The Internal Revenue Service's tax-exempt bond office most often makes referrals of bond lawyer misconduct to the Office of Professional Responsibility when it believes the practitioner provided false information or engaged in "contemptuous conduct," a top TEB official said last week.
Robert Henn, senior manager of TEB field operations, said that while his office most often deals with "an extremely knowledgeable practitioner community," a "very small percentage" of individuals force TEB to make an OPR referral. OPR officials said they receive about 100 referrals a week from the entire IRS, only a handful of which come from TEB, and that they ultimately take action on only about 20% to 30% of the 100 per week referrals.
Henn discussed TEB's relationship with the OPR during a National Association of Bond Lawyers teleconference Thursday. When a practitioner is referred to the OPR, the office reviews their interaction with the IRS, and can suspend the practitioner from providing written tax advice.
While some OPR referrals involve multiple infractions, Henn said that the most common basis for referral to the office is a violation of a section of Circular 230 that focuses on "incompetence or disreputable conduct." Specifically, most referrals are made when lawyers allegedly give a false opinion or information "knowingly, willingly, or due to gross incompetence," or exercise contemptuous conduct, such as using "abusive language and making false accusations and statements," according to Henn. Circular 230 governs the practice of tax lawyers that come before the IRS.
Bradley S. Waterman, a tax controversy attorney who has his own firm and moderated the teleconference, asked Henn if there are any situations that generate automatic OPR referrals, such as cases that are referred to the IRS' criminal investigation division or where a violation under section 6700 of the tax code results in penalties. Section 6700 enables the IRS to penalize individuals and firms who are responsible for bond-related tax law and regulatory violations, as well as those who promote abusive tax shelters.
Henn said that while the office reviews the facts and circumstances of each case when considering whether to make a referral, practitioners involved in 6700 penalties or criminal investigations should be "fairly confident" that they will be referred to OPR.
Waterman also asked if TEB has any established criteria for determining what situations merit a referral, or if instead these are cases where "you think you know it when you see it."
Henn said the office does not have any set criteria and instead considers making referrals on a case-by-case basis, examining the history of conduct and the specifics of each case.
Waterman also asked Henn about a rumor that agents are using threats of referrals to obtain concessions from lawyers during closing agreement or settlement negotiations.
"The rumor mill has told me many things, but this is not one of them," Henn said, adding that he would be "very surprised" if this ever had occurred. Any lawyers who have evidence of such a practice should submit it to TEB managers, he said.
Carolyn Gray, the acting deputy director of the OPR who also spoke during the teleconference, said her office typically accepts referrals made at the conclusion of an examination, and would only consider a mid-exam referral if there is ongoing harm to the taxpayer. She contended that since referrals are only considered after examinations are finished, it is unlikely they could be used to threaten practitioners.
Michael Chesman, director of OPR, said the office is currently working on improving its transparency regarding how the office operates, how it reaches decisions, and what types of sanctions it can apply.
Waterman and bond attorney Scott Lilienthal, a partner at Hogan & Hartson LLP, also quizzed OPR officials regarding staff expertise on tax-exempt bonds. Gray said the office sometimes seeks advice from TEB to understand cases. But to avoid potential conflicts of interest, OPR officials may also consult the bond branch of the IRS' chief counsel as well as TEB.
Meanwhile, Henn began the teleconference by clarifying some remarks TEB director Clifford Gannett made at the Government Finance Officers Association's annual conference in Fort Lauderdale last week about the 200 to 500 post-issuance compliance surveys his office plans to send to governmental issuers later this summer.
Henn clarified that while the survey will ask issuers if they retain copies of contracts and other documents, it will not require them to send them to the IRS.