This Will Keep You Up at Night: Firm and Partner Liability for Other Professionals’ Noncompliance

By Megan L Brackney
Tax Controversy Corner
January – February 2016 Edition

A recent district court decision involving the IRS’s assessment of over $11 million in penalties against a law firm for failing to provide information caught the attention of many tax practitioners. This column discusses that case, Callister Nebeker & McCullough,¹ as well as other areas in which a law firm or accounting firm, or the partners of a firm, can be liable for the noncompliance of partners and employees.² Specifically, this column discusses firm liability for list maintenance and reportable transaction penalties under Code Secs. 6707 and 6708, sanctions against firms and persons with principal authority under Circular 230 and Code Sec. 6694 and firm liability for promoter penalties under Code Secs. 6700 and 6701. The theme that runs through these provisions for penalties and sanctions is that a firm can minimize its liability by having procedures in place to ensure compliance before any violation occurs. This article concludes with some suggestions for law firm procedures, both to keep problems from occurring in the first place and to demonstrate reasonable cause if a partner or employee commits a violation.

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