freedom of Information Act requests.

If the tax matter described on line 3 of Form 2848 concerns one of these matters specifically, check the box on line 4. If this box is checked, the representative should mail or fax the power of attorney to the IRS office handling the matter. Otherwise, the representative should bring a copy of the power of attorney to each meeting with the IRS.

The Centralized Authorization File (CAF) - Authorization Rules

A power of attorney will be recognized after it is received, reviewed, and determined by the IRS to contain the required information. However, until a power of attorney is entered on the CAF system, IRS personnel may be unaware of the authority the representative has been granted. Therefore, during this interim period, IRS personnel may request that the representative bring a copy to any meeting with the IRS. The power of attorney is not considered valid until all required information is entered on the document. The individual(s) named as representative(s) will not be recognized to practice before the IRS on the taxpayer’s behalf until the document is complete and accepted by the IRS.

What is a CAF number? This number represents a file that contains information regarding the type of authorization that taxpayers have given representatives for the various modules within their accounts.

A CAF number is assigned to a tax practitioner when a Form 2848 or Form 8821 is filed. This number represents a file that contains information regarding the type of authorization that taxpayers have given representatives for the various modules within their accounts. If you are a tax practitioner who has previously been assigned a CAF number but cannot locate the number, call the Practitioner Priority Service, who will mail your CAF number to you.

CAF Unit Addresses, Fax Numbers, and State Mapping

General Rule: All states west of the Mississippi process authorizations in Ogden; all states east of the Mississippi process authorizations in Memphis. Exceptions: Louisiana and Arkansas process in Memphis; international authorizations in Philadelphia.

Ogden (OAMC) 1973 N. Rulon White Blvd. M/S 6737, Ogden, UT 84404 New Fax: (855) 214-7522 Old Fax: (801) 620-4249 (still operational through 10/01/2012)

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Memphis (MAMC) PO Box 268, Stop 8423 Memphis, TN 38118 New Fax: (855) 214-7519 Old Fax: (901) 546-4115 (still operational through 10/01/2012) Philadelphia (PAMC) International CAF MS 3-E08.123 2970 Market Street Philadelphia, PA 19104 Fax: (267) 941-1017

Common Reasons for Power of Attorney (POA) Rejection41

• Missing taxpayer/representative identification information.

• Non-specific tax matter identification (“All Years” or “All future periods” are not acceptable.)

• Missing prior Form 2848 to retain the previous representation. • Missing taxpayer signature and/or date or title of officer of the business/company, if

applicable. • Missing Designation, Jurisdiction, and/or Enrollment Number or representative signature

and/or date. • Missing taxpayer/representative signature and/or date for revocation or withdrawal. • Unenrolled Return Preparer (H designation) did not prepare the tax return and/or the

return is not under Examination.

Dated Signature Required

The dated signature is an important factor in the validity of a third party authorization. The taxpayer and the representative must sign and date a Power of Attorney (POA); the taxpayer must sign and date the Taxpayer Information Authorization (TIA).

As a general rule for POAs, the signatures must be substantially contemporaneous (close in time) to evidence the taxpayer's current and binding intent. The sequencing of the signature dates is considered grounds for returning an authorization to the practitioner.

Effective currently, if an authorization is missing an essential element (clear identification of the taxpayer and third party, specified tax matters and taxpayer's dated signature), the authorization will be returned directly to the taxpayer by mail unless contact can be established with the taxpayer by a phone or fax number.

41 IRS Publication 4245 (Rev. 3-2011) Power of Attorney

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There is no restriction regarding the taxpayer signature date versus the IRS received date for processing Forms 2848 and Forms 8821 recorded on the Centralized Authorization File (CAF).

There are three CAF Units which process authorizations, as listed previously. They also process "revocations" if you choose to terminate the authorization. Revocations must be in writing and should include your name, address and social security number, identify the representative or appointee and the specific tax matter (s) and period(s).

Other authorization products (besides Forms 2848, 8821 and 706)42

A number of third party authorization products are available to the taxpayers. They include, but are not limited to:

:

o The Third Party Designee (Checkbox) Authorization o The Oral Disclosure Consent (ODC) o The Oral Tax Information Authorization (OTIA)

The Third Party Designee (Checkbox) Authorization appears on individual income tax forms in the 1040 series (except amended returns) just above the signature line. It is also available on business tax returns in the 94X series, and on Forms 720, 1041, 1120, 2290 and CT-1 tax forms just above the signature line. The Checkbox Authorization is submitted with the filing of a tax return and for the purpose of resolving return processing, payment or refund issues. The authorization will be recorded when IRS receives and begins processing the tax return. No other action is required; the authorization is recorded directly onto the account of the taxpayer. The designee's name and phone number and a self-selected 5-digit PIN, which the designee will have to confirm when requesting information from the IRS, are provided on the return. Third Party Designee (Checkbox) Authorization is not recorded on the CAF.

Authorization covers any issue arising within the life of the authorization. The Third Party Designee (Checkbox) Authorization does not allow the designee to "represent the taxpayer." The authorization is specific to the tax return upon which the designation appeared. The designee can exchange verbal information with the IRS on return processing issues and with regard to refunds and payments related to the return. The authorization expires one year from the due date of the tax return.

As a TIA, the Third Party Designee (Checkbox) Authorization can co-exist with a Power of Attorney for the same tax and tax period.

42 Public Law 104-168, commonly known as the Taxpayer Bill of Rights II, was signed into law on July 30, 1996, deleted the requirement that a taxpayer's request for disclosure to a third party be in writing. The change was not possible until Temporary Regulation 301-6103(c)-IT, effective January 11, 2001, which authorized the IRS to accept non-written requests or consents, authorizing the disclosure of return information to third parties assisting taxpayers resolve federal tax related matters. The temporary regulation was made permanent by 26 CFR 301.6103(c)-1(c).

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The Oral Disclosure Consent (ODC) allows the taxpayer to verbally establish an authorization for all types of open tax accounts, after receiving an IRS notice. The ODC can be submitted by the taxpayer calling 1.800.829.1040, or when present with the practitioner, through Practitioner Priority Support. The appointee can be any third party, including friends and family, and is allowed to respond to the issue raised in the notice, to ask questions and provide information. The ODC does not allow the appointee to receive any written information and does not allow the appointee to represent the taxpayer.

The authorization is valid until the tax related issue is resolved. If the taxpayer receives subsequent notices from the IRS, he/she must establish another authorization, even if it is for the same appointee. The ODC can co-exist with Power of Attorney for the same tax and tax period. This authorization is not recorded on the CAF but, instead, directly on the taxpayer's account.

As mentioned previously, the Oral Tax Information Authorization (OTIA) allows the taxpayer the ability to grant a third party, including friends and family, the authority to receive and inspect both written and verbal tax account information. The OTIA (or Form 8821) is used when an examination of written account information is needed and the issues are related to the tax period versus a specific notice issue. The appointee must either have a CAF number or will be assigned a CAF number. The appointee may receive copies of notices and transcripts, on open issues, but not IRS refund checks.

The taxpayer (and typically at the same time, their representative) contacts the IRS and expresses their desire to establish an OTIA. The call is transferred to one of three CAF Units who will input the authorization directly onto the CAF while the taxpayer is on the phone. The taxpayer should be prepared to identify the appointee, provide the appointee's CAF number (if available), and the tax and tax period with which the taxpayer is seeking assistance. Once the authorization is recorded to the CAF, the appointee may call in, identify himself and begin sharing and exchanging information with the IRS.

It is not necessary that the taxpayer receive a notice prior to establishing an OTIA. An OTIA may co-exist with a Power of Attorney and is not superseded or revoked by the submission of a new TIA. Therefore, when the tax account issue is resolved, a decision should be made by the taxpayer and the appointee whether or not to submit a revocation of the authorization in writing.

Retention/Revocation of Prior Power(s) of Attorney

A newly filed power of attorney concerning the same matter will revoke a previously filed power of attorney. However, the new power of attorney will not revoke the prior power of attorney if it specifically states it does not revoke such prior power of attorney and either of the following is attached to the new power of attorney.

• A copy of the unrevoked prior power of attorney, or

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• A statement signed by the taxpayer listing the name and address of each representative authorized under the prior unrevoked power of attorney.

Note. The filing of Form 2848 will not revoke any Form 8821 that is in effect.

Withdrawal of Representative

If a representative wants to withdraw from representation, send a copy of the previously executed power of attorney to the IRS CAF unit and also provide it to any IRS representative with which you have been working. The copy of the power of attorney must have a current signature of the representative under the original signature on line 9. Write “WITHDRAW” across the top of Form 2848. If you do not have a copy of the power of attorney you want to withdraw, send a statement to the IRS. The statement of withdrawal must indicate that the authority of the power of attorney is revoked, list the tax matters and periods, and must be signed and dated by the representative. (If the taxpayer is revoking, list the name and address of each recognized representative whose authority is revoked. When the taxpayer is completely revoking authority, the form should state “remove all years/periods” instead of listing the specific tax matters, years, or periods.) If the representative is withdrawing, list the name, TIN, and address (if known) of the taxpayer.

To revoke a specific use power of attorney, send the power of attorney or statement of revocation to the IRS office handling your case, using the above instructions.

Exhibit: Third Party Authorizations (IRS Pub 4019 Rev 3/2011)

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A Power of Attorney is valid until revoked. It may be revoked by the taxpayer or withdrawn by the representative or may be superseded by the filing of a new power of attorney for the same tax and tax period. If a Power of Attorney is on the CAF and the taxpayer desires to add another representative and not replace the representative already on the record, Line 8 of Form 2848

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must be checked. Care should be taken to ensure an authorization is revoked when it has accomplished its purpose.

A Tax Information Authorization, whether submitted via Form 8821 or orally, is valid until revoked. It may be revoked by the taxpayer or withdrawn by the representative. It is not superseded by the filing of a new Form 8821 or the granting of a new OTIA and can co-exist with a Power of Attorney.

Exhibit: To obtain a list of all clients on the CAF for which you are authorized to represent

o o o o o o o o o o o o o o o o o o o o o o

FOIA Request for CAF Representative/Client Listing

Practitioner or company name Practioner or company address

Phone number (optional)

Date Internal Revenue Service Mail Stop 7000 MIL 211 W Wisconsin Ave Milwaukee, WI 53203-2213 SE:S:C&L:GLD:D (Fax) 414-231-2766 Dear Chief, Disclosure: This is a request under the Freedom of Information Act.

I request that a copy of the CAF Representative/Client Listing be provided to me. I do not wish to inspect the documents first.

In order to determine my status for the applicability of fees, you should know that I am an “Other” requester seeking information for non-commercial or personal use. I am a tax professional and my CAF number is XXXXXXX. (This is not your Enrolled Agent Number)

As proof of identity I am including a photocopy of my driver’s license, a notarized statement or a sworn statement, as defined in the FOIA Guide – To Establish Proof of Identity and Right to Access.

Send listing as a paper document. I am willing to pay copying fees for this request up to a maximum of $XX (fill in amount). If you estimate that the fees will exceed this limit, please inform me first. (No charge for the first 100 pages and $.20 per page thereafter).

__ Send listing on CD as a text file using Windows NotePad.

Thank you for your consideration of this request.

Sincerely,

[signature]

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Part III – Overview of the Internal Revenue Service The IRS is a bureau of the Department of the Treasury and one of the world's most efficient tax administrators. In FYE 2011, the IRS collected more than $2.414 trillion in revenue and processed more than 234 million tax returns43

. [The IRS spent just 51 cents for each $100 it collected in FY 2011.]

Statutory Authority The IRS is organized to carry out the responsibilities of the secretary of the Treasury under section 7801 of the Internal Revenue Code. The secretary has full authority to administer and enforce the internal revenue laws and has the power to create an agency to enforce these laws. The IRS was created based on this legislative grant. Section 7803 of the Internal Revenue Code provides for the appointment of a commissioner of Internal Revenue to administer and supervise the execution and application of the internal revenue laws. Main Office: Internal Revenue Service 1111 Constitution Ave., NW Washington, DC 20224 The IRS Mission Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. In the United States, the Congress passes tax laws and requires taxpayers to comply. The taxpayer’s role is to understand and meet his or her tax obligations. The IRS role is to help the large majority of compliant taxpayers with the tax law, while ensuring that the minority who are unwilling to comply pay their fair share. Today's IRS Organization The IRS Restructuring and Reform Act of 1998 prompted the most comprehensive reorganization and modernization of IRS in nearly half a century. The IRS reorganized itself to closely resemble the private sector model of organizing around customers with similar needs.

43 Source: Table 29, IRS 2011 Data Book

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To support its structure and ensure accountability, the IRS is divided into three commissioner-level organizations: Commissioner Specialized IRS units report directly to the Commissioner’s office. The IRS Chief Counsel also reports to the Treasury General Counsel on certain matters.

• Commissioner, Internal Revenue — Douglas Shulman • Chief of Staff — Jonathan M. Davis • IRS Chief Counsel — William J. Wilkins • Appeals — Chris Wagner, Chief • Taxpayer Advocate Service — Nina E. Olson, National Taxpayer Advocate • Equity, Diversity and Inclusion — Monica Davy, Executive Director • Research, Analysis and Statistics — Rosemary Marcuss, Director • Communications and Liaison — Frank Keith, Chief • Office of Compliance Analytics — Dean R. Silverman, Senior Advisor to the

Commissioner (Compliance Analytics Initiatives)

Deputy Commissioner for Services and Enforcement The Deputy Commissioner reports directly to the Commissioner and oversees the four primary operating divisions and other service and enforcement functions:

• Deputy Commissioner for Services and Enforcement — Steven T. Miller • Wage and Investment Division — Peggy Bogadi, Commissioner • Large Business and International Division — Heather Maloy, Commissioner • Small Business/Self Employed Division — Faris Fink, Commissioner • Tax Exempt and Government Entities Division — Joseph H. Grant, Acting

Commissioner • Criminal Investigation — Richard Weber, Chief • Return Preparer Office — David R. Williams, Director • Office of Professional Responsibility — Karen L. Hawkins, Director • Whistleblower Office — Stephen A. Whitlock, Director

Deputy Commissioner for Operations Support The Deputy Commissioner reports directly to the Commissioner and oversees the integrated IRS support functions, facilitating economy of scale efficiencies and better business practices:

• Deputy Commissioner for Operations Support — Beth Tucker • Chief Technology Officer — Terence V. Milholland • Agency-Wide Shared Services — Dave Grant, Chief • Human Capital Officer — David Krieg, Chief

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• Chief Financial Officer — Pamela LaRue • Office of Privacy, Governmental Liaison and Disclosure — Rebecca A. Chiaramida,

Director

At-a-Glance: IRS Divisions and Principal Offices Wage & Investment Division At-a-Glance Mission: To provide top quality service by helping taxpayers understand and comply with applicable tax laws and to protect the public interest by applying the tax law with integrity and fairness to all. Strategic Priorities The Wage and Investment Division supports the IRS' strategic goals and objectives through initiatives that:

• Address the increasing demand for timely, accurate service, and reducing taxpayer burden

• Address the increasing demand for electronic products and services • Improve enforcement programs to reduce the risks of non-compliance • Balance compliance and outreach activities to enhance delivery of EITC initiatives • Leverage new technology and reengineer business processes to maximize delivery of new

business services • Ensure human capital strategies contribute to quality and productivity • Continue to evaluate the tax administration support needs of individual taxpayers as part

of its overall management of their portfolio of services and delivery channels • Increase preventive and corrective actions to reduce vulnerability to identity theft • Balance compliance and outreach activities to ensure cost effective delivery of the health

coverage tax credit Headquarters: 401 W. Peachtree Street, NW Atlanta, GA 30308 Taxpayer Profile

• Most pay taxes through withholdings • More than half prepare their own returns • Most interact with the IRS once a year • Most receive refunds

W&I Headquarters provides overall strategic and operational direction and manages internal support processes. The Headquarters Operations and functional operations work together to

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manage the full cycle of interaction with W&I customers. They have the authority, responsibility and expertise to oversee current operations and improve business practices and strategies. The headquarters of W&I provides only those services that cannot be provided practically at lower levels of the organization. This philosophy reflects the IRS organizational direction of moving accountability closer to the front line. In addition to the key W&I offices listed below, key operations in W&I headquarters include:

• Strategy and Finance • Equal Employment Opportunity and Diversity • Communications and Liaison • Business Modernization Office

Key W&I offices include: Customer Assistance, Relationships and Education (CARE) provides customers with the information, support and assistance they need to understand and fulfill their tax obligations. CARE is focused on educating and assisting taxpayers before they file their returns, assisting in filing returns and offering face-to-face assistance after filing through a three-pronged strategic approach:

• Media and Publications — This office focuses on meeting customer needs through the development of plain language notices, forms and publications, which facilitate tax administration and ease of compliance by taxpayers, and to supply media production services to customers.

• Stakeholder Partnerships, Education and Communication (SPEC) — This office provides assistance to W&I customers by building and maintaining partnerships with key stakeholder groups. This unit also is responsible for developing educational materials for use in pre-filing, filing and post-filing customer interactions and developing products for use in marketing and working with local and national media to ensure that our customers are aware of tax law changes and IRS services.

• Field Assistance — This office owns and manages the Taxpayer Assistance Centers located throughout the country. Field Assistance provides comprehensive face-to-face assistance to taxpayers as well as assistance through telephone and written correspondence.

Customer Account Services (CAS) is responsible for taxpayer relationships through filing, including processing submissions and payments; providing taxpayers with information on the status of their returns and resolving the majority of problems and inconsistencies. CAS provides trouble-free filing, faster refunds, and efficient resolution of inquiries and issues. It is composed of the following offices:

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• Submission Processing processes tax returns, related documents and payments at seven processing centers — Andover, Atlanta, Austin, Cincinnati, Fresno, Kansas City and Ogden.

• Accounts Management responds to taxpayer inquiries for advice on a variety of tax law and procedural questions, account inquiries and adjustments, and responses to notices that are received via the telephone, correspondence and e-mail at 25 Account Management sites.

• Joint Operations Center (JOC) provides service, support and technology for Operating Divisions and Functional Organizations to achieve their desired service levels for all telephone, correspondence and electronic media inquiries within agreed resource and staffing parameters.

Compliance assists taxpayers in the determination and fulfillment of their tax obligations by providing accurate and consistent application of the tax law and by using a risk-based approach to exam and collection. It is supported by the following functions:

• Filing & Payment Compliance carries out strategies pertaining to Collection programs in coordination with the filing process, education, outreach and assistance to address the needs of taxpayers.

• Reporting Compliance carries out strategies pertaining to Examination programs while balancing the objectives of each and ensures the appropriate integrated mechanisms are in place to implement and deliver programs.

Return Integrity and Correspondence Services (RICS) is comprised of organizations that strengthen revenue protection and pre-refund compliance, administer refundable credits and provide oversight of content for all notices and letters sent to taxpayers.

• Accounts Management Taxpayer Assurance Program (AMTAP) works in partnership with the Pre-Refund Program (PRP) to develop and carry out strategies on detection, resolution and prevention to resolve account concerns before the issuance of improper refunds.

• Earned Income Tax Credit (EITC) improves the administration of the EITC through an approach that encourages eligible taxpayers to apply for the credit and reduces the number of claims paid in error. The office also includes PRP, which provides strategic and operational direction to pre-refund compliance functions across the IRS.

• Health Coverage Tax Credit (HCTC) helps eligible taxpayers pay their health insurance premiums by informing potentially eligible taxpayers about the HCTC, enrolling eligible applicants into the program and making payments to health plan administrators on their behalf.

• Office of Taxpayer Correspondence (OTC) is the centralized hub for comprehensive correspondence services providing consistency, quality and plain-language for notices

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and letters with the goal of helping taxpayers take the appropriate action to resolve their tax issues.

Small Business/Self-Employed Division At-a-Glance Mission: Help small business and self-employed taxpayers understand and meet their tax obligations, while applying the tax law with integrity and fairness to all. Strategic Priorities

• Address the Underreporting Tax Gap • Address the Underpayment Tax Gap • Address the Nonfiling Tax Gap • Improve Service to Our Customers: Improve Business Processes and Systems; Reduce

Burden; Enhance Stakeholder Relations • Develop Human Capital to: Address Strategies; Promote Productivity; Improve

Employee Engagement Headquarters: SB/SE Headquarters 5000 Ellin Road Lanham, MD 20706 Leadership Team: Faris Fink, Commissioner Ruth Perez, Deputy Commissioner Taxpayer Profile:

o Approximately 57 million taxpayers. o About 41 million self-employed persons. o About 9 million small businesses with assets of less than $10 million. o About 7 million filers of employment, excise, estate and gift returns.

The SB/SE Division will serve this taxpayer segment through five organizations:

o Collection – The mission of Collection is to collect delinquent taxes and secure delinquent tax returns.

o Compliance Services Campus Operations – This division oversees operations of the Brookhaven, Philadelphia, Cincinnati, Memphis and Ogden Campuses.

o Examination – It is the function of Examination Division to help taxpayers understand and meet tax responsibilities and apply the tax law with integrity and fairness through Field and Office Audit examinations.

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o Specialty Taxes – Currently there are four market segments for which this division has responsibility. They are Employment Tax, Excise Tax, Estate and Gift Tax and International Tax issues.

o Communications and Stakeholder Outreach (CSO) – CSO's mission is to develop and deliver integrated strategic communications and educational products to employees and taxpayers and to our key partners in tax administration including practitioners and industry groups.

The Small Business/Self-Employed Division will serve both of the following types of taxpayers:

o Individuals filing Form 1040 (U.S. Individual Income Tax Return), Schedules C, E, F or Form 2106 (Employee Business Expenses)

o All other businesses with assets under $10 million Comparison of Small Business/Self-Employed (SB/SE) customers to Large Business & International (LB&I) customers: SB/SE

o Small businesses (part-time, start-ups) o Small businesses without employees (service providers, contractors) o Small businesses with employees o Taxpayers with rental properties o Taxpayers with farming businesses o Individuals investing in businesses (partnerships, S-Corps) o Corporations, S-Corporations, & Partnerships with assets under $10M o Approximately 55 million customers

LB&I

• All 1120 and 1120-S corporations and 1065 partnerships with assets $10 million or more • Approximately 210,000 customers

Special Situations Some businesses may meet the under $10 million asset test for SB/SE yet be more like a large or midsize business in every other way. These businesses may need the technical expertise of an international examiner, engineer or appraiser. In these situations, the business may be serviced by the Large and Mid-Size Business Division. Other businesses may have assets over $10 million yet be more like a small business. These customers may be serviced by the Small Business/Self-Employed Division.

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Over time, IRS expects to develop a comprehensive set of criteria to ensure that the servicing of particular businesses reflects the technical merits of the tax return and the best interests of the business taxpayer. Large Business & International Division At-a-Glance The Large Business & International (LB&I) Division serves corporations, subchapter Ss, and partnerships with assets greater than $10 million. These businesses employ a large number of employees, deal with complicated issues involving tax law and accounting principles, and conduct business in an expanding global environment. LB&I is organized along five industries and one examination support function.

o Communications, Technology, and Media o Financial Services o Heavy Manufacturing and Transportation o Natural Resources and Construction o Retailers, Food, Pharmaceuticals and Healthcare o Global High Wealth o Field Specialists

Strategic Initiatives:

o Abusive Tax Avoidance Transactions — Combat abusive tax avoidance transactions (ATAT) by providing early-investing guidance, addressing shelters at the promoter level, and increasing the strength of ATAT issue development.

o Compliance Risk — Identify and address LMSB compliance risks for the increasingly global LB&I taxpayer.

o Re-engineering and Issue Management — Re-engineer and institutionalize issue management strategies and compliance processes.

o Compliance Information Management — Use partnerships, processes and legislative changes to provide timely data to effectively assess the reporting compliance risks in the LB&I population.

o Human Capital — Recruit, develop and retain a highly skilled and satisfied workforce. The Large Business and International (LB&I) Division is led by:

• Heather C. Maloy, LB&I Commissioner • Paul DeNard, LB&I Deputy Commissioner (Operations) • Michael Danilack, LB&I Deputy Commissioner (International)

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Tax Exempt & Government Entities Division At-a-Glance Mission: To provide TE/GE customers top quality services by helping them understand and comply with applicable tax laws and to protect the public interest by applying the tax law with integrity and fairness to all. TEGE’s Strategic Priorities are aligned with the IRS Strategic Goals:

o Strengthen Enforcement Activities o Advance the Public Interest o Enable a Paperless Environment o Promote Self Guidance, Self Assistance and Self Correction o Enhance Customer Satisfaction o Foster Proactive Partnerships o Employ a Highly Qualified, Diverse, and Motivated Workforce

Customer Profile:

o Approximately three million customers that range from small local community organizations and municipalities to major universities, huge pension funds, state governments, and participants of complex tax exempt bond transactions.

o Pay more than $220 billion in employment tax and income tax withholding o Control $8.2 trillion in assets o Employee Plans taxpayers represent private and public retirement plans with

approximately $4 trillion in assets. o Exempt Organization taxpayers represent more than 1.6 million tax exempt organizations

– including about 400,000 religious organizations – with approximately $2.4 trillion in assets.

o Government Entities taxpayers include outstanding tax exempt bonds with a total value of approximately $1.8 trillion, 88,000 federal, state, and local entities, and over 550 federally recognized Indian tribes.

The Tax Exempt and Government Entities Division was established in late 1999 as part of the Internal Revenue Service's modernization effort. This Division replaces the former Assistant Commissioner (Employee Plans and Exempt Organizations) function, which was established as a result of the Employee Retirement Income Security Act (ERISA) of 1974. The Division is designed to serve the needs of three very distinct customer segments: Employee Plans, Exempt Organizations, and Government Entities. The customers range from small local community organizations and municipalities to major universities, huge pension funds, state governments, Indian tribal governments and participants of complex tax exempt bond transactions. These organizations represent a large economic sector

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with unique needs. Although generally paying no income tax, this sector does pay over $220 billion in employment taxes and income tax withholding and controls approximately $8.2 trillion in assets. Governed by complex, highly specialized provisions of the tax law, this sector is not designed to generate revenue, but rather to ensure that the entities fulfill the policy goals that their tax exemption was designed to achieve. The TE/GE Division was created to address four basic key customer needs: education and communication, rulings and agreements, examination, and customer account services.

• Education and communication efforts will focus on helping customers understand their tax responsibilities with outreach programs and activities tailored to their specific needs.

• Rulings and agreements efforts will provide a strong emphasis on up-front compliance programs, such as the determination, voluntary compliance, and private letter ruling programs.

• Examination initiatives will identify and address non-compliance, through customized activities within each customer segment, and

• Customer Account Services will provide taxpayers with efficient tax filings as well as accurate and timely responses to questions and requests for information.

The Commissioner of the Tax Exempt and Government Entities Division is responsible for the uniform interpretation and application of the Federal tax laws on matters pertaining to the Division's customer base. In addition, the Commissioner provides advice and assistance throughout the Service, to the Department of the Treasury, other government agencies, including state governments and Congressional committees, and maintains a particularly close liaison with the Department of Labor and the Pension Guaranty Corporation. TEGE is Comprised of Three Distinct Business Divisions:

• Employee Plans (EP) • Exempt Organizations (EO) • Government Entities (GE)

Employee Plans (EP) (www.irs.gov/ep) Mission: To provide Employee Plans customers top quality service by helping them to understand and comply with applicable tax laws, and to protect the public interest by applying the tax law with integrity and fairness to all. The EP Activities Cover:

• Employee plans (including the qualification of pension, annuity, profit-sharing, and stock bonus plans, individual retirement arrangements, simplified employee pensions, saving incentive match plans for employees, tax sheltered annuities and IRC 457 plans) and related trusts

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• Tax treatment of participants and their beneficiaries • Deductions for employer contributions and procedural and administrative provisions with

respect to such plans Exempt Organizations (EO) (www.irs.gov/eo) Mission: To provide Exempt Organizations customers top quality service by helping them to understand and comply with applicable tax laws, and to protect the public interest by applying the tax law with integrity and fairness to all. Exempt Organizations Include:

o Organizations exempt from income tax under IRC 501 (including private foundations and organizations described in IRC 170(b)(1)(A)(except clause (v))

o Political organizations described in IRC 527 o Organizations described in IRC 4947(a) o Prepaid legal plans described in IRC 120 o Welfare benefit funds described in IRC 4976

Government Entities (GE) (www.irs.gov/govt) Mission: To provide Government Entities customers top quality service by helping them to understand and comply with applicable tax laws, and to protect the public interest by applying the tax law with integrity and fairness to all. GE Includes:

o Federal, State and Local Governments (www.irs.gov/govts) o Indian Tribal Governments (www.irs.gov/tribes) o Tax Exempt Bonds (www.irs.gov/bonds)

Other principal offices: Office of Chief Counsel The Chief Counsel is appointed by the President of the United States with the advice and consent of the U.S. Senate. As the chief legal advisor to the IRS Commissioner on all matters pertaining to the interpretation, administration and enforcement of the Internal Revenue Laws (as well as all other legal matters) the Chief Counsel provides legal guidance and interpretive advice to the IRS, Treasury and to taxpayers. Taxpayer Advocate Service Mission: As an independent organization within the IRS, the Taxpayer Advocate Service helps taxpayers resolve problems and recommends changes that will prevent the problems. There is at least one in every state, the District of Columbia and Puerto Rico and at every IRS campus.

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Management Team Nina E. Olson, National Taxpayer Advocate Melissa Snell, Deputy National Taxpayer Advocate The Taxpayer Advocate Service is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should. Taxpayers may be eligible for assistance if:

o They are experiencing economic harm or significant cost (including fees for professional representation),

o They have experienced a delay of more than 30 days to resolve their tax issue, or o They have not received a response or resolution to the problem by the date that was

promised by the IRS. The service is free, confidential, tailored to meet the taxpayer's needs and available for businesses as well as individuals. There is at least one local taxpayer advocate in each state, the District of Columbia and Puerto Rico. Because advocates are part of the IRS, they know the tax system and how to navigate it. Taxpayers who qualify will receive personalized service from a knowledgeable advocate who will:

o Listen to the problem, o Help the taxpayer understand what needs to be done to resolve it, and o Stay with the taxpayer every step of the way until the problem is resolved.

Taxpayers who need assistance may contact the Taxpayer Advocate Service by:

o Calling the TAS toll-free case intake line at 1-877-777-4778 or TTY/TTD 1-800-829-4059;

o Calling or writing their local taxpayer advocate, whose address and phone number are listed in the government listings in their local telephone directory, and in Pub. 1546, The Taxpayer Advocate Service of the IRS – How to Get Help With Unresolved Tax Problems;

o Filing Form 911, Application for Taxpayer Assistance Order, with the Taxpayer Advocate Service; or

o Asking an IRS employee to complete Form 911 on their behalf. Form 911 and more information about the Taxpayer Advocate Service is available on the TAS Web site.

Systemic Advocacy The Office of Systemic Advocacy is part of the larger TAS organization. Systemic advocacy means addressing broad issues that impact groups of taxpayers, including both individuals and businesses. These issues:

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o Affect multiple taxpayers; o Are not individual problems or cases; o Require analysis, administrative solutions or legislative changes; and o Involve protecting taxpayer rights, reducing or preventing taxpayer burden, ensuring

equitable treatment of taxpayers or providing essential services to taxpayers. The Office of Systemic Advocacy works within the IRS to resolve issues involving procedures and policies. If a problem requires a legislative solution, the National Taxpayer Advocate may recommend a change in the Annual Report to Congress. Taxpayers, tax professionals and other interested parties can direct systemic issues to TAS via the Internet. Go to the TAS Web site, click on the link “What Is Systemic Advocacy?” and follow the instructions for submitting an issue on the Systemic Advocacy Management System (SAMS). Taxpayers who lack Internet access can call 1-800-TAX-FORM (1-800-829-3676) to obtain the Systemic Advocacy Issue Submission Form (Form 14411), and fax it to 202-622-3125. Remember: systemic issues always affect more than one taxpayer. Low Income Taxpayer Clinics (LITCs) LITCs are independent organizations that provide low income taxpayers with representation in federal tax controversies with the IRS for free or for a nominal charge. The clinics also provide tax education and outreach for taxpayers with limited English proficiency or who speak English as a second language. Pub. 4134, Low Income Taxpayer Clinic List, provides information on clinics by area. Office of Professional Responsibility (OPR) Mission: The Office of Professional Responsibility (OPR) establishes and enforces consistent standards of competence, integrity and conduct for tax professionals (enrolled agents, attorneys, CPAs, and other individuals and groups covered by IRS Circular 230. Strategic Priorities OPR supports the IRS strategy to enhance enforcement of the tax law and to ensure that attorneys, accountants and other tax practitioners adhere to professional standards and follow the law. Program Background The Office of Professional Responsibility provides education and outreach to the tax professional community and administers the enrolled agent exam. To support the IRS' strategic priorities, OPR ensures the integrity and credibility of the American tax system by working through tax professionals and with IRS operating divisions and functions. Circular 230 changes have created a need to increase awareness among tax professionals regarding the consequences of non-

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compliance. This awareness, plus increased enforcement and additional legislation, should help deter non-compliance. Business Objectives To increase the percentage of tax professionals who do adhere to professional standards and follow the law by:

o Establishing procedures to identify and address the most egregious non-compliance cases o Strengthening partnerships with tax professionals o Establishing and communicating standards of conduct for tax practitioners o Establishing and maintaining a system of tax practitioner oversight o Rejuvenating the referral process o Publicizing actions taken to promote the integrity of the system and deter further non-

compliance o Establishing and administering a system of sanctions for tax practitioners who fail to

observe standards of conduct Return Preparer Office (RPO) Mission: To improve taxpayer compliance by providing comprehensive oversight and support of tax professionals. Vision: A community of professional tax practitioners working with the IRS to improve tax administration. Strategic Goals:

• Register and promote a qualified tax professional community • Improve the compliance and accuracy of tax returns prepared by tax preparers • Engage stakeholders to create an environment that fosters compliance and program

improvement Criminal Investigation Mission: Criminal Investigation (CI) serves the American public by investigating potential criminal violations of the Internal Revenue Code and related financial crimes in a manner that fosters confidence in the tax system and compliance with the law. Management: Richard Weber, Chief, Criminal Investigation Overview:

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IRS Criminal Investigation (CI) is comprised of approximately 4,100 employees worldwide, approximately 2,700 of whom are special agents whose investigative jurisdiction includes tax, money laundering and Bank Secrecy Act laws. CI is the Criminal Law Enforcement Arm of the IRS. While other federal agencies also have investigative jurisdiction for money laundering and some bank secrecy act violations, IRS is the only federal agency that can investigate potential criminal violations of the Internal Revenue Code. Compliance with the tax laws in the United States relies heavily on self-assessments of what tax is owed. This is called voluntary compliance. When individuals and corporations make deliberate decisions to not comply with the law, they face the possibility of a civil audit or criminal investigation which could result in prosecution and possible jail time. Publicity of these convictions provides a deterrent effect that enhances voluntary compliance. As financial investigators, CI special agents fill a unique niche in the federal law enforcement community. Today’s sophisticated schemes to defraud the government demand the analytical ability of financial investigators to wade through complex paper and computerized financial records. Due to the increased use of automation for financial records, CI special agents are trained to recover computer evidence. Along with their financial investigative skills, special agents use specialized forensic technology to recover financial data that may have been encrypted, password protected, or hidden by other electronic means. Criminal Investigation’s conviction rate is one of the highest in federal law enforcement. Not only do the courts hand down substantial prison sentences, but those convicted must also pay fines, civil taxes and penalties. Strategic Priorities: The Criminal Investigation strategic plan is comprised of three interdependent programs: Legal Source Tax Crimes; Illegal Source Financial Crimes; and Narcotics Related and Counterterrorism Financial Crimes. These three programs are mutually supportive and encourage utilization of all statutes within CI’s jurisdiction, the grand jury process and enforcement techniques to combat tax, money laundering and currency crime violations. CI must investigate and assist in the prosecution of those significant financial investigations that will generate the maximum deterrent effect, enhance voluntary compliance and promote public confidence in the tax system. Appeals Mission: To resolve tax controversies, without litigation, on a basis which is fair and impartial to both the Government and the taxpayer, and in a manner that will enhance voluntary compliance and public confidence in the integrity and efficiency of the Service.

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Strategic Priorities: o Increase taxpayer awareness of the Appeals process and their rights within the process o Increase taxpayer awareness of alternative dispute resolution programs o Improve our processes to meet customer needs and expectations and to reduce the length

of the Appeals process while spending the right amount of time with each taxpayer o Promote employee productivity, engagement, and satisfaction

Appeals — Continuing the Tradition The Appeals function serves as the administrative forum for any taxpayer contesting an IRS compliance action. It traces its origins to August 1, 1927, when the Commissioner established a Special Advisory Committee to provide an appeal for cases pending before the Board of Tax Appeals, the predecessor to the United States Tax Court. While the organizational structure and name of the Committee has changed over the years, Appeals' mission — to expedite the settlement of tax disputes without formal trial — remains the same. The Appeals function serves as the administrative forum for any taxpayer contesting an IRS compliance action. Appeals encompasses a number of programs, including Alternative Dispute Resolution, Technical Guidance- International, Art Appraisal Services and more. Appeals constantly looks for ways to reduce the length of the Appeals process to better meet taxpayer needs. Traditionally, Appeals held mostly face-to-face conferences. While still available, Appeals encourages telephone or correspondence conferences when they can significantly shorten the overall time of the Appeals process, thereby reducing taxpayer burden. Communications and Liaison Mission: Supports the IRS mission and business objectives using strategic relationship management, communication tools and processes, resolution of issues of mutual concern, and information sharing. Strategic Priorities: Enable IRS business objectives by supporting the operating and functional divisions’ major strategies and operational priorities.

1. Ensure that communications with customers, Congress and stakeholders are consistent and coordinated IRS-wide and integrate stakeholder relationship management in the day-to-day operations of the agency.

2. Ensure a quality work environment that is operationally efficient and effective, including an emphasis on automating business processes.

3. Ensure the appropriate collection, use and protection of information to accomplish IRS business objectives.

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Overview and Services of the C&L Offices: The Communications and Liaison Division (C&L) enables the IRS to achieve its strategic business objectives by integrating communications, partnering activities and information sharing with key internal and external stakeholders and is a key strategic tool for the Commissioner and for IRS Operating Divisions. C&L helps achieve the IRS strategic goals by:

• Linking the IRS to the American taxpayer through critical constituencies: the Congress, national and local media, tax professionals’ organizations, and official oversight and advisory panels.

• Identifying ongoing and emerging issues from key stakeholders, and ensuring their timely resolution.

• Advising the Commissioner on the effective presentation of policy positions and issue responses.

• Promoting public awareness of major IRS initiatives. • Coordinating high-priority communications to employees, working with professional

staff in all IRS divisions. Whistleblower Office The IRS Whistleblower Office, which was established by the Tax Relief and Health Care Act of 2006, will process tips received from individuals who spot tax problems in their workplace, while conducting day-to-day personal business or anywhere else they may be encountered. An award worth between 15 and 30 percent of the total proceeds that IRS collects could be paid, if the IRS moves ahead based on the information provided. Under the law, these awards will be paid when the amount identified by the whistleblower (including taxes, penalties and interest) is more than $2 million. If the taxpayer is an individual, they must have at least $200,000 in gross income. The Whistleblower Office will be responsible for assessing and analyzing incoming tips. After determining their degree of credibility, the case will be assigned to the appropriate IRS office for further investigation. Office of Privacy, Governmental Liaison and Disclosure Mission: To preserve and enhance public confidence by advocating for the protection and proper use of identity information. Overview The security and privacy of taxpayer and employee information is one of the Service's highest priorities. As such, the Office of Privacy, Information Protection and Data Security (PIPDS) was formed in July 2007 to provide a centralized privacy program that combined responsibility for all

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of the major privacy programs under one office. In June 2011, the Governmental Liaison and Disclosure and Safeguards offices merged with PIPDS to form the current Privacy, Governmental Liaison and Disclosure (PGLD) office. The PGLD organization promotes public confidence through the protection of the taxpayer's personally identifiable information, such as name and Social Security number, and the prevention of threats and vulnerabilities. The organization also ensures Servicewide integrity by proactively providing leadership, policy guidance, direction and awareness for the Service’s privacy program areas. PGLD is also responsible for protecting information systems used for tax administration from unauthorized access, disruption and modification. Part IV – Protecting Taxpayer Rights44

The Internal Revenue Service touches the lives of almost every American. The

IRS is striving to ensure that all taxpayer contacts are conducted in a courteous, respectful manner. The most important consideration for the IRS in these contacts is the protection of a taxpayer’s rights. The IRS has taken many steps in written rules, in policies, in training, in guidance and in evaluations, to ensure taxpayers’ rights are protected.

• All IRS employees who have contact with taxpayers are trained in IRS’s commitment to the fair and impartial treatment of taxpayers. IRS employees in Collection, Examination and Customer Service all receive training on the provision of both the first and the second Taxpayer Bill of Rights as well as training in quality customer service.

• Customer Service Representatives who answer taxpayers’ questions on both tax law and on individual accounts are regularly monitored, not just for the accuracy of their answers, but also for how courteously they treat taxpayers.

• Publication 1, Your Rights as a Taxpayer, is given to every taxpayer selected for an audit. This publication outlines a taxpayer’s right to privacy and confidentiality, to professional and courteous service, to representation, to help from the Problem Resolution Office, and to administrative and judicial review. These rights are guaranteed by law.

• IRS’s Policy Statement P-1-20, approved in 1973 and used for all enforcement officers, appeals officers and reviewers, strictly prohibits the use of enforcement results and statistics to evaluate those officers. The Taxpayer Bill of Rights, passed in 1988, made this policy law.

• Taxpayers who have encountered difficulties resolving problems through normal IRS channels may be helped by the Problem Resolution Program. Generally, if the Service has not resolved a problem within a reasonable amount of time, or after a couple of inquiries by the taxpayer, the problem qualifies for PRP handling. The enactment of the Taxpayer Bill of Rights authorized “Taxpayer Assistance Orders,” which provide relief for taxpayers who might suffer hardships as a result of a planned enforcement action by the IRS. In 1996, the IRS received approximately 30,000 requests for relief. More than

44 September 1997 FS-97-20

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35% of these requests were initiated by IRS employees who recognized the potential hardship and took steps to stop the enforcement action.

• Enforcement managers are required to prepare quarterly certifications for the district director to report any violations of the proper use of statistics. These certifications must give a detailed description of the violation and what corrective action was taken. The district director must then send this certification forward to the Commissioner.

• Revenue officers and revenue agents are evaluated on a variety of job standards that include customer relations. This standard requires agents to conduct themselves in a “courteous, firm and professional manner.” In addition, this standard requires agents to ensure that they fully explain to taxpayers their rights under the law.

• The Collection Appeals process allows certain collection actions, such as filing of liens or seizures, to be appealed either before or after the action occurs. Normally, the IRS will stop the collection action until the appeal is settled.

The training, the policies and the procedures that the IRS has put in place contribute to ensuring that taxpayers are treated with respect and dignity, and that their rights are protected. These rights are guaranteed by law. Many of these laws are contained within the Internal Revenue Code. Some of those sections covered by the code are as follows:

• Sec. 6331(d) - (added by TBOR 1) - Requires notice in writing 30 days prior to making a levy.

• Sec. 6343(d) - (added by TBOR 2) - Authorizes the return of levied property in certain cases.

• Sec. 6323(j) - (added by TBOR 2) - Authorizes the release of filed lien in certain cases. • Sec. 6326 - Allows for the administrative appeal of liens. • Sec. 7605 - Protects taxpayers from being subject to unnecessary audits. • Sec. 7609 - Requires notice to taxpayer when summons is made to third party. • Sec. 7811 - Authorizes Taxpayer Assistance Orders. • Sec. 7430 - Allows for awards of reasonable administrative costs and reasonable

litigation costs when IRS advances unreasonable positions. • Sec. 7431 - Authorizes civil action for damages for disclosure of return and return

information. • Sec. 7432 - Authorizes civil action for damages for failure to properly release lien. • Sec. 7433 - Authorizes civil action for damages for certain unauthorized collection

actions. Taxpayers have a definite responsibility to file an accurate and timely tax return, but they also have certain rights. The fundamental right is that of confidentiality. All taxpayers have the right to privacy of their tax information. Only authorized tax personnel can examine, or audit, a tax return. Even law enforcement agencies have no right to examine a suspect's tax returns. In addition, taxpayers have the right to appeal any IRS-proposed adjustments to a tax return. The taxpayer can contest the IRS determination of tax liability in a court or by asking the IRS Appeals Office to review the case.

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The Taxpayer Advocate Service (TAS) maintains a website-based TAS Tax Toolkit! containing useful tax information for individuals, businesses, tax professionals and media, including news and updates, ways TAS helps taxpayers, and important information about tax topics and rights. While much of the site is devoted to the two annual reports the NTA makes to Congress, Information on approaching the office for assistance is also available. Here is how they describe their services and criteria for when to use TAS:

The Taxpayer Advocate Service (TAS) is Your Voice at the IRS45

When to Come to TAS

. Our job is to ensure that every taxpayer is treated fairly, and that you know and understand your rights. We offer free help to guide you through the often-confusing process of resolving your tax problems that you haven’t been able to solve on your own. Remember, the worst thing you can do is nothing at all!

If you are having tax problems and have not been able to resolve them yourself, come to us. Even if you feel like there is nowhere to turn, the worst thing you can do is nothing at all. Our advocates will ensure that your best interests are represented to the IRS.

TAS can help if you can’t resolve your problem with the IRS and:

• Your problem is causing financial difficulties for you, your family, or your business.

• You face (or your business is facing) an immediate threat of adverse action. • You have tried repeatedly to contact the IRS but no one has responded, or the

IRS has not responded by the date promised.

If you qualify for our help, we’ll do everything we can to get your problem resolved. You will be assigned to one advocate who will be with you at every turn. We have offices in every state, the District of Columbia, and Puerto Rico. Although TAS is independent within the IRS, our advocates know how to work with the IRS to get your problems resolved. And our services are always free.

Qualifying taxpayers will receive personalized service from a knowledgeable taxpayer advocate who will:

• Listen to their problems, • Help them understand what needs to be done to resolve the problems, and • Stay with them every step of the way until the problems are resolved.

45 http://www.taxpayeradvocate.irs.gov/Individuals/Get-Tax-Help

http://www.taxpayeradvocate.irs.gov/Individuals/Get-Tax-Help�

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How to Reach a Taxpayer Advocate

You can find the address and phone number for your local Taxpayer Advocate Service office on our website at www.irs.gov/advocate. You can also:

• Call our toll-free line at 1-877-777-4778. • Ask an IRS employee (in person or over the phone) to complete the form on your

behalf. • Form 911, Request for Taxpayer Advocate Service Assistance (And Application

for Taxpayer Assistance Order), is available by phone at 1-800-829-3676, or on www.irs.gov.

Recently, citing budget constraints, TAS updated its case criteria46

:

Taxpayer Advocate Service Changes Case Acceptance Criteria

The Taxpayer Advocate Service (TAS) is designed to be a "safety net" for taxpayers who are experiencing problems with the IRS. However, because we couldn’t possibly help all six million to 12 million taxpayers who may be having problems at any given time, we need to focus on cases where we can add the most value. These tend to fall into four categories.

1. Where a taxpayer is experiencing some financial difficulty, emergency, or hardship, and the IRS needs to move much faster than it usually does (or even can) under its normal procedures. In those cases, time is of the essence. If the IRS doesn't act quickly (for example, to remove a levy or release a lien), the taxpayer will experience even more financial harm.

2. Where many different IRS units and steps are involved, and the case needs a "coordinator" or "traffic cop" to make sure everyone does their part. TAS plays that role.

46 Taxpayer Advocate Service Changes Case Acceptance Criteria was updated June 2012 http://www.taxpayeradvocate.irs.gov//userfiles/file/TAS_change_case_criteria_6_12_12.pdf

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3. Where the taxpayer has tried to resolve a problem through normal IRS channels but those channels have broken down.

4. Where the taxpayer is presenting unique facts or issues (including legal issues), and the IRS is applying a "one size fits all" approach, isn’t listening to the taxpayer, or doesn’t recognize that it needs new guidance for those circumstances.

Last year, we assessed where our efforts have the greatest impact, and identified four types of issues in which the IRS seemed to get the right answer (though slowly). Those cases involve the processing of original tax returns, amended returns, rejected and unpostable returns, and injured (but not innocent) spouse claims. We determined that TAS generally won’t accept cases involving these pure processing issues so we could focus on higher-impact problems.

However, there are many exceptions to this policy. If the taxpayer is suffering an economic burden, TAS will take the case. If the case involves other issues, as in the example below, TAS will take the case. If the taxpayer is referred by a congressional office, TAS will take the case. And if the taxpayer specifically requests and insists, TAS will take the case.

We’ll continue striving to help tax professionals and their clients. But before you contact TAS, please remember that we’re a finite resource that Congress created not to substitute for regular IRS procedures but to help taxpayers who need special attention.

We ask that you follow regular procedures first and come to TAS only if we can really add value to the case. Below are examples of the kinds of cases we will and won’t accept.

Example 1: A taxpayer has more than one issue. The normal processing time for an amended return is approximately eight to 12 weeks. The taxpayer filed a 2010 Form 1040X more than four months ago expecting a refund, but also has an outstanding balance for tax year 2009 and is receiving IRS collection notices. The 2010 refund would pay the balance in full and leave a small amount for the taxpayer. TAS will accept the inquiry and establish a case because expediting the processing will resolve a collection issue.

Example 2: Single issue. The taxpayer filed a 2010 Form 1040X more than four months ago expecting a refund but this time has no audit or collection issues and is not facing an economic burden. TAS won’t open a case, but instead will refer the matter to the appropriate IRS unit.

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CCH Expert Treatise Library: Tax Practice & Procedure47

¶1.01, Overview of Tax Practice and Procedure

In a tax practice, everything is fine … until it isn't! Experienced practitioners know to expect the unexpected since client-related tax problems tend to arise at the most inopportune moments, such as at the height of tax return filing season or during an examination of a tax return. However, although often struggling with deadlines and sometimes recalcitrant clients, a tax practice should be an enjoyable, rewarding experience. Tax practitioners provide their clients with an objective, knowledgeable review of financial information that is ultimately presented to the government in the form of a tax or information return. If the client has provided timely, complete responses to the practitioner's requests for information, the examination or collection process should be fairly smooth and straightforward. It is extremely important to have a working knowledge and appreciation for the administrative process in which tax returns are filed, reviewed and examined. This knowledge allows the practitioner an opportunity to provide an efficient, invaluable service to their clients and to the system of tax administration. The administrative process should not be abused merely because of the taxpayer's desire to delay the determination and collection of any potential liability. Collection-related issues should be sorted out through an installment payment arrangement that would be negotiated through the normal collection process following conclusion of the audit process. Unfortunately, there is a reason many people become clients and it is not because they routinely coordinate all relevant information necessary to the preparation of a return nor do they routinely provide such information in a timely manner.

¶1.01[A] IRS Examination Procedures are Continually Evolving

Historically, IRS examiners were assigned to examine taxpayers in many different industries. One day, an examiner audited a grocery store, and on the following day, the examiner may have audited a computer retailer or a medical doctor. As a result, experience gained in one audit did not significantly enhance the examiner's experience for purposes of conducting other audits. Further, these examinations missed various compliance issues lurking within layers upon layers of related limited liability companies, partnerships, trusts, private foundations, etc. Based on their professional experience and training, examiners reviewed sufficient documents and information to determine the accuracy of the taxpayer's return. The amount of documents/information to be reviewed and the depth of the examination has been a matter of professional judgment based on the information developed — or not — during the examination. More recently, the IRS has been attempting to identify and reduce noncompliance through efficiency, tax form simplification, streamlined procedures and initiatives, education, and enforcement. In addition, the IRS has significantly modified its examination process in a manner designed to increase the available resources and experience of its examiners. In complex matters, the IRS can be expected to bring together a team of specialists to coordinate the examination of the taxpayer and all related entities. The government is utilizing vast resources in an effort to unwind the complex legal structures behind sophisticated domestic and foreign business and investment arrangements. The examination process is changing with the times, globally and electronically. Practitioners should respect the changing environment and exercise their best efforts to enhance the system of voluntary compliance.

¶1.01[B] Best Tax Practice Advice

A practitioner cannot know everything that one's client will expect the practitioner to know. However, a practitioner should be able to "issue spot" matters within his field of expertise and, to a lesser extent, matters outside his field of expertise. The Internet may be a practitioner's best initial resource. There is a tremendous amount of information available on the Internet sites for the IRS and various state taxing 47 Reprinted with the publisher’s permission from the CCH Expert Treatise Library: Tax Practice & Procedure authored by Claudia Hill, Charles Rettig & William Wiggins; published by CCH, a Wolters Kluwer business.

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authorities. Get comfortable in accessing their sites. Tax people need to be sensitive to non-tax issues. Otherwise, resolution of a tax dispute might inadvertently set up a securities case, a money-laundering structuring case, etc. against one's client. Engagement letters for tax-related matters should specify the scope and terms of the engagement. Services rendered should be within the scope of the engagement as clearly set forth in the engagement letter. If additional services are to be provided, additional engagement letters should be obtained. If a client relationship is terminated for any reason, written confirmation of the termination should be promptly provided to the client and the opposition. If the government has been involved, the government should also be clearly advised of the termination of the client relationship. When preparing returns for a Schedule C taxpayer or a taxpayer involved in a cash intensive business (restaurant, bar, etc.), consider preparation of a simple bank deposit analysis. The analysis should add the deposits for the 12-month period under consideration and for the month immediately preceding and following the period involved. That figure should then be divided by 14 and multiplied by 12 to determine an approximation of an amount deposited during the year. If the total deposits bear no relation to reported gross receipts, further inquiry may be warranted, which might include a more in-depth bank deposits analysis, a cash expenditures analysis, a net worth analysis and/or a mark-up analysis. When involved in the preparation of returns for a taxpayer having other return filing requirements (sales tax returns, etc.), request copies of all other relevant returns for the tax period(s) at issue. Often, businesses prepare certain returns internally and seek to have others prepared by their outside tax advisors. "Gross receipts" on sales tax returns for the same tax period as an income tax return should be somewhat comparable. If the practitioner has not received copies of all related returns, he should ask for them. One should be familiar with IRS Audit Technique Guides (ATG) when providing tax advice, preparing tax returns, preparing for an IRS examination, and when preparing a client for an interview with the government. There are many publicly available ATGs that have been prepared by the IRS. 1 The ATGs coupled with the ongoing efforts of IRS examiners to become specialists are designed to improve compliance by focusing on taxpayers as members of particular groups. Each ATG instructs the examining agent on typical methods of auditing a particular group of taxpayer, including typical sources of income, questions to be asked of the taxpayer and his representative during the audit, etc. These groups have been defined by type of business (i.e., gas stations, grocery stores, etc.), technical issues (passive activity losses), types of taxpayer (i.e., returns lacking economic reality), or method of operation (i.e., cash businesses). A practitioner should not blindly proceed with an examination without being generally familiar with any potentially relevant IRS ATGs. Effective representation requires the ability to utilize all available resources, including the ATGs. Often, it may be beneficial to review relevant ATGs earlier in the process…perhaps while preparing the return. Preparers representing clients in an industry or having issues covered by an ATG should consider thoroughly reviewing the ATG with the client, before the return is filed. It is generally advisable to attempt to resolve any civil tax dispute at the earliest opportunity. A lengthy examination may be costly from the perspective of the expenditure of time and effort involved, as well as the taxpayer's degree of frustration with the normal administrative process. Further, a prolonged audit is more likely to uncover potentially sensitive issues that could generate increased tax deficiencies, penalties, or the possibility of criminal sanctions. Collection-related issues should be sorted out through an installment payment arrangement that would be negotiated through the normal collection process following conclusion of the audit process. It is often advisable to submit a request under the Freedom of Information Act (FOIA) following the unagreed resolution of a federal tax examination. It should also help tailor discussions at the next administrative level while providing insight into what the next government representative assigned to the case will be reviewing. The process is relatively simple and inexpensive. Relevant information regarding the submission of a FOIA request is discussed at ¶5.08 and additional information is available at the IRS

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website by searching "FOIA."2 A question often presented is whether the taxpayer and others should consent to interviews by the government during an examination, force the issuance of Summonses or invoke various Constitutional protections. The government typically seeks to interview taxpayers near the commencement of an examination. Unfortunately, at that time, the practitioner typically does not have sufficient information to determine whether there are potentially sensitive issues that might arise during an interview of the taxpayer. If possible, it is often preferable to postpone a taxpayer interview if the practitioner is otherwise able to provide prompt responses to relevant inquiries. If it occurs, the interview should be held toward the end of the examination, possibly with an understanding that if the taxpayer submits to an interview and answers the questions, the government will proceed to close the examination. However, the practitioner must take extreme caution, since such an understanding is not likely a basis for challenging the use of statements from the interview in a subsequent proceeding. Under any situation, the representative must prevent presentation of false or misleading information or the presentation of false statements by the taxpayer or the taxpayer's representative. A better-equipped IRS has been able to ferret out potentially sensitive issues in a manner often compromising the relationship between a taxpayer and his non-lawyer tax practitioner. If there are potentially sensitive issues, the taxpayer should be interviewed by counsel in order to determine whether there is a need to fully preserve potentially privileged information. In turn, counsel should consider engaging the accountant to coordinate the examination on behalf of the taxpayer. Under the doctrine of United States v. Kovel, 3 the investigative accountant may be clothed with an extension of the attorney's privilege. Although there are various "badges of fraud," civil examining agents are more inclined to consider a criminal referral 4 if there is a substantial unexplainable understatement of taxable income, fictitious or improper deductions, accounting irregularities (occurring in more than one year), acts or conduct of the taxpayer relating to false statements, attempts to hinder the examination, destruction of books and records, transfers of assets for purposes of concealment, or patterns of consistent failure to report or under-reporting of income. Certain behavior patterns on the part of the examiner may indicate that they are considering a criminal referral - excessive time devoted to the audit; extensive copying of basic financial records, bank records, accountant work papers, etc.; or attempts to determine the taxpayer's net worth over a period of several years. The highest value in any criminal tax prosecution is deterrence of other similarly situated taxpayers. The threat of potential prosecutions for those who are technically deficient and somewhat confused has a significant negative effect on the future of the voluntary compliance system. It is often a good practice to provide an extension of the applicable statute of limitations during the course of any audit or examination. However, it is also good practice to have extensions signed by the client, rather than the client's authorized representative (even though authorized by a power of attorney). Years later, the client may not recall having given authorization to extend the statute of limitations. If their signature is on the extension (Form 872), the situation will not likely escalate. Further, it is almost always preferred to sign a limited extension with a specified expiration date (Form 872) rather than an indefinite extension for an unspecified term (Form 872-A). The practitioner should reasonably attempt to limit the scope of the inquiry and limit the information provided during an examination so as to avoid the waiver of any potential privileges. If matters are privileged, the correspondence and relevant files should be appropriately labeled. Be aware of any potential privileges that may apply and make sure not to inadvertently waive any privilege. Separate files should be maintained for relevant documents that might be requested by the IRS and documents that contain potentially confidential, privileged information. It is important to know exactly which documents are deemed important to the IRS. Copies of documents provided during the course of the examination should be made in duplicate - one copy for the IRS and an extra copy to be maintained in a separate audit file specifically identifying documents provided during the course of the audit.

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The practitioner should be careful not to inadvertently exceed the scope of his license or experience. At a minimum, a non-lawyer representative should strongly recommend that a client consult counsel with the admonition that discussions held between a client and a non-lawyer may have to be disclosed in the event of a criminal investigation or prosecution. Code Section 7525 does not protect information provided to the non-lawyer representative from disclosure in a criminal investigation or prosecution. 5 If an examination problem seems overwhelming, consider contacting the Taxpayer Advocate Service (TAS). TAS is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should.

¶1.01[C] Be Cognizant of the Potential for Penalties

In 1954 there were 14 civil penalties set forth within the Internal Revenue Code. Today, the Code is a minefield containing more than 130 potentially applicable civil penalties. Penalties are to be administered in a manner intended to encourage voluntary compliance and discourage intentional or reckless noncompliance. Inadvertent or excusable error should not be punished to the same degree, if at all, as willful misconduct. In this environment where many continue to call for simplification and fairness in penalty administration, taxpayers and practitioners are held to various standards of knowledge and responsibility based on the particular facts and circumstances involved. Similar cases and similarly-situated taxpayers are to be treated in a similar manner with each having the opportunity to have their interests heard and considered. Penalty relief is to be viewed from the perspective of fair and impartial enforcement of the tax laws in a manner that promotes voluntary compliance. Penalties encourage voluntary compliance by defining standards of compliant behavior, defining consequences for noncompliance, and providing monetary sanctions against taxpayers who do not meet the standard. In this regard, penalty administration is intended to be severe enough to deter noncompliance, encourage noncompliant taxpayers to comply, be objectively proportioned to the offense, and be used as an opportunity to educate taxpayers and encourage their future compliance. Reasonable cause can often be a defense to the imposition of penalties following an analysis of all relevant facts and circumstances. Reasonable cause relief is generally granted when the taxpayer exercises ordinary business care and prudence in determining their tax obligations but nevertheless failed to comply with those obligations. Ordinary business care and prudence includes making provisions for business obligations to be met when reasonably foreseeable events occur. In certain situations, reliance on the advice of others may justify relief from penalties for the taxpayer. Information to consider when evaluating a request for abatement or non-assertion of a penalty due to reliance on advice includes, but is not limited to, a determination of whether the advice in response to a specific request and was the advice received related to the facts contained in that request and if the taxpayer reasonably relied upon the advice. Taxpayers who carelessly or recklessly ignore their responsibilities will be appropriately penalized. Those who appropriately respect their obligations to our system of taxation should be cautioned and educated about their present and future tax compliance without having to waltz through an almost unintelligible legislative minefield of civil tax penalties.

¶1.01[D] Be Cognizant of the Potential for Preparer Penalties and Sanctions

The 2009-2013 IRS Strategic Plan 6 includes an objective of ensuring that "all tax practitioners, tax preparers, and other third parties in the tax system adhere to professional standards and follow the law." Possibly more than in any other profession, tax practitioners are required to participate in extensive, ongoing training and education to keep pace with highly complex, ever-changing statutory and case authorities. Cases issued in the morning might impact positions in returns filed later that afternoon. The IRS has recently been issuing various internal memoranda focusing its field operations on the possible imposition of practitioner penalties during the course of examining a tax return. Since a purpose in proposing and assessing return preparer penalties is to encourage accountability, affect behavior, and

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increase voluntary compliance, examiners are now generally required to comment on preparer penalties as a material part of the examination process. Tax practitioners are sophisticated specialists operating in a complex world of statutory and case authorities monitored by a government that historically respected their dedication and professionalism. Recent statutory changes to Section 6694 of the Internal Revenue Code and newly released Treasury Regulations are changing the relationship between practitioners, their clients and the Service. Issues for the practitioner often arise as a result of:

1. Inappropriate reliance on (i) information provided by the taxpayer, (ii) unreasonable factual assumptions or (iii) positions in returns prepared by others. Did you act in good faith and exercise your best efforts?

2. Inability to control client expectations. Often the client is overly aggressive and unwilling to consider an objective view of the facts in a manner that could compromise the professional relationship between the client and the accountant. There must be an objective analysis of relevant facts leading to any position set forth in a return or provided to the government during an examination.

3. Failure of the client to understand the nature and scope of the inquiry. Remote relationships with clients are difficult, at best. A clients interpretation of your question may well differ from yours. Communicating by phone or electronically precludes the knowledge gained by looking someone in the eyes when asking direct, important questions.

4. Failure to expect the unexpected. Preparation is a key to success. Are you prepared to handle the issues presented? Lack of diligence in representation, before and during the examination of a return, will adversely affect the outcome of any examination. Failure to inquire about additional facts, to discover contrary legal authorities, to review large, unusual or questionable items in the return, to review prior year returns and potentially applicable IRS Audit Technique Guidelines or to identify sensitive issues or "patterns" over multiple years can be the difference between a reasonable resolution and someone going to Club Fed (i.e., prison).

5. Lack of reasonable cooperation or the failure to provide timely responses during an examination. Practitioners should attempt to cooperate with the examiner in a timely manner. An audit need not be adversarial and the practitioner must maintain appearance of reasonableness throughout the entire process. The examination should not be prolonged simply because the taxpayer is unable to satisfy any resulting deficiency. Practitioners can be subjected to discipline for unreasonably delaying the examination process.

6. Government interviews of an unprepared taxpayer or return preparer. Is an interview of the taxpayer or return preparer necessary and unavoidable? Government interviews of the taxpayer or return preparer can create awkward moments during an examination, especially if there has been a lack of preparation. If necessary, interviews should be limited in scope and duration.

7. Failure to anticipate conflicts of interest. There are many potential conflicts of interest that can arise during return preparation or the examination process. The practitioner is often unaware a spouse may be considering a divorce or a business relationship may be falling apart. Conflicts can often be avoided by receipt of a timely, knowing and intelligent waiver. However, if things get tough, someone is likely to contest the "knowing" and "intelligent" waiver. Was counsel involved in the waiver process? Did one party feel economically compelled to sign the waiver?

8. General lack of experience or competency to handle the issues presented. Were you competent to prepare the return or handle the representation? Being an effective practitioner does not mean you can be all things to all people. Know your limitations and consult your colleagues when you are unsure of any issue. In a profession, professionals help other professionals. Respect those who reach out for assistance and pity those who are embarrassed to do so.

9. Failure to properly disclose questionable positions within a return. Have potentially questionable issues been properly disclosed in a return? Form 8275 and Revenue Ruling 2010-15 represent an opportunity to explain, in single syllable words, why the potentially questionable position is not


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questionable. Disclosures must be adequate and easily understood by anyone reviewing the return. They should not be subject to being interpreted as misleading or incomplete.

10. Inadvertent waiver of potential privileges. Privileges are only important when needed the most. Practitioners should have a general awareness of all potentially applicable privileges. When in doubt, ask a colleague for advice.

11. Termination of the client relationship and the failure to return client records. Terminating your relationship with a difficult or non-responsive client can be a rewarding experience. When terminating a client relationship, consider returning all client records and remember to notify the government that any outstanding authorizations to receive client information or represent the client have been terminated. Arguing over the return of client records to receive payment for delinquent fees might be rewarded with an unwarranted claim for malpractice. Your other clients deserve your attention and a redirection of your efforts to such clients will be more rewarding over time. Cut your losses and move on …or consider referring the difficult client to your business competitors.

12. Inadequate internal office supervision. Enough said. 13. Unauthorized use of return information. Return preparers who "knowingly or recklessly" make

"unauthorized disclosures or use" of "information furnished in connection with the preparation of an income tax return" are subject to criminal sanctions (i.e., imprisonment!). "Preparers" include those engaged in preparing or assisting in preparing tax returns, including those who provide auxiliary services such as developing software to prepare or e-file a return. "Tax Return Information" includes everything received to prepare the return plus computations, worksheets, and printouts created by the preparer. If uncertain, review Revenue Procedure 2008-357 and Regulation Section 301.7216-1, et seq. for further information and pro forma taxpayer consent forms. Code Section 7216 was implemented for a purpose. Don't let that purpose be you.

Preparer penalty issues will most often arise during or at the conclusion of an IRS examination of the taxpayers return when some or all of an undisclosed or improperly disclosed position has been disallowed. Is it reasonable to believe that an agent, having disallowed a questionable position, will be convinced there was "substantial authority" for the reported position? Also, most positions are comprised of several sub-positions. If each sub-position has a 40 percent chance of success on the merits, the primary position will not likely also have a 40 percent chance of success on the merits (40 percent of 40 percent of 40 percent is not an overall 40 percent chance of success on the merits for that position). Always maintain the appearance of reasonableness … even in times where the government may appear to be anything but reasonable. Practitioners should assume the IRS will conduct its examinations and pursue collection activities in a professional, albeit sometimes aggressive, manner in its efforts to collect tax revenues. If you have problems with an IRS agent during the course of an examination, ask to speak to their manager. If you have problems, it is likely that other representatives have previously had similar discussions with the agent's manager. While the manager may appear to be supporting the agent when meeting with you, it is also likely that the manager will have a direct conversation with the agent outside your presence and that your future interactions with the agent will be significantly improved. The most significant benefit you provide in an examination is your personal integrity, reputation and credibility. Never allow anything to possibly put a dent in that armor. For the practitioner, the most relevant penalty issue is the reasonableness of their belief in the position reported on the return, not the likelihood it will prevail. Be diligent and do your homework. There are no shortcuts to being prepared or providing tax advice. Tax practitioners are engaged for the purpose of appropriately minimizing taxes for their clients. Resolution of possible preparer penalty issues often depends upon the effort expended in determining and analyzing the relevant facts and authorities. If the position is disclosed, the information in the disclosure must be complete and accurate. Be a prepared preparer … disclose, disclose, disclose!

¶1.01|F| The Road Ahead

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The practitioner's must balance their duty of representation to the client with the professional responsibility to reasonably cooperate with the IRS examination process. Learn to appreciate the concern for the accountability of both government and private practitioners to the system of tax administration and to the profession—lessons not to be forgotten by any of us in these most difficult times. Practitioners should not underestimate the IRS's ability, desire, and resources to examine tax returns and collect taxes. Throughout, treat all government representatives with respect and act like the professional that you want others to know and respect. Do not mislead anyone, affirmatively or otherwise, at any time. Many experienced, sophisticated practitioners continue to be involved with community and professional organizations and feel free to inquire of their colleagues when facing difficult or unusual issues in their practice. If asked, those within the tax profession will almost always provide extremely valuable insight and advice on issues that could be extremely important for you, your client, and your reputation. If you do not have the experience or know the answer, find a competent colleague who should be willing to assist you. Consider helping those who are otherwise unable to help themselves. Pro bono services, discounted services, and sometimes "involuntary pro bono" services can actually be quite personally rewarding. A busy tax practice can be surrounded by minefields. Use your best efforts and remind the client that a tax return is not an offer to negotiate with the government. Document your client advice in writing, limit the nature and scope of services to be provided in your engagement letter, establish a system of checklists (and follow the system), and use your best judgment. If the client is unwilling to accept and follow your advice, strongly consider terminating the engagement. Life is short and the headaches of trying to convince someone to do the right thing may simply not be worth your effort. If you encounter an undeserving or possibly disrespectful client, let them go and move on with your practice. You cannot be all things to all people…regardless of the effort and personal sacrifice. Lastly and perhaps most importantly, your client is not your friend …if you feel the need for friends, get a dog!

Footnotes

1 Audit Technique Guides, see http://talcutst.wolterskluwertal.com/scion/secure/index.jsp?RWICookieCheck=OK#page[5]

2 The Freedom of Information Act, 5 U.S.C. § 552. The URL is: www.irs.gov. 3 62-1 USTC ¶9111, 296 F.2d 918 (2d Cir. 1961) 4 See Chapter 14 for a detailed discussion of Criminal Tax Procedure. 5 See Chapter 14 for a detailed discussion of Criminal Tax Procedure. 6 http://www.irs.gov/pub/irs-pdf/p3744.pdf. 7 2008-2 C.B. 132.

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