Practice Made Perfect? (I think not)

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Hmm. I really was blown away by this ruling. I have a feeling it won’t go down well with you either. (Unless, you are of the ilk that no government regulations are ever ok. And, then, shame on you!)

James Sexton, Jr. is an attorney in South Carolina. (OK. If one has been disbarred, is he still considered to be an attorney? I really don’t know the answer to that question. But, it doesn’t really change the facts of this case.) About a dozen years ago (2005), he plead guilty to four counts of mail fraud and one count of money laundering. Which was followed up by his being suspended from practice before the IRS in 2008.

Given those facts, you’d think he’d no longer be preparing taxes for folks, right? WRONG!

Esquire Group, LLC (like that play on words? Like he still is a practicing attorney?) prepares tax returns for clients. And, James Sexton happens to be the president of the firm. Where he actually prepares returns, as well as manages the enterprise.

Not surprisingly, a client complained to the IRS that they were not properly advised. Sexton prepared this client’s 2010 and 2011 returns. And, Sexton was preparing a memorandum about the client’s business tax needs. But, she (the client) found out that Sexton was disbarred- so she fired him (via eMail) and filed the complaint with the IRS. (Actually, complaints are filed with the Office of Professional Responsibility [OPR].)

The OPR requested data from the Supreme Court of South Carolina (Sexton’s and Esquire Group’s domicile)- in particular, his education and background. Which the agency followed up with demands from Sexton himself. Sexton objected to that request.

Sexton demanded a declaratory judgment from the courts. His objections? Sexton is not a “practitioner” under federal law, so the OPR lacks statutory authority over him- or his company. And, OPR has no regulatory authority regarding the dispensation of tax advice, except as stipulated by statue or Congress.

Sexton’s goal was to ensure he was not subject to Section 10.20 (the section is entitled- Information to be Furnished; this was a direct reference by the IRS when they asked Sexton for data) of Circular 230. (Circular 230 covers the Regulations Governing Practice before the Internal Revenue Service.)

OPR rendered a motion to the court that it be awarded a summary judgment in its favor.

Sexton was relying on the case the IRS lost in 2014 when it’s concept of testing and licensing every tax preparer in the US was thrown out. (Loving, 742 F.3d 1013, DC Circuit Court 2014). The IRS had proposed that not just folks like me, who are, indeed, licensed and regulated by the IRS for tax preparation and financial affairs- but anyone who prepares a tax return must prove to the IRS it had the knowledge and capability to do so. (The idea was to stop all the charlatans who invent special deductions that are contrary to law, to stop those who are simply careless or lie to the public.) Loving stopped that IRS concept cold.

That ruling also means that the IRS had no authority to regulate or oversee folks who do NOT represent taxpayers before the IRS. Loving stipulated that preparing or signing tax returns is NOT practicing before the IRS. (This is why the IRS can’t regulate tax preparers.)

The IRS responded that representatives that had been suspended from practice by the IRS are certainly subject to its authority. (Licensing and/or disciplinary bodies retain jurisdiction over members who have been suspended from practice). However, the Court simply rejected that argument.

The IRS also stated that 31 USC Section 330(e) (as shown in the box below) prohibited Sexton from providing written advice to taxpayers. The Court responded that this section ONLY applies if the practitioner is representing a client before the IRS, and does not have any applicability to someone providing written advice to a taxpayer. (The Court also reminded the IRS that Sexton had NOT provided any written advice; it offered to do so- but the client fired him before Sexton acted.)


This is why the Federal District Court in Nevada granted Sexton declaratory judgments and a permanent injunction against the IRS. (Of course, it also denied the IRS request for summary judgment.)

I, for one, don’t think this is a great turn of events.  It leaves taxpayers in jeopardy.Roy A. Ackerman, Ph.D., E.A.



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