1. ALLAN HANCOCK COLLEGE INTRODUCTION TO TAX LAW
STEPHEN A. WAGNER
Allan Hancock College
Fall 2018

2. OVERVIEW OF TAX CONTROVERSIES AND ADMINISTRATION
Please read the following slides for a basic outline of the law pertaining to tax disputes in the United States. We will be discussing these next week.

3. PLAYERS IN TAX ADMINISTRATION
LEGISLATIVE BRANCH: CONGRESS ENACTS TAX STATUTES (CODE); JOINT COMMITTEE ON TAX MUST APPROVE REFUNDS > $2,000,000
EXECUTIVE BRANCH: IRS IS AN EXECUTIVE AGENCY WITHIN TREASURY DEPARTMENT; SETS PROCEDURES FOR COMPLIANCE WITH TAX LAWS, PROCESSES RETURNS, AUDITS TO ENSURE COMPLIANCE, INTERPRETS TAX LAWS, COLLECTS TAXES
TAX PREPARERS AND TAXPAYERS WHO “VOLUNTARILY” COMPLY WITH REPORTING AND PAYMENT REQUIREMENTS

4. PLAYERS IN TAX CONTROVERSY PROCESS
JUDICIAL BRANCH: TAX COURT, U.S. DISTRICT COURTS, COURT OF FEDERAL CLAIMS, U.S. CIRCUIT COURTS OF APPEALS, SUPREME COURT
IRS: AUDITS, ASSESSES AND COLLECTS DEFICIENCIES, RESOLVES DISPUTED TAXES, LITIGATES IN TAX COURT
TAX PROFESSIONALS AND TAXPAYERS: CHALLENGES IRS ASSERTION OF DEFICIENCIES AND PROSECUTES REFUND CLAIMS

5. IRS OPERATING DIVISIONS
WAGE AND INVESTMENT DIVISION: DEALS WITH TAXPAYERS WHO HAVE INCOME REPORTED BY 3RD PARTIES (W2, 1099)
SMALL BUSINESS/SELF-EMPLOYED: DEALS WITH BUSINESS WITH < $10,000,000 IN ASSETS AND SELF-EMPLOYED INDIVIDUALS
LARGE BUSINESS AND INTERNATIONAL: DEALS WITH ENTITIES WITH > $10,000,000 IN ASSETS
TAX-EXEMPT/GOVERNMENT ENTITIES: DEALS WITH EMPLOYEE PENSION PLANS AS WELL AS GOVERNMENT AND EXEMPT ENTITIES

6. IRS ADMINISTRATIVE FUNCTIONS
EXAMINATION FUNCTION:
CONDUCTS AUDITS
AUDITS HANDLED BY REVENUE AGENTS
APPEALS FUNCTION:
PROVIDES “INDEPENDENT” REVIEW OF AUDITS AND COLLECTIONS
HANDLED BY APPEALS OFFICERS
CHIEF COUNSEL:
DRAFTS REGULATIONS AND RULINGS
LITIGATES IN TAX COURT
LEGAL ADVICE TO IRS
COLLECTION FUNCTION:
COLLECTS TAX AFTER ASSESSMENT
COLLECTIONS HANDLED BY REVENUE OFFICERS A/K/A
COLLECTIONS OFFICERS
CRIMINAL INVESTIGATION:
INVESTIGATES TAX CRIMES
REFERS CASES TO DOJ
HANDLED BY SPECIAL AGENTS
TAXPAYER ADVOCATE:
ASSISTS TAXPAYERS IN RESOLVING PROBLEMS WITH IRS

7. OVERVIEW OF TAX CONTROVERSY PROCESS

8. ETHICAL ISSUES IN TAX PRACTICE
DIFFERENT ROLES OF TAX PRACTITIONER:
(1) TAX PLANNING
(2) RETURN PREPARATION
(3) REPRESENTATION BEFORE IRS (AUDIT, APPEALS, COLLECTION)
(4) REPRESENTATION IN COURT
(5) AT ALL STAGES, IS THE PRACTITIONER A RULE ENFORCER OR AMBIGUITY EXPLOITER?

9. PRACTICE BEFORE THE IRS
WHO MAY PRACTICE BEFORE IRS: (1) ATTORNEYS; (2) CPAs; (3) ENROLLED AGENTS.
IRS OFFICE OF PROFESSIONAL RESPONSIBILITY (“OPR”) REGULATES PRACTICE BEFORE IRS; MAY SUSPEND OR “DISBAR” PRACTITIONER FROM IRS PRACTICE.
TREASURY CIRCULAR 230 IS A REGULATION WHICH PROVIDES RULES OF IRS PRACTICE.
RETURN PREPARATION IS NOT “PRACTICE BEFORE IRS” AND THEREFORE NOT SUBJECT TO OPR REGULATION. SEE LOVING V. IRS, 742 F.3D 1013 (D.C. CIR. 2014); IRS CAN’T FORCE PREPARERS TO TAKE TEST OR CONTINUING EDUCATION CLASSES
IRS RETURN PREPARER OFFICE (“RPO”) HAS SOME REGULATORY POWER OVER PREPARERS THROUGH OVERSIGHT OF E-FILE AND REQUIREMENT THAT PREPARERS REGISTER AND PAY A FEE FOR TAX ID NUMBER (PTIN); AT LEAST 1 COURT HAS INVALIDATED FEE REQUIRMENT. SEE STEELE, 2017 U.S. Dist. LEXIS
IRS HAS A VOLUNTARY PROGRAM; PREPARERS WHO COMPLETE COURSES PUT ON A LIST THAT IS PUBLISHED IN AN ONLINE DIRECTORY

10. HIGHLIGHTS OF CIRCULAR 230
MUST EXERCISE DUE DILIGENCE IN SUBMISSIONS TO IRS
MUST HAVE NECESSARY COMPETENCE TO HANDLE THE MATTER
AVOID CONFLICTS OF INTEREST
CANNOT SIGN RETURN OR ADVISE CLIENT TO SIGN IF RETURN HAS A POSITION THAT: (1) HAS NO REASONABLE BASIS; (2) IS AN UNREASONABLE POSITION PER CODE § 6694(A)(2); (3) IS A WILLFUL ATTEMPT TO UNDERSTATE TAX LIABILITY OR RECKLESS DISREGARD OF RULES/REGULATIONS; (4) IF SUCH A POSITION IS TAKEN, PRACTITIONER MUST ADVISE AS TO PENALTIES
MUST BASE WRITTEN ADVICE ON REASONABLE ASSUMPTIONS AND REASONABLE EFFORT TO DETERMINE FACTS
PRACTITIONER MUST ADVISE CLIENT AS TO ANY NON-COMPLIANCE WITH TAX LAWS OF WHICH PRACTITIONER IS AWARE
MUST RESPOND TO ALL PROPER IRS REQUESTS FOR INFORMATION NOT SUBJECT TO PRIVILEGE
MUST HANDLE MATTERS PROMPTLY AND MEET OWN PERSONAL TAX OBLIGATIONS

11. PRACTICE BEFORE THE COURTS
ATTORNEYS, CPAs, & ENROLLED AGENTS MAY PRACTICE AT THE TAX COURT; CPAs AND ENROLLED AGENT MUST TAKE A TEST TO BE ADMITTED TO TAX COURT BAR. SEE TAX COURT RULE 200.
ONLY ATTORNEYS MAY PRACTICE IN OTHER U.S. COURTS. MUST BE ADMITTED TO A STATE BAR AND THEN SEEK ADMISSION TO PRACTICE IN PARTICULAR FEDERAL COURT.
COURTS GENERALLY HAVE A SUSPENSION AND DISBARMENT PROVISION IN THEIR RULES. SEE, E.G., TAX COURT RULE 202

12. ETHICAL QUESTIONS TO CONSIDER
SHOULD I TAKE THE CASE?
HOW AGGRESSIVE A POSITION AM I WILLING TO TAKE?
DO I FOLLOW CLIENT’S WISHES OR TRY TO STEER TOWARD A POSITION I THINK IS THE CORRECT, MORAL PATH?
TO WHAT EXTENT CAN I CONSIDER MY OWN RISK OF PENALTIES, REPUTATION, FUTURE BUSINESS PROSPECTS?
CAN I ADVISE CLIENT ABOUT THE CHANCES OF BEING AUDITED AND COUNSEL AN AGGRESSIVE POSITION IF THE RISK OF AUDIT IS LOW?

13. ANSWERS NOT ALWAYS CLEAR
WELL SETTLED THAT PRACTITIONER CANNOT: (1) TAKE A POSITION THAT IS HAS NO REASONABLE BASIS OR IS ILLEGAL, FRAUDULENT OR INVOLVES MISREPRESENTATION; (2) WILLFULLY ATTEMPT TO UNDERSTATE TAX LIABILITY OR RECKLESSLY OR INTENTIONALLY DISREGARD RULES OR REGULATIONS; (3) BASE ADVICE ON PROBABILITY OF BEING AUDITED OR ISSUE RAISED IN AUDIT; (4) PUT PERSONAL INTEREST ABOVE CLIENT’S
MOST PRACTITIONERS WOULD SAY: (1) CAN DISCUSS AUDIT PROBABILITY WITH CLIENT AS PART OF CLIENT’S DECISION; (2) IDENTIFY FOR CLIENT POSITIONS THAT LIKELY WOULD NOT BE SUSTAINED, PROVIDING RISKS (PENALTIES, INTEREST) AND REWARDS (TAX SAVINGS); (3) INCLUDE NON-TAX CONSIDERATIONS FOR CLIENT CONSIDERATION (BAD P.R., CUSTOMER RELATIONS)
PRESSURES FROM A NUMBER OF SOURCES: (1) CLIENT RETENTION/DEVELOPMENT; (2) STANDING IN FIRM; (3) REPUTATION AND PENALTY EXPOSURE

14. CONFLICTS OF INTEREST
TAX COURT RULE 24(g); CIRCULAR 230, § 10.29; AND ABA MODEL RULES 1.7 ALL PROHIBIT REPRESENTATION WHICH RESULTS IN A CONFLICT OF INTEREST
T.C. RULE 24(g): COUNSEL MUST SECURE INFORMED CONSENT OF CLIENT OR WITHDRAW IF COUNSEL: (1) WAS INVOLVED IN PLANNING, PROMOTING TRANSACTION OR OPERATING AN ENTITY CONNECTED TO ISSUE IN CASE: (2) REPRESENTS MORE THAN 1 PERSON WITH DIFFERING INTERESTS; (3) IS A POTENTIAL WITNESS
POTENTIAL SITUATIONS: (1) HUSBAND AND WIFE WHO FILED JOINT RETURN; (2) TAXPAYER AND ACCOUNTANT IN AUDIT; (3) CORPORATION AND ITS PRESIDENT, CEO OR OTHER MANAGER