Ethics Case Studies on Circular 230 Provisions...2018/09/12 · Ethics Case Studies on Circular 230...

Ethics Case Studies on Circular 230 Provisions

Kizzy M. Gaul, Esq., CPC, QPA, QKA, TGPCManager of Regulatory Supervision

Prudential [email protected]

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mailto:[email protected]

Agenda

• Overview of Circular 230

– Background

– Enforcement

• 3(16) Fiduciary definition and services

• Key Circular 230 provisions

– Overlapping provisions with ASPPA’s Code of Conduct

• Case Studies

• Questions

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Overview of Circular 230

• 31 U.S.C. §330 (1884)

– Post Civil-War legislation that became known as the “Horse Act”

– Provides Treasury the authority to regulate the admission of representatives of claimants before them and to take disciplinary action

– Treasury published guidance for those representatives that evolved into Circular 230

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• Representative must demonstrate:– Good character

– Good reputation

– Necessary qualifications to enable the representative to provide valuable service to clients

– Competency to advise and assist clients in presenting their cases

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• Treasury Department Circular No. 230 (1921)

– Subpart A: Rules Governing Authority to Practice

– Subpart B: Duties and Restrictions Relating to Practice Before the Internal Revenue Service (Notable Provisions)

– Subpart C: Sanctions for Violation of the Regulations

– Subpart D: Rules Applicable to Disciplinary Proceedings

– Subpart E: General Provisions

• Revisions as of June 12, 2014

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• Practice before the Internal Revenue Service (IRS)

– All matters connected with a presentation to the IRS or any of its officers or employees relating to a taxpayer’s rights, privileges or liabilities under laws or regulations administered by the IRS

– Presentations include (but are not limited to) preparing or filing documents, corresponding/communicating with the IRS, rendering written advice and representing a client at conferences, hearings or meetings

– Does not include “mere tax return preparation” (Loving)

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Poll Question #1

Circular 230’s 100th birthday is in which year?

A. 1984

B. 2021

C. 1999

D. 1977

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• Who is covered?

– Attorneys

– Certified Public Accountants (CPA)

– Enrolled Agents

– Enrolled Actuaries

– Enrolled Retirement Plan Agents (ERPA)

– Registered Tax Return Preparers

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• Some form of Code of Conduct applies to most practitioners

– Circular 230

– ASPPA Code of Conduct

– Attorney

– CPA

– Actuary

– Other professional code

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• Retirement plan related forms:

– Form SS-4, Application for Employer Identification Number;;

– Form 1099 series;;

– Form 2848, Power of Attorney and Declaration of Representative;;

– Form 4419, Application for Filing Information Returns Electronically;;

– Form 5300, Application for Determination for Employee Benefit Plan;;

– Form 5307, Application for Determination for Adopters of Modified Volume Submitter Plans

– Form 5310, Application for Determination for Terminating Plan

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• Retirement plan related forms (Continued):

– Form 5500 Series

– Form 8717, User Fee for Employee Plan Determination Letter Request

– Form 8821, Tax Information Authorization

– Form 5558, Application for Extension of Time to File Certain Employee Plan Returns

– Form 8955-SSA, Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits

– Form 5330, Return of Excise Taxes Related to Employee Benefit Plans

– Form 945, Annual Return of Withheld Federal Income Tax

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• The Office of Professional Responsibility (OPR) has been given the authority for disciplinary proceedings and sanctions

• Starts with a referral to Office of Professional Responsibility (OPR)

– Any IRS employee who believes a practitioner has violated any provision of Circular 230 is required to make a written report to OPR (31 C.F.R. §10.53(a))

– Other persons (31 C.F.R. §10.53(b))

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• OPR will evaluate for jurisdiction; Circular 230 violations; willful, grossly incompetent or reckless conduct; as well as looking at practitioner’s personal tax compliance

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• OPR may look at alternate discipline options without revoking practice rights

– Soft letter (private)

– Pre-allegation letter

– Reprimand -- becomes part of record and could show pattern

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• Discipline Options:

– Private reprimand

– Censure

– Suspension

– Disbarment

– Monetary sanction (individual and firm level)

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Poll Question #2

OPR can suspend a practitioner for not filing their taxes for:

A. Three out of the last four years

B. One out of the last four years

C. Six out of the last ten years

D. Four out of the last five years

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3(16) Fiduciary

• What is the definition of a 3(16) Fiduciary?

– Definition is found in ERISA 3(16) and ERISA §402

– Has been delegated certain duties and discretionary control by the plan sponsor

– Could be delegated by plan document or other agreement

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3(16) Fiduciary

• What types of services does a 3(16) Fiduciary provide?

– File Form 5500

– Monitor plan operations

– Hardship qualification

– Loan

– Deliver notices

– Provide summary plan description

– Maintain plan records

– Qualify and administer domestic relationship orders

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3(16) Fiduciary

• Does Circular 230 apply to a 3(16) fiduciary?

• Does a separate code of conduct apply?

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Key Circular 230 Provisions

§10.21 knowledge of client’s omission:

• A practitioner that knows that the client has not complied with the revenue law of the United States or has made an error or omission from any return, document, affidavit, or other paper which the client submitted or executed under the revenue laws of the United States

• Practitioner must advise client of the consequences

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§10.22 diligence as to accuracy:

• Must exercise due diligence in:

– Preparing, approving, and filing tax returns, documents, affidavits, and other papers relating to IRS matters

– Determining the correctness of oral or written representations made by the practitioner to the IRS or to clients

• Reliance on another person’s work product – must take reasonable care

– Safe harbor for due diligence

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ASPPA Code of Conduct/Control of Work Product

• A Member shall not perform Professional Services when the Member has reason to believe that they may be altered in a material way or may be used to violate or evade the Law. The Member should recognize the risk that materials prepared by the Member could be misquoted, misinterpreted or otherwise misused by another party to influence the actions of a third party and should take reasonable steps to ensure that the material is presented fairly and that the sources of the material are identified.

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§10.23 prompt disposition of pending matters:

• May not unreasonably delay the prompt disposition of any matter before the IRS

§10.27 fees:

• May not charge an unconscionable fee

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§10.28 return of client’s records:

• In general, must return any and all records of the client that are necessary for the client to comply with Federal tax obligations

• May retain copies of records returned to the client

• If state law allows, may be able to retain records in the event of a dispute over fees

– Must provide reasonable access to review and copy records that are necessary for client to comply with Federal tax obligations

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§10.28 return of client’s records (Continued):

• Records include:

– All documents (written or electronic) provided to or obtained by practitioner

– Materials prepared by the client or a third party (not including employee or agent of practitioner) with respect to the subject matter of the representation

– Return, claim for refund, schedule, affidavit, appraisal, or any other document prepared by practitioner from a prior representation if necessary to comply with current Federal tax obligations

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§10.28 return of client’s records (Continued):

• Does not include any return, claim for refund, schedule, affidavit, appraisal, or any other document prepared by the practitioner if withholding pending the client’s payment of fees if contractually obligated

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ASPPA Code of Conduct/Courtesy and Cooperation

• When a Principal has given consent for a new or additional professional to consult with a Member with respect to a matter for which the Member is providing or has provided Professional Services, the Member shall cooperate in assembling and transmitting pertinent data and documents, subject to receiving reasonable compensation for the work required to do so

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ASPPA Code of Conduct/Courtesy and Cooperation (Continued)

• In accordance with Circular 230, the Member shall promptly, at the request of the Principal, return any and all records of the Principal that are necessary for the Principal to comply with federal tax Law, even if the Member is not subject to Circular 230. The existence of a fee dispute generally does not relieve the Member of this responsibility except to the extent permitted by applicable state Law. The Member need not provide any items of a proprietary nature or work product for which the Member has not been compensated.

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Poll Question #3

What movie would you like to see this weekend?

A. The Predator

B. A Simple Favor

C. Unbroken: Path to Redemption

D. Christopher Robin

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§10.29 conflicting interests:

• One client’s interest is directly adverse to another; or

• Significant risk of material limitation by responsibilities to:

– Another client

– A former client

– A third person

– By personal interest of the practitioner

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§10.29 conflicting interests (Continued):

• May represent if:

– Reasonably believe in ability to provide competent, diligent representation to each affected client

– Not legally prohibited

– Each affected client waives conflict by giving informed consent in writing at the time the conflict is known

• May consult an objective third party

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ASPPA Code of Conduct/Conflict of Interest

• A Member shall not perform Professional Services involving an

actual conflict of interest unless:

– The Member’s ability to act fairly is unimpaired

– There has been full disclosure of the conflict to the Principal(s)

– All Principals have expressly agreed to the performance of the services by the Member

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ASPPA Code of Conduct/Conflict of Interest (Continued)

• If the Member is aware of any significant conflict between the interests of a Principal and the interests of another party, the Member should advise the Principal of the conflict and include appropriate qualifications or disclosures in any related communication

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§10.30 solicitation:

• May not use any form of public communication or private solicitation that contains a false, fraudulent, or coercive statement or claim; or a misleading or deceptive statement or claim

• ERPA or registered tax return preparers may not use the term “certified” or imply an employer/employee relationship with the IRS

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• Examples of acceptable description:

– “Enrolled to represent taxpayers before the Internal Revenue Service as a retirement plan agent”

– “Enrolled to practice before the Internal Revenue Service as a retirement plan agent”

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ASPPA Code of Conduct/Advertising

• Member shall not engage in any Advertising with respect to Professional Services that the Member knows or is reasonably expected to know are false

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ASPPA Code of Conduct/Titles and Credentials

• A Member shall make truthful use of the membership Titles and Credentials of American Retirement Association to which the Member is entitled, and only where that use conforms to the practices authorized by American Retirement Association. A Member who is not an Actuary as defined in section 1 of this Code shall not professionally represent to the public to be an actuary or knowingly allow such misrepresentation by others.

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§10.34(b) standards with respect to documents, affidavits and other papers:

• May not advise a client to take a position that is frivolous

• May not advise a client to submit a document, affidavit, or other paper to the IRS:

– To delay or impede the administration of Federal tax laws

– That is frivolous

– That contains or omits information in a manner that demonstrates an intentional disregard of a rule or regulation

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§10.34(c) advising clients on potential penalties:

• Must advise client of potential penalties and the opportunity to avoid by disclosure

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§10.34(d) relying on information furnished by clients:

• Generally may rely in good faith without verification:

– May not ignore actual knowledge

– May not ignore implication of other information furnished

– May need to make reasonable inquiry

– No willful blindness

– Look at information versus making a characterization or legal conclusion

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§10.35 competence:

• Competent practice requires the appropriate level of knowledge, skill, thoroughness, and preparation

– May become competent by consulting with experts or studying the relevant law

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ASPPA Code of Conduct/Qualification Standards

• A Member shall render opinions or advice, or perform Professional Services, only when qualified to do so based on education, training, and experience

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§10.37 requirements for written advice:

• Must be based on reasonable factual and legal assumptions (including future events)

• Must reasonably consider relevant facts that the practitioner knows or reasonably should know

• Use reasonable efforts to identify and ascertain relevant facts

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§10.37 requirements for written advice (Continued):

• May not rely upon representations, statements, findings, or agreements (projections, financial forecasts, or appraisals) of the taxpayer or any other person if reliance on them would be unreasonable

• Relate applicable law and authorities to facts

• May not take into account the possibility that a tax return will not be audited or that a matter will not be raised on audit

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Case Studies

• Case Study #1 (Based on IRS Phone Forum - “Ethical Standards for Employee Benefits Practitioners,” January 2014)

– You are approached by CFO of Hospital X, a 501(c)(3) entity

– The CFO further provides that Hospital X is a governmental entity and they would like your assistance in establishing a retirement plan that covers only senior executive employees and provides for a ten-year cliff vesting schedule

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Case Studies

• Case Study #2 (Based on IRS Phone Forum - “Ethical Standards for Employee Benefits Practitioners,” January 2014)– Same facts as #1

– You prepares the plan document and submit it for determination regarding the form of the plan

– The IRS responds asking for additional information in order to complete the application

– Responding to the additional information request increases fees and determination is not forthcoming

– Two years pass since the application was first submitted and no ruling has been issued by the Service

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Case Studies

• Case Study #2 (Continued)

– The CFO is losing patience and refuses to pay your most recent invoice

– In addition, the CFO asks for all files regarding Hospital X and the plan to be sent to Hospital X

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Case Studies

• Case Study #3

– You have prepared the 2017 Form 5500 for ABC Co.

– ABC Co. had on two occasions remitted elective deferrals two weeks after the pay date

– The Form is prepared reporting late contributions

– The plan administrator for ABC Co. asks for the Form to be revised to not report late contributions

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Case Studies

• Case Study #3 (Continued)– Does the perspective change if the plan administrator is able to revise and

submit the Form his- or herself?

– Does the perspective change if there was a reason the contributions were late?

– 3(16) fiduciary considerations?

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Case Studies

• Case Study #4

– Owner of Construction Co. employs his two children

– You provide TPA services for the Construction Co. 401(k) Plan

– Children contribution elective deferrals up to 402(g) and receive Safe Harbor contribution

– Children do not receive additional nonelective, which assists passing general testing where owner maximizes contributions

– Accountant for Construction Co. tells you children don’t really work there

– 3(16) considerations?

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Case Studies

• Case Study #5

– Swing Co. is currently under IRS audit

– You provide TPA services for the Swing Co. 401(k) Plan and you are representing them in their audit

– IRS asks for a copy of the PPA interim amendment for the plan

– You do not have a signed copy of the amendment on file

– Owner of Swing Co. also cannot find a signed copy of the amendment in their records

– Adviser for the Swing Co. plan asks you to send an unsigned copy of the amendment so owner knows what to look for

– Within a day, owner returns a signed copy of the amendment

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Reference Material

• Circular 230– https://www.irs.gov/pub/irs-pdf/pcir230.pdf

• Circular 230 tax professionals– https://www.irs.gov/tax-professionals/circular-230-tax-professionals

• ASPPA’s Code of Conduct– http://www.asppa.org/Portals/2/PDFs/Education/Resources/2016_ARA_Co

deofConduct.pdf

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https://www.irs.gov/pub/irs-pdf/pcir230.pdf

https://www.irs.gov/tax-professionals/circular-230-tax-professionals

http://www.asppa.org/Portals/2/PDFs/Education/Resources/2016_ARA_CodeofConduct.pdf

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Ethics Case Studies on Circular 230 Provisions...2018/09/12 · Ethics Case Studies on Circular 230...

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Transcript of Ethics Case Studies on Circular 230 Provisions...2018/09/12 · Ethics Case Studies on Circular 230...