A presentation to lawyers and accountants on IRS penalties and the office of professional responsibility, presented by Sidney Goldin, CPA. It lays out some of the IRS traps that you need to be aware of.

1. IRS Penalties and OPR
(Office of Professional
Responsibility)
Presented by
Sidney Goldin, CPA, MS
Taxation

2. I. Penalties—A big deal for
IRS

3. A. Substantial Revenue Raisers
1. 37.9 million penalties assessed in
2012
2. Total value of $27 billion dollars
1. Deterring non-compliance
2. Establishing fairness by punishing
non-compliant taxpayers
B. Deterrent Effect

4. C. Penalty Policy Statement
1. End game should be future
compliance, not punitive
punishment
2. Duty of consistency—similar cases
should be treated alike
3. Opportunity to have adequate
penalty defense
4. 4. Careful thought and
consideration by IRS to make
fair and correct decision

5. C. Penalty Policy Statement
(cont’d.)
5. Impartial and honest decision
should be made, objective
enforcement
6. Promote voluntary compliance not
for purpose of raising revenue
7. Resolve each case in a prompt
manner

6. D. Good Sound Bites, But
Seldom Followed
1. Non-filing penalties—most common
for preparers—missed extensions,
inadvertent error
2. Examiners propose assessment of
accuracy related (20%) penalties
automatically without forethought
on reports
3. Small error rates from CPA firms, not
reasonable cause for IRS

7. E. Most Common types of
Penalties
1. Failure to File
a. 5% per month or part of month
return not filed—limit 25%
b. Reasonable estimate for
extension required
per IRS regulation
(1.6081)
c. High estimate is
recommended,
even if little or no payment made

8. E. Most Common types of
Penalties (cont’d.)
2. Failure to pay
• ½ of 1% per month or part of
month—limit 25%
3. No tax due, no penalties
• In later examination, if
deficiency found, penalty
imposed from original due date

9. E. Most Common types of
Penalties (cont’d.)
4. Accuracy related penalty
a. Based on underpayment
b. Usually enforced at audit level
c. Only applied where return was
filed; doesn’t apply on
substitute returns.

10. E. Most Common types of
Penalties (cont’d.)
5. Fraud Civil Penalty
a. 75% of deficiency or
underpayment
b. Burden of proof is on IRS to
prove intent

11. E. Most Common types of
Penalties (cont’d.)
6. Trust Fund Recovery Penalty
a. 100% of trust fund portion of
corporation liability
b. Imposed on “responsible”
persons

12. E. Most Common types of
Penalties (cont’d.)
6. Trust Fund Recovery Penalty
(cont’d.)
c. Can have very broad meaning
i) Responsible persons can
include bankers or other lenders
who provide or pay funds
directly to employers specifically
earmarked for wages with
knowledge that the employer
will not deposit payroll

13. E. Most Common types of
Penalties (cont’d.)
6. Trust Fund Recovery Penalty
(cont’d.)
c. Can have very broad meaning
(cont’d.)
ii) However recent
abatement of penalty was
obtained by office who paid
employees when other
creditors weren’t paid

14. E. Most Common types of
Penalties (cont’d.)
7. Failure to Deposit Employment
Taxes
a. Made within 5 days—2%
b. 5-15 days—5%
c. More than15 days—10%

15. E. Most Common types of
Penalties (cont’d.)
7. Failure to Deposit Employment
Taxes (cont’d.)
d. Criminal (jail time) penalties
also possible—have been
imposed in egregious cases
e. Imposed on corporation—
not to be confused with TFRP

16. E. Most Common types of
Penalties (cont’d.)
8. Preparer Penalties
a. Unreasonable positions
i) For undisclosed positions—
no substantial
authority— e.g., code, regs. case
law, rev. rulings, tech.
advice memorandums
ii) For disclosed positions—
no reasonable basis or
frivolous arguments

17. E. Most Common types of
Penalties (cont’d.)
8. Preparer Penalties (cont’d.)
b. No penalty if reasonable
cause or good faith exists
c. Examiners can “write up”
preparers for penalties if
adjustments exists— “non”
signing or “signing” preparers.
Required to consider in all
cases.

18. E. Most Common types of
Penalties (cont’d.)
8. Preparer Penalties (cont’d.)
d. Handled as separate cases,
not allowed to discuss with
taxpayers
e. Preparer can file appeal if
penalty proposed
f. Either examiner of appeals can
refer directly to OPR in
egregious cases

19. E. Most Common types of
Penalties (cont’d.)
8. Preparer Penalties (cont’d.)
g. Penalty for unreasonable
position—greater of $1,000 or
50% of income from return
h. Willful or reckless conduct—
greater of $5,000 or 50% of
income from return

20. E. Most Common types of
Penalties (cont’d.)
8. Preparer Penalties (cont’d.)
i. IRC 6713—disclosure of tax
return information or
improper use of tax
information—$250
per each violation up to
$10,000 per year

21. E. Most Common types of
Penalties (cont’d.)
8. Preparer Penalties (cont’d.)
j. IRC 7216—knowing or reckless
use or disclosure of tax return
information—maximum fine
$1,000 and up to one year
imprisonment—use care when
responding to banks or
mortgage company requests
for client information

22. II. IRS Office of Professional
Responsibility (OPR)

23. A. IRS “police”
B. Operates under Circular
230
C. Can receive referrals from
revenue agents, revenue
officers, independent
internal investigations, or
other sources

24. D. Governs practitioners,
authorized to practice
before IRS
E. Conducts disciplinary
proceedings against
CPAs, attorneys
and enrolled agents
F. Can suspend or disbar
practitioners after
due process occurs

25. G. Common cases are non-
filing and/or non-payment
of taxes by practitioners, or
other violations of IRS rules
and regulations
H. Proceedings begin with
complaints by referring
parties mentioned above
1. File is opened and
assigned to enforcement
attorney

26. H. Proceedings begin with
complaints by referring
parties (cont’d.)
2. Letter containing
complaint is sent to
practitioner—must
state basis for complaint,
alleged violations of rules,
regulations, etc. of
Circular 230

27. H. Proceedings begin with
complaints by referring
parties (cont’d.)
3. Practitioner or
representative must
respond in timely manner
4. Conference with
enforcement attorney is
held; attorney can
propose sanctions.

28. H. Proceedings begin with
complaints by referring
parties (cont’d.)
5. If agreed, case can be
settled at that point
6. If no agreement, then
case goes to Administrative
Law Judge and is
heard there

29. H. Proceedings begin with
complaints by referring
parties (cont’d.)
6. If no agreement, then
case goes to ALJ (cont’d.)
a. Rules of evidence and
discovery are allowed
if approved by ALJ
b. Conducted similar to
court of law

30. H. Proceedings begin with
complaints by referring
parties (cont’d.)
7. Can take case to U.S.
District Court if ALJ decision is
appealed—good luck
with that

31. If you have any questions,
please feel free to contact
Sidney Goldin
214.635.2509
SGoldin@GPPcpa.com
or
Rick Lahr
214.635.2520
RLahr@GPPcpa.com