IRS Issues Guidance on Monetary Penalties

The IRS published guidance in Notice 2007-39 to outline how it will wield its new statutory authority to impose monetary penalties on taxpayer representatives for violations of Circular 230.

The amendment to 31 USC §330 empowers the Service to levy monetary penalties for violations occurring after Oct. 22, 2004. The penalty may be imposed on practitioners who are incompetent or disreputable, fail to comply with Circular 230 or, with intent to defraud, willfully and knowingly mislead or threaten a current or potential client. The amount of the penalty cannot exceed the gross income derived, or expected to be derived, from the conduct resulting in the penalty. If the offending practitioner acted on behalf of an employer, the IRS may impose a separate penalty against the employer if it knew, or reasonably should have known, of the conduct.

In determining the amount of a penalty, the IRS will consider the level of culpability of the practitioner, firm or other entity; whether the practitioner, firm or other entity violated a duty owed to a current or prospective client; the actual or potential injury caused by the prohibited conduct; and any aggravating or mitigating factors.

The monetary penalties may be imposed in addition to any suspension, disbarment or censure of the practitioner.

The Service is seeking comments by Aug. 13 on how to apply the penalty. Comments may be e-mailed to Notice.Comments@irscounsel.treas.gov.