IRS examination information may be disclosed to OPR during a practitioner investigation

Plain-English summary

Chief Counsel advised that the IRS examination unit may provide a practitioner’s revenue agent’s report and unagreed case package to the Office of Professional Responsibility during an investigation into possible disreputable conduct. The advice concluded that IRC § 6103(h)(1) permits the disclosure because OPR is part of the Treasury Department and uses the information for official tax-administration duties. The disclosure may occur before the practitioner’s case is resolved in Appeals. The advice also explains that the examination report and case package are return information protected by section 6103 unless an exception applies.

Ruling snapshot

• Question: Could SB/SE Exam disclose an unresolved examination report and unagreed case package to OPR when OPR referred the practitioner for examination?
• Outcome: Advice given, disclosure permitted under IRC § 6103(h)(1).
• Key authorities: IRC §§ 6103(a)(1), 6103(b)(2), 6103(b)(4), 6103(h)(1), and 6103(l)(4)(B); 31 U.S.C. § 330; 31 C.F.R. part 10.

Full text (IRS public release)

       Office of Chief Counsel
       Internal Revenue Service
       memorandum
       Number: 201403006
       Release Date: 1/17/2014
       CC:PA
       DISSP-132562-13

UILC: 6103.08-01

date: September 26, 2013

 to:   Supervisory Internal Revenue Agent
       (Small Business/Self-Employed)

from: Special Counsel
(Procedure and Administration)

subject: Disclosure of Federal Tax Information to OPR

       This Chief Counsel Advice responds to your inquiry as to whether the Small
       Business/Self-Employed examination unit (SB/SE Exam) of the Internal Revenue
       Service (IRS) may provide to the Office of Professional Responsibility (OPR)
       information concerning the examination of an individual who engages in practice before
       the IRS before the examination is resolved for purposes of an OPR investigation into
       that individual’s potential disreputable conduct due to tax noncompliance. This advice
       should not be used or cited as precedent.

                                               ISSUE

       Whether SB/SE Exam can disclose to OPR, for purposes of an OPR investigation, the
       audit report and unagreed case package regarding the examination of an individual who
       engages in practice before the IRS before the case is resolved (i.e., resolved in the
       Office of Appeals (Appeals) or through the issuance of a statutory notice of deficiency)
       when OPR referred the practitioner to SB/SE for examination.

                                            CONCLUSION

       SB/SE Exam may disclose the examination information concerning an individual who
       engages in practice before the IRS to OPR under I.R.C. section 6103(h)(1) for purposes
       of OPR’s disreputable conduct investigation into the tax compliance of that individual.

DISSP-132562-13 2

                                  BACKGROUND

Section 330 of title 31 of the United States Code authorizes the Secretary of the
Treasury (the Secretary) to regulate the practice of representatives before the Treasury
Department. The Secretary has published regulations governing the practice of
representatives before the IRS in 31 CFR Part 10 and reprinted the regulations as
Treasury Department Circular No. 230 (Circular 230). OPR is responsible for enforcing
Circular 230. See 31 C.F.R. § 10.1(a) (2011). As part of its enforcement authority,
OPR has the authority to investigate whether a practitioner has violated Circular 230
and to propose sanctions against individual practitioners for violations. See 31 C.F.R.
§ 10.1(a)(1). Section 10.51(a) of Circular 230 provides that a practitioner may be
sanctioned for certain “disreputable conduct,” including willfully failing to make a federal
tax return in violation of federal tax laws, willfully evading or attempting to evade
assessment or payment of federal tax, or conviction of any criminal offense under
federal tax laws. As such, in the course of a Circular 230 investigation, OPR may
determine it is appropriate to refer a practitioner to the IRS for examination of the
practitioner’s own tax returns or the tax returns of an entity in which the practitioner is an
owner or principal.

An SB/SE revenue agent may then conduct an examination of the practitioner’s return
or returns and will ultimately issue a revenue agent’s report (RAR) containing a
determination. The practitioner then has the opportunity to contest the RAR in Appeals.
A question has arisen as to whether OPR can receive a copy of the RAR and unagreed
case package, in particular, before Appeals completes its review of the case.

                               LAW AND ANALYSIS

Pursuant to I.R.C. section 6103(a)(1), an officer or employee of the United States must
keep returns and return information confidential unless disclosure is authorized under
Title 26. Under section 6103(b)(2)(A), “return information” includes a taxpayer’s identity
as well as whether the taxpayer’s return was, is being, or will be examined. It also
includes “any other data received by, recorded by, prepared by, furnished to, or
collected by the Secretary with respect to a return or with respect to the determination of
the existence, or possible existence, of liability (or the amount thereof) of any person
under this title for any tax, penalty, interest, fine, forfeiture, or other imposition, or
offense.” Id. Both the RAR and unagreed case package reflect the examination of the
taxpayer. The RAR is prepared by the revenue agent at the conclusion of the audit.
The case package, whether or not agreed, may include the taxpayer’s tax returns and
normally contains data received by, recorded by, prepared by, furnished to, and/or
collected by an IRS employee concerning the taxpayer’s tax liability. Therefore, the
RAR and contents of the unagreed case package are “returns and return information”
within the meaning of section 6103(b)(2). SB/SE employees are therefore prohibited
from disclosing the RAR and unagreed case package to OPR unless an exception to
section 6103(a)(1) applies.

DISSP-132562-13 3

Section 6103(h)(1) permits disclosure of returns and return information to officers and
employees of the Department of Treasury, without written request, where the recipient
needs to know the information to perform tax administration duties. OPR is a part of the
IRS, which is in turn a bureau of the Department of Treasury. Tax administration is
broadly defined under section 6103(b)(4) and includes “the administration,
management, conduct, direction, and supervision of the execution and application of
internal revenue laws and related statutes (or the equivalent laws and statutes of a
state).” I.R.C. § 6103(b)(4)(A)(i). Circular 230 provides OPR with the authority to
conduct investigations, to commence disciplinary proceedings, and to pursue sanctions,
when appropriate. A practitioner’s failure to comply with federal tax laws may constitute
sanctionable conduct. When OPR employees investigate the federal tax compliance of
those who are subject to Circular 230, they are performing their official tax
administration duties. Kenny v. United States, 489 Fed. Appx. 628, 631 (3d Cir. 2012)1.
Section 6103(h)(1), therefore, authorizes the disclosure of a practitioner’s return
information to OPR so that OPR can conduct investigations, institute disciplinary
proceedings, and pursue sanctions.2 Further, because OPR has the authority to
investigate and proceed with disciplinary actions while a practitioner seeks review of
Exam’s determination in Appeals, Exam may disclose the RAR to OPR before the
conclusion of the Appeals hearing.3

Please call if you have any further questions.

1
The Court in Kenny also pointed out that disclosure is permitted under
section 6103(l)(4)(B) when OPR employees investigate a practitioner's returns in
preparation for a proceeding under 31 U.S.C. section 330(b) to suspend, disbar or
censure a representative who is disreputable.
2
Although our discussion in this advice is based on the background and issue you
presented—specifically involving a referral from OPR to SB/SE (which is itself a
permissible disclosure under section 6103(h)(1))—it is not necessary that there be a
prior referral from OPR to SB/SE to provide return information to OPR when
appropriate.
3
Additionally, OPR makes its own evaluation of whether there has been a violation of
Circular 230, independent of Appeals’ settlement or other action on a case.