2015 Office of Professional Responsibility Subgroup Report


Notice: Historical Content

This is an archival or historical document and may not reflect current law, policies or procedures.


The IRSAC Office of Professional Responsibility Subgroup (OPR) (hereafter “Subgroup”) consists of a diverse group of tax professionals, including lawyers, an appraiser, an enrolled agent, and a certified public accountant. This year the OPR Subgroup addressed the need for a continued strong presence of the Office of Professional Responsibility, the need for legislation to enable oversight of tax preparers and advisers, and the application of a single set of standards to appraisers.

The OPR Subgroup has always enjoyed a very good working relationship with the Office of Professional Responsibility and this year was no exception. Despite leadership changes within the office, all personnel from the Office of Professional Responsibility were extremely helpful and cooperative in the subgroup’s working sessions, contributing data, and offering insight for the framework of this report.

The OPR Subgroup’s recommendations on the following three topics are set forth in this report.

  1. Continuity of independence, strength, and visibility of the Office of Professional Responsibility (OPR)

After decades of little change to Title 31 Code of Federal Regulations, Subpart A, Part 10 (also known as Treasury Department Circular 230, or simply Circular 230) and the functioning of the Office of Professional Responsibility, Circular 230 and the OPR have evolved rapidly in recent years, permitting the effective pursuit of truly disreputable practitioners. The OPR needs to retain its autonomy and continue the current vigorous level of investigative and educational activities.

  1. Statutory authority of the IRS to regulate tax practice

In 2010, the IRS instituted a program requiring all individuals who prepare tax returns for compensation to meet certain minimum standards including testing and annual continuing education. Four years later in Loving v. IRS, the U.S. Court of Appeals for the D.C. Circuit invalidated this program on the ground that the IRS does not have the statutory authority to make this program mandatory. The court also raised questions about the extent to which the IRS can regulate any tax return preparer who is not acting as a taxpayer’s representative. The IRSAC believes all tax return preparers should be subject to the competency and ethical standards in Treasury Circular 230 and that all tax return preparers not subject to the standards of a bar license or accounting license should be required to demonstrate competency by successfully passing an appropriate test and taking annual continuing education. We therefore recommend that the IRS be granted the explicit statutory authority to regulate tax return preparers and, indeed, all stages of tax practice.

  1. Application of appraisal standards consistent with the Uniform Standards of Professional Appraisal Practice (USPAP)

Following up on the recommendations in the 2011 IRSAC report concerning standards applicable to appraisers, who are subject to discipline under Treasury Circular 230, we recommend adoption of USPAP or equivalent standards in evaluating appraiser conduct.


Executive Summary

With the current budget constraints on the IRS creating a need to consolidate and prioritize expenditures, the OPR Subgroup has concerns that the Office of Professional Responsibility may become a target for a reduction in its size or authority. IRSAC urges the IRS to maintain the independence, strength, and visibility of the OPR.


Section 330 of Title 31 of the United States Code authorizes the Secretary of the Treasury to regulate the practice of representatives before the Treasury Department. Since 1921, the regulations governing practice before the IRS have been published in 31 C.F.R. part 10 and are reprinted as Treasury Department Circular No. 230.

After decades of little change to Circular 230 and limited roles for the Office of Professional Responsibility, Circular 230 and the OPR have evolved rapidly over the past few years. Evidence of this evolution is the robust pursuit of truly disreputable practitioners. By increasing the number of attorneys on staff and focusing on patterns of behavior, the OPR has successfully and appropriately sanctioned practitioners who are unfit to practice.

The OPR serves a unique and crucial function and hence needs to retain its independence and operating strength. Authority for enforcement of Title 31 U.S.C. § 330 is delegated to the OPR, while other IRS activities are authorized and governed by Title 26. Title 26 and Title 31 protect the integrity of the system in different ways. This distinction is exemplified by the objectives of the two U.S.C. Titles. A preparer penalty in Title 26 may be assessed on an isolated, specific past act of a tax preparer, whereas Circular 230 can be prospective, based on a practitioner’s fitness to practice, prior to acting as a representative.

Examples of the distinctions between Title 26 and 31 are many. Sanctions available in Circular 230 include suspension and disbarment, keeping disreputable and incompetent representatives from practicing before the IRS. These sanctions hold practitioners to standards of behavior and allow the IRS to restrict the activities of practitioners who are disreputable and unfit to practice. Conversely, preparer penalties in Title 26 are purely monetary, and injunctions to prohibit illegal activity under Title 26 must be sought by the Department of Justice, following a protracted, arduous process. In addition, most preparer penalties under Title 26 are the result of referrals from the exam division. Since the IRS audits a mere fraction of all returns filed, only a very small percentage of disreputable individuals are being scrutinized for penalties under Title 26. In contrast, the OPR’s investigations under Title 31 derive from internal referrals and external complaints against practitioners. Finally, Circular 230 contains extensive provisions for due process, requiring that OPR operate with completely different procedures from any reflected in Title 26.  The IRSAC believes that functions that are so different in origin and operation call for different mindsets of management and should not be blended with other functions.  In addition, since the OPR may be called upon to evaluate the conduct of the practitioner in relation to personnel in the Compliance or Appeals functions, the IRSAC believes that its being separate from those parts of the IRS strengthens its credibility and effectiveness.  Thus, there is no other office in the IRS to which the OPR might appropriately report, and it is fitting that it report directly to the Deputy Commissioner for Services and Enforcement.

Historically, a major function of the OPR was administration of the Special Enrollment Examination and processing of licenses and renewals for enrolled agents. Until a few years ago, the OPR sanctions were predominantly based on practitioners’ compliance with the tax laws on their own personal returns, and only rarely did the OPR address the duties and restrictions relating to practice before the IRS. Over the past decade, the OPR has been relieved of the administration of Enrolled Agent credentialing and has enhanced investigative capabilities that permit it to investigate and sanction for disreputable behavior, becoming a highly effective division.

Thus, by 2015 the majority of the OPR investigations have shifted to violations of standards of conduct in tax practice itself. Unethical behaviors such as theft of taxpayers’ funds, filing false powers of attorney, failure to perform due diligence, and representing conflicting interests have emerged as the primary focus of the OPR activities. The tax professional community has applauded and supported the OPR’s growth into a viable disciplinary organization with respect to disreputable practitioners.

OPR’s shift to monitoring standards of conduct in tax practice has been supported by substantive educational outreach efforts, which alert practitioners that there is a “cop on the beat.” This increased awareness of practitioner responsibilities significantly benefits tax administration and voluntary compliance.


The IRSAC recommends that the IRS maintain the OPR’s autonomy and maintain its delegated authority for enforcement of Section 330 of Title 31, reporting directly to the Deputy Commissioner for Services and Enforcement. The IRSAC also recommends that sufficient resources be allocated for the OPR to continue the current robust level of investigative activities and educational outreach.


Executive Summary

It is in the public interest to safeguard the integrity of tax return preparation, tax advice and tax representation at all stages. The authority of the IRS to do that has been successfully challenged in the courts. The IRSAC believes that Congress should remedy this situation by strengthening Title 31 U.S.C. § 330.


Title 31 U.S.C. § 330 authorizes the Secretary of the Treasury to “regulate the practice of representatives of persons before the Department,” including their character, reputation, qualifications, and competency. For decades, under regulations promulgated under Title 31 and published as Circular 230, the IRS has overseen the professional behavior of attorneys, certified public accountants, enrolled agents, and other credentialed professionals advising and representing taxpayers before the IRS. At times this oversight has been intense, as with tax shelter opinions in the 1980s (section 10.34 of Circular 230) and the written advice restrictions in the mid-2000s (section 10.35 of Circular 230). At other times it has been more watchful than assertive.

The OPR has responsibility for matters related to practitioner conduct, has exclusive responsibility for discipline, including disciplinary proceedings and sanctions, and has responsibility for matters related to authority to practice before the IRS.

In the past, Circular 230 had provided that mere tax return preparation did not constitute practice before the IRS. That changed in 2010 when the IRS expanded its oversight to cover hundreds of thousands of previously unenrolled and unlicensed tax return preparers after studies confirmed that large segments of the public had their returns prepared by unenrolled and unlicensed paid return preparers who often committed errors and otherwise abused the tax compliance system.[1] Those studies, for example, showed that 55 percent of preparers were subject to no regulation and that tax returns prepared by all preparers had a higher estimated percent of errors—60 percent—than self-prepared returns—50 percent. Significantly, the studies also accentuated that unregulated tax return preparers are not required to have any minimum education, knowledge, training, or skill before they prepare a tax return for a fee.

Because 60 percent of taxpayers rely on paid tax return preparers, those preparers must be knowledgeable, their knowledge must remain current, and they must behave in accordance with high ethical and professional standards.

Current Case Law Interpreting Title 31 U.S.C. § 330

In the Loving case, the court struck down the IRS’s expanded oversight of return preparers, holding that the IRS had no such authority under Title 31.[2] In Ridgely,[3] the court invalidated Circular 230’s contingent-fee restrictions as applied to “ordinary” refund claims – i.e., claims (amended tax returns) filed prior to an examination of the original return. The courts did so on the basis that preparers of tax returns and “ordinary” claims for refund are not representing taxpayers and are not practicing before the IRS as defined in Title 31 U.S.C. § 330.

In analyzing whether tax return preparers and refund claim preparers are “representatives” of taxpayers “practicing before” the IRS, the courts said that these roles do not come into being until a dispute arises between the IRS and the taxpayer. For example, the courts said that in the normal course of return and claim submissions, before a return is being audited or there is otherwise a dispute between the taxpayer and the IRS, the tax professional is not “practicing” before the IRS in the sense of having a “case” before the IRS, another term found in Title 31 U.S.C. § 330. The courts said that a tax professional is not “representing” a taxpayer unless the representative has the power to bind the taxpayer as would an agent for a principal. Accordingly, even though Title 31 U.S.C. § 330(d) expressly states that nothing in section 330 or in any other law prevents the IRS from regulating tax advice with respect to an activity that has the potential for tax avoidance or evasion, dicta in the opinions makes possible the argument that most tax advice is outside the scope of section 330 oversight.

The courts also described the existing return preparer penalty provisions of Title 26 (the Internal Revenue Code) variously as comprehensive, careful, regimented, specific, and constituting a tightly controlled system of preparer regulation that should not be “eclipsed” by the broader and more flexible regulatory scheme under Title 31.

Whether the current penalty system is careful, specific, or tightly controlled is highly debatable when examined in specific factual contexts. For example, monetary penalties may be considered a mere cost of doing business by an unscrupulous practitioner. That said, if Circular 230 applies only to practice in the narrow dispute-related sense described by the courts in Loving and Ridgely, then the whole tax opinion arena could be beyond the scope of OPR scrutiny. The IRSAC believes that what is needed is a comprehensive, careful, and tightly-controlled system to safeguard the trustworthiness of all phases of tax advice, return and document preparation, and dispute representation. Because the cited cases rest on the courts’ interpretation of the terms in Title 31 U.S.C. § 330, the setback those cases have produced can be remedied by congressional action to change the statute.

Current Legislative Proposals to Expand Oversight of Tax Return Preparers

Recognizing the need for IRS oversight of currently unenrolled and unlicensed tax return preparers, members of Congress have introduced a number of bills specifically expanding the scope of Title 31 U.S.C. § 330 to cover “tax return preparers” as defined in section 7701(a)(36) of the Internal Revenue Code, or establishing oversight of such preparers under the Internal Revenue Code itself.

The IRSAC applauds the intent of this legislation particularly expanding the scope of Title 31 U.S.C. § 330 to include unenrolled and unlicensed tax return preparers as professionals who practice before the Internal Revenue Service. The income tax is generally self-assessed, and paid return preparers are critical advisers and assisters of taxpayers in understanding and fulfilling their self-assessment obligations. Given the meager 0.9 percent audit rate[4] that the IRS is able to sustain, leaving more than 99 percent of tax return data unreviewed, the system is clearly dependent upon the accuracy of the information that is originally submitted.

All paid tax return preparers have an important role in tax administration because they assist taxpayers in complying with their obligations under the tax laws. Incompetent and dishonest tax return preparers increase noncompliance and undermine confidence in the tax system.


The IRSAC recommends enactment of legislation to overturn the results in Loving and Ridgely by expressly affirming the Treasury Department’s authority under Title 31 U.S.C. § 330 to regulate paid tax return preparers. Guidance on the appropriate scope of the legislative grant may be found in the vision stated in section 10.2(a)(4) of Circular 230:

Practice before the Internal Revenue Service comprehends all matters connected with a presentation to the Internal Revenue Service or any of its officers or employees relating to a taxpayer’s rights, privileges, or liabilities under laws or regulations administered by the Internal Revenue Service. Such presentations include, but are not limited to, preparing documents; filing documents; corresponding and communicating with the Internal Revenue Service; rendering written advice with respect to any entity, transaction, plan or arrangement, or other plan or arrangement having a potential for tax avoidance or evasion; and representing a client at conferences, hearings, and meetings.


Executive Summary

In 2011 the IRSAC recommended to OPR that it “adopt the Uniform Standards of Professional Appraisal Practice (‘USPAP’), or equivalent, as one of the standards for judging appraiser conduct.”[5] We reaffirm that recommendation. To strengthen that affirmation, we cite key sources of authority that help explain the importance of the USPAP.


Sources of Authority for the USPAP: The Financial Institutions Examination Council

The Financial Institutions Examination Council is established under Title 12 U.S.C. § 3303 to prescribe uniform principles and standards for the federal examination of financial institutions. It is composed of the Comptroller of the Currency, the Chairman of the FDIC, a member of the Board of Governors of the Federal Reserve System, the Director of the Consumer Financial Protection Bureau, the Chairman of the National Credit Union Administration Board, and the Chairman of the State Liaison Committee.

Title 12 U.S.C. § 3310 creates the Appraisal Subcommittee of the Council, which is authorized by Title 12 U.S.C. § 3331, et seq., to “monitor and review the practices, procedures, activities, and organizational structure of the Appraisal Foundation.”[6] The Appraisal Foundation’s Appraisal Standards Board is responsible for promulgating the USPAP.[7] Updated every two years, the USPAP reflects the current standards of the appraisal profession and establishes requirements for appraisers in order to promote and maintain a high level of public trust in appraisal practice.

Other Official Affirmations of the USPAP

The USPAP is specifically affirmed in a federal tax context in current pronouncements and publications of the IRS.[8] For example, Internal Revenue Manual (I.R.M.): Part 20, Penalty and Interest, Exhibit 20.1.12-2, IRC 6695A - Job Aid (IRC Sections 6695A, 6700 & 6701 Valuation Penalty Job Aid), encourages IRS auditors to ask:

  • Does the appraisal comply with the USPAP (Uniform Standards of Professional Appraisal Practice) standards?[9]
  • If no, describe the most significant errors or omissions in the appraisal.[10]

In addition, Notice 2006-96, 2006-2 C.B. 902, Guidance Regarding Appraisal Requirements for Noncash Charitable Contributions, states:[11]

Generally accepted appraisal standards. An appraisal will be treated as having been conducted in accordance with generally accepted appraisal standards within the meaning of § 170(f)(11)(E)(i)(II) if, for example, the appraisal is consistent with the substance and principles of the Uniform Standards of Professional Appraisal Practice (“USPAP”), as developed by the Appraisal Standards Board of the Appraisal Foundation. Additional information is available at http://www.appraisalfoundation.org.[12]

This definition was refined in 2008 in Prop. Reg. §1.170A-17(a)(2), Generally accepted appraisal standards defined, published in the Federal Register dated August 7, 2008 (REG-140029-07).[13]

Expert Acknowledgment of the USPAP

U.S. Tax Court Judge David Laro and appraiser Shannon Pratt, authors of Business Valuation and Taxes, Procedure, Law and Perspective (2011), note that “although the USPAP directly influences federally related real estate transactions, it does not dictate the standard for business appraisals.” But they add:

USPAP makes good appraisal sense, is widely respected, and is frequently referred to by courts and regulatory agencies.[14]

The origin of the USPAP is explained by Gary Trugman CPA/ABV, ASA, in Understanding Business Valuation (2012):

Established in 1987, The Appraisal Foundation is not an appraisal organization. This organization was set up by seven real estate organizations and ASA [American Society of Appraisers], which was the only multidisciplinary organization, in response to a growing problem facing the real estate appraisal world. Real estate appraisers lacked standards to provide consistency in their work product. As a result, relying on these real estate appraisals caused bad bank loans to be made, creating severe problems for lending institutions. Facing some form of regulation in the near future, The Appraisal Foundation promulgated a set of standards relative to appraisals. These standards are the USPAP. Although these were primarily intended to cover real estate appraisals, ASA used its influence to have standards included for its other disciplines as well: personal property and business valuation.…

The essence of Standards 9 and 10 [sections of USPAP related to business valuation] is to do your job in a competent manner and communicate it properly. Several government agencies have adopted provisions requiring USPAP to be followed for all appraisals performed for their agencies. More and more courts are becoming familiar with the USPAP. Also the IRS has specifically mentioned the USPAP in Notice 2006-96, which was issued as a result of the Pension Protection Act of 2006 to provide guidance regarding the definition of a qualified appraiser and a qualified appraisal. As a result, business valuation appraisers are advised to follow these standards.[15]


The 2015 IRSAC concurs with the following conclusions in the 2011 IRSAC Report:

  • Having the USPAP as an objective and widely accepted standard as a key component of OPR’s due process would be mutually beneficial to both OPR and the appraisal community;
  • The USPAP could serve as a guide for both judging conduct and professional practice remediation; and
  • In a proceeding before an administrative law judge, the ability to reference an objective and widely accepted standard would be of great benefit.[16]

Accordingly, we recommend that the IRS encourage, and as appropriate require, application of the USPAP for judging appraiser conduct and professional practice remediation. Practical steps toward this goal would include references to the USPAP in Circular 230 governing professional conduct and also throughout the valuation provisions relating to Title 26, including the relevant provisions of the regulations and I.R.M. We recommend that the enhanced requirements incorporating the USPAP will be considered satisfied if the appraisal complies with similar standards that are at least as strict as the standards of the USPAP.


References to the USPAP in the United States Code and Regulations

While not all-inclusive, below are some references to USPAP.

The USPAP in the United States Code

Title 12 U.S.C. §.3339: Functions Of The Federal Financial Institutions Regulatory Agencies Relating To Appraisal Standards.

Each Federal financial institutions regulatory agency and the Resolution Trust Corporation shall prescribe appropriate standards for the performance of real estate appraisals in connection with federally related transactions under the jurisdiction of each such agency or instrumentality. These rules shall require, at a minimum—

(1)  that real estate appraisals be performed in accordance with generally accepted appraisal standards as evidenced by the appraisal standards promulgated by the Appraisal Standards Board of the Appraisal Foundation;

(2)  that such appraisals shall be written appraisals; and

(3) that such appraisals be subject to appropriate review for compliance with the Uniform Standards of Professional Appraisal Practice.

Each such agency or instrumentality may require compliance with additional standards if it makes a determination in writing that such additional standards are required in order to properly carry out its statutory responsibilities.

 [Added by Title XI of Public Law 101-73 (August 9, 1989); paragraph (3) added by Public Law 111-203 (July 21, 2010)]

Title 15 U.S.C. §.1639e: Appraisal Independence Requirements

(i)(2) Fee appraiser definition. For purposes of this section, the term "fee appraiser" means a person who is not an employee of the mortgage loan originator or appraisal management company engaging the appraiser and is—

(A) a State licensed or certified appraiser who receives a fee for performing an appraisal and certifies that the appraisal has been prepared in accordance with the Uniform Standards of Professional Appraisal Practice; or

(B) a company not subject to the requirements of section 3353 of title 12 that utilizes the services of State licensed or certified appraisers and receives a fee for performing appraisals in accordance with the Uniform Standards of Professional Appraisal Practice.

[Added by Public Law 111-203 (July 21, 2010)]

Title 16 U.S.C. §.6205: Appraisals

(a) Requirements for conducting appraisals

In implementing and conducting an appraisal process for determining cabin user fees, the Secretary [of Agriculture] shall—

(1) complete an inventory of improvements that were paid for by—

(A) the agency [the U.S. Forest Service];

(B) third parties; or

(C) cabin owners (or predecessors of cabin owners), during the completion of which the Secretary shall presume that a cabin owner, or a predecessor of the owner, has paid for the capital costs of any utility, access, or facility serving the lot being appraised, unless the Forest Service produces evidence that the agency or a third party has paid for the capital costs;

(2) establish an appraisal process to determine the market value of the fee simple estate of a typical lot or lots considered to be in a natural, native state, subject to subsection (b)(4)(A) of this section;

(3) enter into a contract with an appropriate professional appraisal organization to manage the development of specific appraisal guidelines in accordance with subsection (b) of this section, subject to public comment and congressional review;

(4) require that an appraisal be performed by a State-certified general real estate appraiser, selected by the Secretary and licensed to practice in the State in which the lot is located;

(5) provide the appraiser with appraisal guidelines developed in accordance with this chapter;

(6) notwithstanding any other provision of law, require the appraiser to coordinate the appraisal closely with affected parties by seeking information, cooperation, and advice from cabin owners and tract associations;

(7) require that the appraiser perform the appraisal in compliance with-

(A) the most current edition of the Uniform Standards of Professional Appraisal Practice in effect on the date of the appraisal;

(B) the most current edition of the Uniform Appraisal Standards for Federal Land Acquisitions that is in effect on the date of the appraisal; and

(C) the specific appraisal guidelines developed in accordance with this chapter;

(8) require that the appraisal report—

(A) be a full narrative report, in compliance with the reporting standards of the Uniform Standards of Professional Appraisal Practice; and

(B) comply with the reporting guidelines established by the Uniform Appraisal Standards for Federal Land Acquisitions; and

(9) before accepting any appraisal, conduct a review of the appraisal to ensure that the guidelines made available to the appraiser have been followed and that the appraised values are properly supported.

[Added by the Cabin User Fee Fairness Act of 2000, Public Law 106-291, Title VI (October 11, 2000)]

The USPAP in the Code of Federal Regulations

Title 12 C.F.R. § 323.4 Minimum Standards For Federally Related Transactions (FDIC)[17]

For federally related transactions, all appraisals shall, at a minimum:

(a) Conform to generally accepted appraisal standards as evidenced by the Uniform Standards of Professional Appraisal Practice (USPAP) promulgated by the Appraisal Standards Board of the Appraisal Foundation, 1029 Vermont Ave., NW., Washington, DC 20005, unless principles of safe and sound banking require compliance with stricter standards.

[1] Government Accountability Office, Paid Tax Return Preparers : In a Limited Study, Preparers Made Significant Errors, GAO-14-467T, (April 8, 2014) (testimony before the Senate Finance Committee); IRS Tax Return Preparer Review in 2009 and 2010; IRS Publication 4832, as cited in the 2014 IRSAC Final Report.
[2] Loving v. IRS, 742 F.3d 1013 (D.C. Cir. 2014), affg, 920 F. Supp. 2d 108 (D.D.C. 2013).
[3] Ridgely v. Lew, Case 1:12-cv-00565-CRC (D.D.C. 2014).
[4] 2014 IRS Data Book Table 9a.
[6] 12 U.S.C. § 3332 (Functions of Appraisal Subcommittee).
[7] Financial Institutions Reform, Recovery, and Enforcement Act of 1989, § 1103, Pub. L. No. 101-73, 103 Stat. 512 (August 9, 1989); Dodd-Frank Wall Street Reform and Consumer Protection Act, §§ 1473(b) and (f)(1), Pub. L. No. 111-203, 124 Stat. 2190, 2191, and 2192 (July 21, 2010).
[8] USPAP is generally affirmed in numerous provisions of the United States Code and regulations. The Appendix to this report is a partial list of those references.
[9] /irm/part20/52679005.html.
[10] /irm/part20/52679006.html.
[11] Notice 2006-96, 2006-46 I.R.B. 902 (November 13, 2006).
[13] IRS Notice of Proposed Rulemaking (REG-140029-07), 73 Fed. Reg. 45908 (Aug. 7, 2008).
[14] Laro, David, and Shannon P. Pratt, Business valuation and taxes: procedure, law and perspective 400 (2011).  
[15] Gary R. Trugman, Understanding business valuation: a practical guide to valuing small to medium-sized businesses 15, 59 (2012).
[16] /Tax-Professionals/2011-IRSAC-Public-Meeting-Briefing-Book.