Key Takeaways
- OPR can impose censure (public reprimand), suspension, or disbarment.
- Monetary penalties up to the gross income from the engagement.
- Disreputable conduct includes fraud, criminal convictions, willful violations.
- Willful failure to follow any tax law is disreputable conduct.
- Practitioners have a right to a hearing before an Administrative Law Judge.
- Disbarred practitioners may apply for reinstatement after 5 years.
Sanctions for Violations (Sections 10.50-10.53)
Why This Matters for the Exam
Sanctions are the enforcement mechanism for Circular 230. The exam tests whether you can identify disreputable conduct, understand the available sanctions, and know practitioners' procedural rights.
Expect at least 3-4 questions on sanctions and disreputable conduct.
The Office of Professional Responsibility (OPR)
OPR is the IRS office responsible for enforcing Circular 230. OPR:
- Investigates complaints against practitioners.
- Conducts disciplinary proceedings.
- Imposes sanctions for violations.
Available Sanctions
| Sanction | Description | Severity |
|---|---|---|
| Censure | Public reprimand; practitioner remains in good standing | Least severe |
| Suspension | Temporary loss of practice rights | Moderate |
| Disbarment | Permanent loss of practice rights | Most severe |
| Monetary Penalty | Financial penalty on practitioner or firm | Variable |
Monetary Penalty Limits
The monetary penalty cannot exceed the gross income derived from the conduct giving rise to the penalty.
Example: If a practitioner earned $5,000 from an engagement where they violated Circular 230, the maximum monetary penalty is $5,000.
Disreputable Conduct (Section 10.51)
Disreputable conduct is conduct that justifies sanctions. It includes:
| Disreputable Conduct | Description |
|---|---|
| Fraud or willful evasion | Criminal tax fraud or evasion |
| Criminal convictions | Any crime involving dishonesty or breach of trust |
| Willful failure to file or pay | Not filing returns or paying taxes owed |
| Contingent fees for returns | Charging fees based on refund amounts |
| Misappropriation of funds | Taking client funds improperly |
| False statements | Lying to IRS, clients, or OPR |
| Frivolous positions | Taking positions with no legal basis |
| Knowingly false advice | Advising clients to violate tax law |
| Violating Circular 230 | Any willful violation of the rules |
Incompetence and Disreputable Conduct
Incompetence can be disreputable conduct if:
- Pattern of incompetent conduct (repeated failures).
- Single act of gross incompetence (severe single failure).
Procedural Rights
Practitioners accused of violations have significant rights:
| Right | Description |
|---|---|
| Notice | Written notice of charges |
| Hearing | Right to hearing before Administrative Law Judge (ALJ) |
| Representation | Right to be represented by counsel |
| Evidence | Right to present evidence and cross-examine witnesses |
| Appeal | Right to appeal ALJ decision to Treasury Secretary |
| Judicial review | Right to appeal to federal court |
Reinstatement After Disbarment
A disbarred practitioner may apply for reinstatement after 5 years from the date of disbarment.
Requirements:
- Demonstrate good character and reputation.
- Show that reinstatement would not be contrary to the public interest.
- Secretary of the Treasury has discretion to grant or deny.
Real-World Scenario
Scenario: A practitioner is accused of charging contingent fees for preparing original tax returns.
- Disreputable conduct? Yes—contingent fees for original returns are explicitly listed as disreputable conduct.
- Possible sanctions: Censure, suspension, disbarment, or monetary penalty.
- Practitioner's rights: Notice, hearing before ALJ, right to counsel, right to present evidence, right to appeal.
On the Exam
Expect 3-4 questions on sanctions, typically:
- Sanction Questions: "What is the most severe sanction OPR can impose?"
- Disreputable Conduct Questions: "Which is NOT considered disreputable conduct?"
- Monetary Penalty Questions: "What limits the monetary penalty amount?"
- Reinstatement Questions: "When can a disbarred practitioner apply for reinstatement?"
The key is to remember: Censure < Suspension < Disbarment. Monetary penalty ≤ gross income. Reinstatement after 5 years.
What is the most severe sanction OPR can impose?
Which is NOT considered disreputable conduct?
How long must a disbarred practitioner wait before applying for reinstatement?