| REG-111835-99 |
January 17, 2001 |
Regulations Governing Practice Before the
Internal Revenue Service
DEPARTMENT OF THE TREASURY
Office of the Secretary 31 CFR Part 10 [REG-111835-99] RIN 1545-AY05
TITLE: Regulations Governing Practice Before the Internal Revenue
Service
AGENCY: Office of the Secretary, Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
SUMMARY: This notice proposes modifications of the regulations
governing practice before the Internal Revenue Service (Circular
230). These regulations would affect individuals who are eligible to
practice before the Internal Revenue Service. The proposed
modifications would clarify the general standards of practice before
the Internal Revenue Service and would modify the standards for
providing advice regarding tax shelters. This document also provides
notice of a public hearing on the proposed regulations.
DATES: Comments and requests to speak and outlines of topics to be
discussed from persons wishing to speak at the public hearing
scheduled for May 2, 2001, in the auditorium of the Internal Revenue
Building at 1111 Constitution Avenue, NW., Washington, DC 20224,
must be received by April 12, 2001.
ADDRESSES: Send submissions to: CC:M&SP:RU (REG-111835-99), room
5226, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered Monday
through Friday between the hours of 8 am. and 5 pm. to:
CC:M&SP:RU (REG-111835-99), Courier's Desk, Internal Revenue
Service, 1111 Constitution Avenue NW., Washington, DC.
Submit comments and data via electronic mail (email) to
http://www.irs.gov/tax_regs/regslist.html.
FOR FURTHER INFORMATION CONTACT: Concerning issues for comment,
Richard Goldstein at (202) 622-7820 or Brinton Warren at (202)
622-4940; concerning submissions of comments and delivering
comments, Guy Traynor at (202) 622-7180; (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in this notice of
proposed rulemaking has been submitted to the Office of Management
and Budget for review in accordance with the Paperwork Reduction Act
of 1995 (44 U.S.C. 3507). Comments on the collection of information
should be sent to the Office of Management and Budget , Attn: Desk
Officer for the DEPARTMENT OF THE TREASURY, Office of Information
and Regulatory Affairs, Washington, DC 20503, with copies to the
Internal Revenue Service , Attn: IRS Reports Clearance Officer,
W:CAR:MP:FP:S:O, Washington, DC 20224. Comments on the collection of
information should be received by March 13, 2001. Comments are
specifically requested concerning:
Whether the proposed collection of information is necessary
for the proper performance of the Office of the Director of
Practice, including whether the information will have practical
utility;
The accuracy of the estimated burden associated with the
proper collection of information (see below);
How the quality, utility, and clarity of the information to be
collected may be enhanced;
How the burden of complying with the proposed collection of
information may be minimized, including through the application of
automated collection techniques or other forms of information
technology; and
Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of services to provide information.
The collection of information in these proposed regulations is
in §§10.6, 10.29, and 10.30. Section 10.6 requires an
enrolled agent to maintain records and educational materials
regarding his or her satisfaction of the qualifying continuing
professional education credit. Section 10.6 also requires sponsors
of qualifying continuing professional education programs to maintain
records and educational material concerning these programs and those
who attended them. The collection of this material helps to ensure
that individuals enrolled to practice before the Internal Revenue
Service are informed of the newest developments in Federal tax
practice.
Section 10.29 requires a practitioner to obtain and retain for
a reasonable period written consents to representation whenever such
representation directly conflicts with the interests of the
practitioner or the interests of another client of the practitioner.
The consents are to be obtained after full disclosure of the
conflict is provided to each party. Section 10.30 requires a
practitioner to retain for a reasonable period any communication and
the list of persons to whom that communication was provided with
respect to public dissemination of fee information. The collection
of consents to representation and communications concerning
practitioner fees protects the practitioner against claims of
impropriety and ensures the integrity of the tax administration
system.
Estimated total annual recordkeeping burden is 50,000 hours.
Estimated annual burden per recordkeeper varies from 30
minutes to 1 hour, depending on individual circumstances, with an
estimated average of 54 minutes.
Estimated number of recordkeepers is 56,000.
An agency may not conduct or sponsor, and a person is not
required to respond to a collection of information unless it
displays a valid control number assigned by the Office of Management
and Budget.
Books or records relating to a collection of information must
be retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns
and tax return information are confidential, as required by section
6103 of the Internal Revenue Code.
Background
Section 330 of title 31 of the United States Code authorizes
the Secretary of the Treasury to regulate the practice of
representatives before the Treasury Department. The Secretary of the
Treasury is authorized, after notice and an opportunity for a
proceeding, to suspend or disbar from practice before the Department
those representatives who are incompetent, disreputable, or who
violate regulations prescribed under section 330 of title 31.
Pursuant to section 330 of title 31, the Secretary has published the
regulations in Circular 230 (31 CFR part 10). These regulations
authorize the Director of Practice to act upon applications for
enrollment to practice before the Internal Revenue Service, to make
inquiries with respect to matters under the Director's jurisdiction,
to institute proceedings for suspension or disbarment from practice
before the Internal Revenue Service, and to perform such other
duties as are necessary to carry out these functions.
The regulations have been amended from time to time to address
various specific issues in need of resolution. For example, on
February 23, 1984, the regulations were amended to provide standards
for providing opinions used in tax shelter offerings (49 FR 6719).
On October 17, 1985, the regulations were amended to conform to
legislative changes requiring the disqualification of an appraiser
who is assessed a penalty under section 6701 of the Internal Revenue
Code for aiding and abetting the understatement of a tax liability
(50 FR 42014). The regulations were most recently amended on June
20, 1994 (59 FR 31523), to provide standards for tax return
preparation, to limit the use of contingent fees in tax return or
refund claim preparation, to provide expedited rules for suspension,
and to clarify or amend certain other items.
On June 15, 1999, an advance notice of proposed rulemaking
was published (64 FR 31994) requesting comments on amendments to the
regulations that would take into account legal developments,
professional integrity and fairness to practitioners, taxpayer
service, and sound tax administration. On May 5, 2000, an advance
notice of proposed rulemaking was published (65 FR 30375) requesting
comments on amendments to the regulations relating to standards of
practice governing tax shelters and other general matters.
Summary of Comments
Twenty-seven written comments have been submitted concerning
the revision of Circular 230. All comments received have been
considered and are available for public inspection upon request. The
following paragraphs provide a summary of significant comments.
A few commentators expressed concern that, under the current
regulations, a practitioner may be in violation of the regulations
if the practitioner fails to furnish information or documents
subject to a lawful request for documents made by an officer or
employee of the Internal Revenue Service where neither the
practitioner nor the practitioner's client possesses or controls the
documents. These commentators suggested that §10.20 of the
regulations be clarified to provide that there is no violation of
the regulations if the information or documents are not in the
possession or control of the practitioner or the practitioner's
client.
Some commentators expressed concern about a practitioner's
obligation when notifying a client of any noncompliance with the
revenue laws. The commentators recommended that a practitioner be
required to advise the client of the action necessary to correct the
error or omission and the consequences of not taking such action
when notifying a client of any noncompliance with the revenue laws.
Some commentators expressed concern about the current practice used
by some practitioners to obtain oral consents to represent parties
where there is a direct conflict of interest. They recommended that
a practitioner be required to obtain written consents to represent
parties where there is a direct conflict of interest.
Some commentators suggested that §10.22 be amended
specifically to permit a practitioner to demonstrate due diligence
for purposes of these regulations based on the practitioner's
reliance on the work product of an associate or partner. It also was
suggested that §10.24 be amended to permit a practitioner to
share fees with a suspended or disbarred person during the period of
suspension or disbarment, respectively.
Several commentators noted that the regulations regarding
solicitation are not consistent with recent court decisions
concerning in-person contacts of potential clients by certified
public accountants. They suggested that the restrictions on in-
person contacts be liberalized for all practitioners. It also was
suggested that the prohibition of deceptive public solicitations be
extended to deceptive private solicitations and that practitioners
be prohibited from associating with an individual who uses deceptive
solicitation practices, regardless of whether the deceptive
practices related to business connected with the practitioner.
One commentator suggested that the regulations be modified to
require the Director of Practice to notify a practitioner whenever a
complaint has been filed against the practitioner, whether or not
any action is taken against the practitioner as a result of the
complaint.
Several comments were received recommending changes to the
regulation of opinion writing by practitioners. Commentators
recommended that new opinion standards be promulgated with respect
to tax shelter opinions that are rendered for the purpose of
establishing a reasonable cause and good faith defense to the
accuracy- related penalties under section 6662 of the Internal
Revenue Code ("reasonable cause opinions"). These commentators
suggested that standards for such opinions impose factual due
diligence requirements that, in particular, restrict the reliance on
hypothetical facts or factual assumptions as the basis for such
opinions. Some commentators suggested that reliance on factual
assumptions regarding the business purpose or noneconomic
consequences of a transaction be treated as inherently unreasonable.
Comments also were received on whether and to what extent reliance
in an opinion on taxpayer representations or certifications should
be permitted and the conditions under which a practitioner may rely
on the opinions of other practitioners.
Several commentators recommended that the new standards
impose requirements with respect to the legal analysis contained in
reasonable cause opinions, particularly that such opinions contain
no unreasonable legal assumptions, address all material tax issues,
evaluate relevant legal authorities and consider applicable judicial
doctrines and statutory and regulatory anti-abuse rules. One
commentator, however, thought it was unnecessary to impose an
explicit requirement in Circular 230 that reasonable cause opinions
address the applicability of relevant judicial doctrines. Another
commentator considered it sufficient for Circular 230 merely to
require that reasonable cause opinions consider the substance and
purpose of the transaction under scrutiny.
Comments also were received as to whether a reasonable cause
opinion should unambiguously opine on a comfort level of "more
likely than not" or higher, should state that it is issued to
establish reasonable cause, and other matters. A few commentators
expressed concern that the definition of a tax shelter utilized in
any opinion standards not be overly broad and that opinion standards
under Circular 230 be coordinated with opinion-related requirements
under the accuracy-related penalties. One commentator suggested that
the opinion standards provide that satisfaction of the standards
would meet a practitioner's obligations under Circular 230, but
would not determine the persuasiveness of, and the taxpayer's good
faith reliance on, the opinion. Two commentators also suggested that
standards be promulgated for written advice used for marketing
purposes.
Commentators generally did not oppose the expansion of
sanctions to encompass lesser sanctions such as censure.
Commentators did not support attribution of practitioner misconduct
to other members of the practitioner's firm. Several commentators,
however, stated that in instances where there has been a knowing
participation or acquiescence in such misconduct by other members of
a firm or a pattern of abuse by members of a firm, sanctions
extending beyond the individual practitioner may be appropriate.
The majority of commentators supported a contingent fee
limitation with respect to original tax returns if the fee
arrangement was contingent on the return position being sustained.
Such fee arrangements may indicate an inappropriate reliance on the
"audit lottery." The commentators believed that the same
considerations were not as persuasive with respect to amended tax
returns.
Commentators generally did not favor the imposition of
restrictions in Circular 230 on confidentiality imposed on
practitioners by clients or on clients by practitioners.
Explanation of Provisions
Who May Practice
Paragraph (d)(2) of §10.3 of the regulations provides a
list of issues with respect to which an enrolled actuary is
authorized to represent a taxpayer in limited practice before the
Internal Revenue Service. This list of issues would be expanded
under the proposed regulations to include issues involving 26 U.S.C.
419 (treatment of funded welfare benefits), 419A (qualified asset
accounts), 420 (transfers of excess pension assets to retiree health
accounts), 4972 (tax on nondeductible contributions to qualified
employer plans), 4976 (taxes with respect to funded welfare benefit
plans), and 4980 (tax on reversion of qualified plan assets to
employer).
Enrollment
Section 10.6 of the regulations sets forth the conditions for
renewal of enrollment to practice before the Internal Revenue
Service. One condition for renewal of enrollment is that the
enrolled agent complete a minimum number of hours of continuing
professional education. Paragraph (f) of §10.6 of the
regulations requires that there be a written outline and/or textbook
for each course. Under the proposed regulations, a continuing
education program may qualify for purposes of this part if the
course requires suitable electronic educational materials, a written
outline, or a textbook.
The regulations permit any individual who is enrolled as an
actuary by the Joint Board for the Enrollment of Actuaries to enroll
and qualify to practice before the Internal Revenue Service by
filing with the Service a written declaration that such individual
is currently qualified as an enrolled actuary. New paragraph 10.6(o)
would be added to clarify that the renewal of enrollment of
actuaries also is governed by the regulations concerning the Joint
Board for the Enrollment of Actuaries at 20 C.F.R. 901.1 et seq.
Information to be Furnished
Section 10.20 of the regulations requires a practitioner to
submit documents or information whenever a lawful request for such
documents or information is made by a duly authorized officer or
employee of the Internal Revenue Service. The provision does not
provide an exception if the practitioner or the practitioner's
client does not possess or control the requested documents or
information. Under the proposed regulations, paragraph (a) of
§10.20 would be modified to clarify that a practitioner is
required to promptly respond to a lawful and proper request for
documents by either submitting the requested information or advising
the requesting officer or employee why the information cannot be
provided (e.g., the documents requested are privileged, or the
documents are not controlled by either the practitioner or the
practitioner's client). If the documents are not controlled by
either the practitioner or the practitioner's client, the provision
would require the practitioner, to the extent possible, to identify
any persons who may have the requested documents in their control.
Knowledge of Client's Omission
Section 10.21 of the regulations requires a practitioner to
advise a client promptly of any noncompliance by the client with the
revenue laws. Under the proposed regulations, a practitioner also
would be required to advise the client of the manner in which the
error or omission may be corrected and the possible consequences of
not taking such corrective action.
Diligence as to Accuracy
Section 10.22 of the regulations requires a practitioner to
exercise due diligence in preparing or assisting in the preparation,
approving, and filing of documents relating to Internal Revenue
Service matters. Section 10.22 also requires a practitioner to
exercise due diligence in determining the correctness of oral or
written representations made to the Department of Treasury or with
reference to any matter administered by the Internal Revenue
Service. The proposed regulations would clarify that a practitioner
is presumed to have exercised due diligence if the practitioner
relies on the work product of another person and the practitioner
used reasonable care in engaging, supervising, training and
evaluating such person. Assistance from Disbarred or Suspended
Persons
Section 10.24 of the regulations prohibits a practitioner, in
practice before the Internal Revenue Service, from employing,
accepting assistance from, accepting employment from, or becoming a
subagent for, a disbarred or suspended person. Section 10.24 also
precludes a practitioner from accepting assistance from any former
government employee where the provisions of §10.26 of the
current regulations (§10.25 of the proposed regulations) or any
Federal law would be violated. Section 10.24 of the proposed
regulations clarifies that a practitioner is prohibited from
accepting assistance from or assisting a disbarred or suspended
practitioner if the assistance relates to matters constituting
practice before the Internal Revenue Service. The proposed
regulations, however, would not require practitioners to
disassociate themselves from a suspended or disbarred person as long
as the other proscriptions regarding disbarred or suspended persons
are observed. Practitioners who are partners of a law or accountancy
partnership, for example, would not be required to expel another
partner who was subject to discipline simply because the disciplined
partner might otherwise share in fees derived from services rendered
by others before the Internal Revenue Service.
Practice by Partners of Government Employees
Section 10.25 of the regulations precludes partners of former
Government employees from practice with respect to matters in which
the employee personally and substantially participated. This
provision would be removed under the proposed regulations because
the statutory prohibition implemented by this provision (18 U.S.C.
207(c)) has been repealed.
Practice by Former Government Employees, Their Partners and Their
Associates
Section 10.26 of the current regulations places restrictions
on the practice of former Government employees, their partners, and
their associates with respect to certain matters that the former
Government employees participated in during the course of their
Government employment. This section would be renumbered as
§10.25 under the proposed regulations and would be amended to
reflect changes to the Federal statutes governing post-employment
restrictions applicable to former Government employees.
Fees and Confidentiality
Paragraph (b) of §10.28 of the current regulations
precludes a practitioner from charging his or her client a
contingent fee for the preparation of an original tax return, but
permits the practitioner to charge a contingent fee for the
preparation of an amended tax return or a claim for refund (other
than a claim for refund made on an original tax return). Section
10.28 would be renumbered as §10.27 and paragraph (b) would be
clarified to provide that a practitioner is prohibited from charging
a contingent fee not only for preparation of an original tax return,
but also for advice rendered in connection with a position taken or
to be taken on an original tax return. A practitioner would be
permitted, however, to charge a contingent fee both for the
preparation of, and for advice rendered in connection with a
position taken, or to be taken on, an amended tax return or a claim
for refund if the practitioner reasonably anticipates that the
amended tax return or refund claim will receive substantive review
by the Internal Revenue Service. In addition, a contingent fee would
be defined to include any fee that is based, in whole or in part, on
whether or not a position taken on a tax return or in a refund claim
is sustained, an indemnity agreement, a guarantee, recission rights,
insurance or any other arrangement by which the practitioner will
compensate or reimburse the taxpayer or another person if a position
taken on a tax return or in a refund claim is not sustained.
The proposed regulations would not prohibit confidentiality
agreements. Confidentiality restrictions imposed by clients may
raise an ethical inquiry as to the effects of such arrangements on a
practitioner's ability to represent his or her clients. See Illinois
State Bar Association Advisory Opinion on Professional Conduct 00-01
(October 2000)(a conflict of interest arises with respect to other
similar clients when a lawyer agrees not to disclose ideas of a
third party to reduce a client's tax obligations). Commentators
asserted that such confidentiality restrictions were not an issue
appropriate for regulation under Circular 230. Commentators also
asserted that confidentiality restrictions imposed by practitioners
on clients were an appropriate contractual arrangement for the
benefit of practitioners. The Treasury Department remains concerned,
however, about confidentiality restrictions and specifically invites
comments on whether the final regulations should address such
restrictions, and, if so, in what manner.
Return of Client's Records
Section 10.28 of the proposed regulations would specifically
require a practitioner to return a client's records when the client
makes a request for such records, whether or not a dispute regarding
fees exists. The practitioner may retain a copy of those records.
Conflicting Interests
Section 10.29 of the regulations prohibits a practitioner from
representing conflicting interests before the Internal Revenue
Service, except with the express consent of all directly interested
parties after full disclosure. Under the proposed regulations, a
practitioner would be required to obtain the written consents of the
clients before representing clients with conflicting interests. The
practitioner would be required to retain the written consents for at
least 36 months after the conclusion of the representation of the
clients and to present copies of such consents to the Internal
Revenue Service, if requested to do so.
In addition, the proposed regulations would provide that a
practitioner may not represent a party in his or her practice before
the Internal Revenue Service if that representation may be
materially limited by the practitioner's own interests, unless
practitioner reasonably believes the representation will not be
adversely affected and the client consents after full disclosure,
including disclosure of the implications of the potential conflict
and the risks involved.
Solicitation
Section 10.30 of the regulations governs the manner in which
practitioners may contact potential business clients. The proposed
regulations would update the solicitation rules to reflect recent
court decisions and to respond to comments received in connection
with this rulemaking. Under the proposed regulations, a practitioner
would be permitted to contact potential business clients using any
medium that is not prohibited by Federal or state statutes or other
rules applicable to the practitioner regarding the uninvited
solicitation of prospective clients. The proposed regulations also
would expand the prohibition of deceptive solicitation practices to
cover private, as well as public, solicitations, expand the
prohibition against providing assistance to or accepting assistance
from an individual who uses deceptive solicitation practices,
whether or not such practices are in connection with the
relationship the individual has with the practitioner, and include
electronic mail, facsimile, and hand-delivered flyers in the
definition of communication.
Negotiation of Taxpayer Checks
Section 10.31 of the regulations prohibits a practitioner who
prepares income tax returns from negotiating a check with respect to
income tax issued to a taxpayer other than the practitioner. The
proposed regulations would clarify that this prohibition is not
limited to checks issued for income taxes, but applies to all checks
issued to the practitioner's clients by the Government with respect
to matters before the Internal Revenue Service. The proposed
regulations also would clarify that practitioners are not prohibited
from negotiating checks issued to their own partnerships,
corporations, etc.
Tax Shelter Opinions
Two sections of the proposed regulations would provide
standards governing tax shelter opinions. New §10.35 would
apply to all tax shelter opinions that conclude that the Federal tax
treatment of a tax shelter item or items is more likely than not (or
at a higher level of confidence) the proper treatment. Section 10.33
would be revised in scope to apply to all tax shelter opinions not
governed by §10.35 that a practitioner knows or has reason to
believe will be used or referred to by persons other than the
practitioner to promote, market or recommend a tax shelter. For
purposes of §§10.33 and 10.35 of the proposed regulations,
the definition of a tax shelter would conform to the definition
found in section 6662(d)(2)(C)(iii) of the Internal Revenue Code.
The Treasury Department and the Internal Revenue Service
recognize that the proposed rules in §§10.33 and 10.35 of
the proposed regulations may regulate opinion standards with respect
to transactions that had not previously been subject to the rules
governing tax shelter opinions. The proposed regulations would
exclude opinions relating to municipal bonds and qualified
retirement plans. The Treasury Department and the Internal Revenue
Service specifically request comment on whether the regulations
should exempt other transactions from the requirements for tax
shelter opinions and, if so, the types of other transactions that
should be exempted. Tax Shelter Opinions Used by Third Parties to
Market Tax Shelters
Section 10.33 currently governs advice by a practitioner
concerning the Federal tax aspects of a tax shelter either appearing
or referred to in offering materials, or used or referred to in
connection with sales promotion efforts, and directed to persons
other than the client who engaged the practitioner to give the
advice. The proposed regulations would revise the scope of
§10.33 to govern a tax shelter opinion that does not conclude
that the Federal tax treatment of an item or items is more likely
than not the proper treatment and that a practitioner knows or has
reason to believe will be used or referred to by persons other than
the practitioner to promote, market or recommend the tax shelter to
one or more taxpayers. The proposed regulations would clarify that
§10.33 governs tax shelter opinions prepared for use by third
parties that are promoting the tax shelter, irrespective of whether
such promotional efforts are conducted publicly or privately. The
proposed regulations also would modify the definition of a material
Federal tax issue and define a tax shelter item as an item of
income, gain, loss, deduction or credit if the item is directly or
indirectly attributable to a tax shelter.
Section 10.33 would require a practitioner who provides a
written opinion with respect to a tax shelter item or items to
comply with a series of requirements with respect to each such item.
A practitioner would be required to make inquiry as to all relevant
facts, be satisfied that the opinion takes account of all relevant
facts, and that the material facts are accurately and completely
described in the opinion. Furthermore, the opinion could not be
based, directly or indirectly, on any unreasonable factual
assumptions. An unreasonable factual assumption would include a
factual assumption that the practitioner knows or has reason to
believe is incorrect, incomplete, inconsistent or implausible. An
unreasonable factual assumption also would include a factual
assumption regarding a fact or facts that the practitioner could
reasonably request to be provided or to be represented.
The proposed regulations would permit a practitioner, where it
would be reasonable based on all the facts and circumstances, to
rely upon factual representations, statements, findings or
agreements. The proposed regulations would further provide that a
practitioner need not conduct an audit or independent verification
of a factual representation, but that reliance would not be
permitted on factual representations that the practitioner knows or
has reason to believe are unreasonable, incorrect, incomplete,
inconsistent or implausible (e.g., a representation that there are
business reasons for a transaction without describing those reasons,
a representation that a transaction is potentially profitable apart
from tax benefits without providing adequate factual support, or a
valuation that is inconsistent with the facts of the transaction).
The proposed regulations would provide that the opinion must
clearly identify the facts upon which the opinion's conclusions are
based, contain a reasoned analysis of the pertinent facts and legal
authorities and not assume the favorable resolution of any Federal
tax issue material to the analysis or otherwise rely on unreasonable
legal assumptions. The proposed regulations also would require that
the opinion not contain legal analyses or conclusions that are
inconsistent with each other.
The practitioner would be required to ascertain that all
material Federal tax issues with respect to the tax shelter item or
items have been considered and that all of those material Federal
tax issues involving the reasonable possibility of a challenge by
the Internal Revenue Service are fully and fairly addressed. The
opinion would be required to state that the practitioner has
considered the possible application to the facts of all potentially
relevant judicial doctrines, including the step transaction,
business purpose, economic substance, substance over form, and sham
transaction doctrines, as well as potentially relevant statutory and
regulatory anti-abuse rules, and the opinion must analyze whether
the tax shelter item or items is (are) vulnerable to challenge under
all such potentially relevant doctrines and anti-abuse rules.
The proposed regulations would require that the opinion
clearly provide the practitioner's conclusion as to the likelihood
that a typical investor of the type to whom the tax shelter is or
will be marketed will prevail with respect to the merits of each
material Federal tax issue that involves the reasonable possibility
of a challenge by the Internal Revenue Service or clearly state that
the practitioner is unable to reach a conclusion with respect to one
or more issues. Further, the opinion would be required to fully
describe the reasons for the practitioner's conclusions or fully
describe the reasons for the inability to reach a conclusion.
The practitioner would be required to reach an overall
conclusion as to the likelihood that the Federal tax treatment of
the tax shelter item or items is the proper treatment or, where the
practitioner is unable to reach such a conclusion, clearly state
that the practitioner is unable to reach such an overall conclusion.
Where an overall conclusion cannot be reached, the opinion would be
required to fully describe the reasons for the practitioner's
inability to reach an overall conclusion. Moreover, the fact that
the practitioner's opinion does not reach a conclusion that the
Federal tax treatment of a tax shelter item or items is more likely
than not the proper treatment, or that the practitioner is unable to
reach an overall conclusion, would be required to be clearly and
prominently disclosed on the first page of the opinion. The opinion
also would be required to clearly and prominently disclose that it
was not written for the purpose of establishing reasonable belief or
reasonable cause and good faith under sections 6662 and 6664,
respectively, of the Internal Revenue Code. The proposed regulations
also would clarify that in ascertaining that all material Federal
tax issues have been considered, evaluating the merits of those
issues and evaluating whether the Federal tax treatment of the tax
shelter item or items is the proper treatment, the possibility that
a return will not be audited, that an issue will not be raised on
audit, or that an issue will be settled may not be taken into
account.
The proposed regulations would require the practitioner to
take reasonable steps to assure that any written materials or
promotional efforts that distribute, reflect or refer to the tax
shelter opinion correctly and fairly represent the nature and extent
of the opinion.
The proposed regulations also would address reliance on the
opinions of others. The proposed regulations would require that the
practitioner be knowledgeable in all of the aspects of Federal tax
law relevant to the opinion being rendered. A practitioner would not
be permitted to provide a tax shelter opinion that does not reach a
conclusion on all the material Federal tax issues that involve a
reasonable possibility of challenge by the Internal Revenue Service
or does not reach an overall conclusion (or, alternatively, fails to
clearly state that such conclusions cannot be reached), unless at
least one other competent practitioner provides an opinion with
respect to all of the other material Federal tax issues which
involve a reasonable possibility of challenge by the Internal
Revenue Service, and with respect to the tax shelter item or items.
The practitioner also would be required, upon reviewing such other
opinion and any written materials that distribute, reflect or refer
to such opinion, to have no reason to believe that the other
practitioner has not complied with §10.33 or that the overall
conclusion reached by such practitioner is incorrect on its face.
"More Likely Than Not" Tax Shelter Opinions
Under the proposed regulations, new standards would be
applicable to practitioners who provide tax shelter opinions that
conclude that the Federal tax treatment of a tax shelter item or
items is more likely than not (or at a higher level of confidence)
the proper treatment. Such opinions potentially provide a basis for
establishing reasonable belief and reasonable cause and good faith
under the provisions of sections 6662 and 6664 of the Internal
Revenue Code, respectively. These proposed rules would apply to all
tax shelter opinions that reach a more likely or not, or higher,
overall conclusion, regardless of whether they were rendered in
connection with promotional efforts conducted by a third party or
directly to a potential tax shelter investor. The proposed
regulations also would define a material Federal tax issue. A tax
shelter item would be defined in the same manner as in §10.33.
Section 10.35 would require a practitioner who provides a
written opinion with respect to a tax shelter item or items to
comply with a series of requirements with respect to each such item.
A practitioner would be required to make inquiry as to all relevant
facts, be satisfied that the opinion takes account of all relevant
facts, and be satisfied that the material facts are accurately and
completely described in the opinion. Furthermore, the opinion could
not be based, directly or indirectly, on any unreasonable factual
assumptions. An unreasonable factual assumption would include a
factual assumption that the practitioner knows or has reason to
believe is incorrect, incomplete, inconsistent or implausible. An
unreasonable factual assumption also would include a factual
assumption regarding a fact or facts that the practitioner could
reasonably request to be provided or to be represented. Furthermore,
an unreasonable factual assumption would include a factual
assumption that the transaction has a business reason, an assumption
with respect to the potential profitability of the transaction apart
from tax benefits, or an assumption with respect to a material
valuation issue.
The proposed regulations would permit a practitioner, where it
would be reasonable based on all the facts and circumstances, to
rely on factual representations, statements, findings, or agreements
of the taxpayer or other persons. The proposed regulations would
further provide that a practitioner need not conduct an audit or
independent verification of a factual representation, but that
reliance would not be permitted on factual representations that the
practitioner knows or has reason to believe are unreasonable,
incorrect, incomplete, inconsistent or implausible (e.g., a
representation that there are business reasons for a transaction
without describing those reasons, a representation that a
transaction is potentially profitable apart from tax benefits
without providing adequate factual support, or a valuation that is
inconsistent with the facts of the transaction).
The proposed regulations would provide that the opinion must
clearly identify the facts upon which the opinion's conclusions are
based, contain a reasoned analysis of the pertinent facts and legal
authorities and not assume the favorable resolution of any Federal
tax issue material to the analysis or otherwise rely on unreasonable
factual assumptions. The proposed regulations also would require
that the opinion not contain legal analysis or conclusions that are
inconsistent with each other.
The practitioner would be required to ascertain that all
material Federal tax issues with respect to the tax shelter item or
items have been considered and that all of those material Federal
tax issues involving the reasonable possibility of a challenge by
the Internal Revenue Service are fully and fairly addressed. The
opinion would be required to state that the practitioner has
considered the possible application to the facts of all potentially
relevant judicial doctrines, including the step transaction,
business purpose, economic substance, substance over form, and sham
transaction doctrines, as well as potentially relevant statutory and
regulatory anti-abuse rules, and the opinion must analyze whether
the tax shelter item or items is (are) vulnerable to challenge under
all such potentially relevant doctrines and anti-abuse rules.
The proposed regulations would require that the opinion
clearly provide the practitioner's conclusion as to the likelihood
that the taxpayer will prevail with respect to the merits of each
material Federal tax issue that involves a reasonable possibility of
challenge by the Internal Revenue Service and must unambiguously
conclude that the Federal tax treatment of the tax shelter item or
items more likely than not (or at a higher level of confidence) is
the proper treatment. The proposed regulations also would clarify
that in ascertaining that all material Federal tax issues have been
considered, evaluating the merits of those issues and evaluating
whether the Federal tax treatment of the tax shelter item or items
is the proper treatment, the possibility that a tax return will not
be audited, that an issue will not be raised on audit, or that an
issue will be settled may not be taken into account.
The proposed regulations would require the practitioner to
take reasonable steps to assure that any written materials or
promotional efforts that distribute, reflect or refer to the tax
shelter opinion correctly and fairly represent the nature and extent
of the opinion. The proposed regulations also would require that the
practitioner be knowledgeable in all of the relevant aspects of
Federal tax law at the time the opinion is rendered. The
practitioner who is providing an overall conclusion that the Federal
tax treatment of a tax shelter item or items more likely than not
(or at a higher level of confidence) is the proper treatment may
rely on the opinion of another practitioner with respect to certain
issues only if the practitioner is satisfied that the other
practitioner is sufficiently knowledgeable regarding such issues and
the practitioner has no reason to believe that such opinion should
not be relied upon. To the extent the practitioner relies on such
opinion, the opinion rendered by the practitioner must identify the
other practitioner, state the date on which the opinion was
rendered, and set forth the conclusions reached in such opinion.
Furthermore, the practitioner must be satisfied that the combined
analysis, taken as a whole, satisfies the requirements of this
§10.35.
The Treasury Department and the Internal Revenue Service
intend to modify the advice standards in the regulations under
section 6662 of the Internal Revenue Code (pertaining to whether a
taxpayer other than a corporation reasonably believed at the time a
tax return was filed that the tax treatment of a tax shelter item
was more likely than not the proper treatment of that item) and
under section 6664 of the Internal Revenue Code (pertaining to
whether a taxpayer acted with reasonable cause and in good faith
with respect to a tax shelter item) to provide that opinions can
satisfy those standards only if such opinions satisfy the standards
of Circular 230.
Procedures to Ensure Compliance
Section 10.36 of the proposed regulations provides that a
practitioner who is a member of, associated with, or employed by a
firm must take reasonable steps, consistent with his or her
authority and responsibility for the firm's practice advising
clients regarding matters arising under the Federal tax laws, to
make certain that the firm has adequate procedures in effect for
purposes of ensuring compliance with §§10.33, 10.34 and
10.35. The Director of Practice would be authorized to take
disciplinary action against any practitioner for failing to comply
with this requirement if the practitioner through willfulness,
recklessness, or gross incompetence does not take such reasonable
steps and one or more persons who are members of, associated with,
or employed by the firm have, while they were members of, associated
with, or employed by the firm, engaged in a pattern or practice of
failing to comply with §§10.33, 10.34 or 10.35. The
Director of Practice also would be authorized to take disciplinary
action against any practitioner who takes such steps but has actual
knowledge that one or more persons who are members of, associated
with, or employed by the firm have, while they were members of,
associated with, or employed by the firm, engaged in a pattern or
practice of failing to comply with §§10.33, 10.34 or 10.35
and the practitioner through willfulness, recklessness, or gross
incompetence fails to take prompt action, consistent with his or her
authority and responsibility for the firm's practice advising
clients regarding matters under the Federal tax law, to correct such
pattern or practice.
Sanctions
Section 10.50 of the regulations authorizes the Secretary of
the Treasury to disbar or suspend any practitioner from practice
before the Internal Revenue Service after notice and an opportunity
for a proceeding. Under the proposed regulations, the Secretary also
would be permitted to censure the practitioner after notice and an
opportunity for a proceeding. Censure is a public reprimand.
Additionally, the authority to disqualify an appraiser would be
relocated to paragraph (b) of §10.50 of the regulations.
Disreputable Conduct
Section 10.51 of the regulations defines disreputable conduct
for which a practitioner may be disbarred or suspended. The proposed
regulations would provide that a practitioner who engages in
disreputable conduct also may be censured. The definition of
disreputable conduct also would be modified to include conviction of
any felony involving conduct that renders the practitioner unfit to
practice before the Internal Revenue Service.
Institution of Proceeding
Section 10.54 authorizes the Director of Practice to institute
a proceeding to suspend or disbar a practitioner if the Director
believes the practitioner has violated any provisions of the laws or
regulations governing practice before the Internal Revenue Service.
The section would be renumbered as §10.60 under the proposed
regulations and would specify that the Director of Practice also may
institute a proceeding to censure the practitioner if the Director
believes the practitioner has violated any provisions of the laws or
regulations governing practice before the Internal Revenue Service.
Under the proposed regulations, the procedures set forth in
§10.60 would apply to proceedings to disqualify an appraiser.
Conferences
Section 10.55 authorizes the Director of Practice to confer
with a practitioner regarding allegations of misconduct. The
provision permits a practitioner to offer his or her consent to
voluntary suspension to prevent the institution or conclusion of a
disbarment proceeding. The provision would be renumbered as
§10.61 and would be changed to permit a practitioner to also
offer his or her consent to censure to prevent the institution or
conclusion of a disbarment proceeding. The provision also would
apply to conferences with an appraiser regarding allegations of
misconduct and would permit the appraiser to offer his or her
voluntary consent to disqualification.
Service of Complaint and Other Papers
Sections 10.57 and 10.80 of the regulations permit the
Director of Practice to serve a complaint or any other paper upon a
practitioner or appraiser by certified mail. If the certified mail
is not claimed, the Director of Practice may serve the complaint by
first class mail. The proposed regulations would consolidate these
provisions under §10.63 and would specify that service by first
class mail is complete if the complaint is mailed to the
practitioner or appraiser at his or her last known address as
determined under section 6212 of the Internal Revenue Code.
Answer
Sections 10.58 and 10.81 of the regulations require a
practitioner or an appraiser to file an Answer whenever the Director
of Practice files a complaint against him or her under the
regulations. These provisions also establish the time for filing an
Answer and prescribe certain requirements as to the content of an
Answer. The proposed regulations would consolidate these provisions
under §10.64, which section would require that the Answer to
the complaint be signed by the respondent or the respondent's
authorized representative and include an acknowledgment that knowing
and willful false statements may be punishable under 18 U.S.C. 1001.
Reply to Answer
Sections 10.60 and 10.83 permit the Director of Practice to
file a reply to the respondent's answer at the Director's discretion
or at the request of the Administrative Law Judge. Under the
proposed regulations, these provisions would be consolidated under
§10.66 and that section would require the Director of Practice
to file a reply to the respondent's answer if the Administrative Law
Judge orders that a reply be filed.
Motions and Requests
Sections 10.62 and 10.85 of the regulations permit the
Director of Practice and the respondent to file motions and requests
in hearings before an Administrative Law Judge with the Director or
the Administrative Law Judge. Under the proposed regulations, these
provisions would be consolidated under §10.68 and would clarify
that the Administrative Law Judge may direct that motions or
requests be filed at a place specified by the Administrative Law
Judge.
Effect of Disbarment, Suspension, or Censure
Section 10.73 of the regulations prohibits a disbarred
practitioner from practicing before the Internal Revenue Service
unless and until authorized to do so by the Director of Practice.
The regulations also prohibit a suspended practitioner from
practicing before the Internal Revenue Service during the period of
suspension. Under the proposed regulations, this section would be
renumbered as §10.79 and would also provide that the Director
of Practice may make a practitioner's future right to practice
before the Internal Revenue Service subject to his or her meeting
certain conditions designed to promote high standards of conduct.
Expedited Suspension Upon Criminal Conviction or Loss of License for
Cause
Paragraph (b)(2) of §10.76 of the regulations permits the
Director of Practice to institute a proceeding to suspend any
practitioner who has, within 5 years of the date on which the
complaint instituting the proceeding is served, been convicted of
any crime under title 26 of the United States Code or a felony under
title 18 of the United States Code involving dishonesty or breach of
trust. Under the proposed regulations this provision would be
renumbered as §10.82 and would permit the Director of Practice
to institute a proceeding to suspend any practitioner who has been
convicted of any crime under the Internal Revenue Code, any crime
involving dishonesty or breach of trust (regardless of whether such
crime constituted a felony under title 18 of the United States
Code), or any felony that involved conduct that renders the
practitioner unfit to practice before the Internal Revenue Service
(regardless of whether such felony was pursuant to title 18 of the
United States Code or involved dishonesty or breach of trust).
Consolidation of Appraiser Disqualification Rules
The current regulations contain, in separate provisions,
virtually identical rules applicable to disciplinary proceedings
against practitioners and appraisers. The proposed rules would
consolidate the rules regarding sanctions of practitioners and
appraisers under subpart C and the rules regarding the conduct of
disciplinary proceedings under subpart D.
Proposed Effective Date
These regulations are proposed to apply on the date that final
regulations are published in the Federal Register.
Special Analyses
It has been determined that these regulations are not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory assessment is not required. It is hereby
certified that these regulations will not have a significant
economic impact on a substantial number of small entities because
the general requirements, including the collection of information
requirements, of these regulations are substantially the same as the
requirements of the regulations that these regulations will replace.
Persons authorized to practice have long been required to comply
with certain standards of conduct when practicing before the
Internal Revenue Service. These regulations do not alter the basic
nature of the obligations and responsibilities of these
practitioners. These regulations clarify those obligations in
response to public comments and judicial decisions, and make other
modifications to reflect the development of electronic media. In
addition, the added requirements for tax shelter opinions imposed by
these regulations will have no impact on the substantial number of
small entities who have been satisfying these requirements when they
provide such opinions. Therefore, a regulatory flexibility analysis
under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not
required. Pursuant to section 7805(f) of the Internal Revenue Code,
this notice of proposed rulemaking will be submitted to the Chief
Counsel for Advocacy of the Small Business Administration for
comment on its impact on small businesses.
Comments and Public Hearing
Before the regulations are adopted as final regulations,
consideration will be given to any written comments and electronic
comments that are submitted timely to the Internal Revenue Service.
The Internal Revenue Service and Treasury Department specifically
request comments on the clarity of the proposed regulations and how
they can be made easier to understand. All comments will be
available for public inspection and copying.
The public hearing is scheduled for May 2, 2001, from 8 am. to
11 am., and will be held in the auditorium, Internal Revenue
Building, 1111 Constitution Avenue, NW., Washington, DC. Due to
building security procedures, visitors must enter at the 10th Street
entrance, located between Constitution and Pennsylvania Avenues, NW.
All visitors must present photo identification to enter the
building. Visitors will not be admitted beyond the immediate
entrance area more than 15 minutes before the hearing starts. For
information about having your name placed on the building access
list to attend the hearing, see the FOR FURTHER INFORMATION CONTACT
section of this preamble.
The rules of 26 CFR 601.601(a)(3) apply to the hearing.
Persons who wish to present oral comments at the hearing must submit
written or electronic comments and an outline of the topics to be
discussed and the time to be devoted to each topic by April 12,
2001. A period of 10 minutes will be allocated to each person for
making comments.
An agenda showing the scheduling of the speakers will be
prepared after the deadline for receiving outlines has passed.
Copies of the agenda will be available free of charge at the
hearing.
Drafting information
The principal authors of these regulations are Richard S.
Goldstein and Brinton Warren, Office of Associate Chief Counsel
(Procedure & Administration), Administrative Provisions and Judicial
Practice Division, but other personnel from the Internal Revenue
Service and Treasury Department participated in their development.
List of Subjects in 31 CFR part 10
Administrative practice and procedure, Lawyers, Accountants,
Enrolled agents, Enrolled actuaries, Appraisers. Proposed Amendments
to the Regulations
Accordingly, 31 CFR part 10 is proposed to be revised to
read as follows:
PART 10 -- PRACTICE BEFORE THE INTERNAL REVENUE SERVICE
Sec. 10.0 Scope of part.
Subpart A--Rules Governing Authority to Practice
10.1 Director of Practice.
10.2 Definitions.
10.3 Who may practice.
10.4 Eligibility for enrollment.
10.5 Application for enrollment.
10.6 Enrollment.
10.7 Representing oneself; participating in rulemaking; limited
practice; special appearances; and return preparation.
10.8 Customhouse brokers.
Subpart B--Duties and Restrictions Relating to Practice
Before the Internal Revenue Service 10.20
Information to be furnished.
10.21 Knowledge of client's omission.
10.22 Diligence as to accuracy.
10.23 Prompt .Lsposition of pending matters.
10.24 Assistance from or to disbarred or suspended persons and
former Internal Revenue
Service employees.
10.25 Practice by former Government employees, their partners and
their associates.
10.26 Notaries.
10.27 Fees.
10.28 Return of client's records.
10.29 Conflicting interests.
10.30 Solicitation.
10.31 Negotiation of taxpayer checks.
10.32 Practice of law.
10.33 Tax shelter opinions used by third parties to market tax
shelters.
10.34 Standards for advising with respect to tax return positions
and for preparing or signing returns.
10.35 More likely than not tax shelter opinions.
10.36 Procedures to ensure compliance.
Subpart C--Sanctions for Violation of the Regulations
10.50 Sanctions.
10.51 Incompetence and disreputable conduct.
10.52 Violation of regulations.
10.53 Receipt of information concerning practitioner.
Subpart D--Rules Applicable to Disciplinary Proceedings
10.60 Institution of proceeding.
10.61 Conferences.
10.62 Contents of complaint.
10.63 Service of complaint and other papers.
10.64 Answer.
10.65 Supplemental charges.
10.66 Reply to answer.
10.67 Proof; variance; amendment of pleadings.
10.68 Motions and requests.
10.69 Representation.
10.70 Administrative Law Judge.
10.71 Hearings.
10.72 Evidence.
10.73 Depositions.
10.74 Transcript.
10.75 Proposed findings and conclusions.
10.76 Decision of the Administrative Law Judge.
10.77 Appeal to the Secretary.
10.78 Decision of the Secretary.
10.79 Effect of disbarment, suspension, or censure.
10.80 Notice of disbarment, suspension, censure, or
disqualification.
10.81 Petition for .Linstatement.
10.82 Expedited Lspension upon criminal conviction or loss of
license for cause.
Subpart E--General Provisions
10.90 Records.
10.91 Saving clause.
10.92 Special orders.
10.93 Effective date.
Authority: Sec. 3, 23 Stat. 258, secs. 2-12, 60 Stat. 237
et.seq.; 5 U.S.C. 301, 500, 551-559; 31 U.S.C. 330; Reorg. Plan No.
26 of 1950, 15 FR 4935, 64 Stat. 1280, 3 CFR, 1949-1953 Comp., P.
1017.
§10.0 Scope of part.
This part contains rules governing the recognition of
attorneys, certified public accountants, enrolled agents, and other
persons representing taxpayers before the Internal Revenue Service.
Subpart A of this part sets forth rules relating to authority to
practice before the Internal Revenue Service; subpart B of this part
prescribes the duties and restrictions relating to such practice;
subpart C of this part prescribes the sanctions for violating the
regulations; subpart D of this part contains the rules applicable to
disciplinary proceedings; and subpart E of this part contains
general provisions including provisions relating to the availability
of official records.
Subpart A -- Rules Governing Authority to Practice
§10.1 Director of Practice.
(a) Establishment of office. The office of the Director of
Practice is established in the Office of the Secretary of the
Treasury. The Director of Practice is appointed by the Secretary of
the Treasury, or his or her designate.
(b) Duties. The Director of Practice acts on applications for
enrollment to practice before the Internal Revenue Service; makes
inquires with respect to matters under his or her jurisdiction;
institutes and provides for the conduct of disciplinary proceedings
relating to attorneys, certified public accountants, enrolled
agents, enrolled actuaries and appraisers; and performs other duties
as are necessary or appropriate to carry out his or her functions
under this part or as are prescribed by the Secretary of the
Treasury, or his or her designate.
(c) Acting Director of Practice. The Secretary of the
Treasury, or his or her designate, will designate an officer or
employee of the Treasury Department to act as Director of Practice
in the absence of the Director or a vacancy in that office.
§10.2 Definitions.
As used in this part, except where the context clearly
indicates otherwise:
(a) Attorney means any person who is a member in good standing
of the bar of the highest court of any State, possession, territory,
Commonwealth, or the District of Columbia.
(b) Certified public accountant means any person who is duly
qualified to practice as a certified public accountant in any State,
possession, territory, Commonwealth, or the District of Columbia.
(c) Commissioner refers to the Commissioner of Internal
Revenue.
(d) Director refers to the Director of Practice.
(e) Practice before the Internal Revenue Service comprehends
all matters connected with a presentation to the Internal Revenue
Service or any of its officers or employees relating to a taxpayer's
rights, privileges, or liabilities under laws or regulations
administered by the Internal Revenue Service. Such presentations
include, but are not limited to, preparing and filing documents,
corresponding and communicating with the Internal Revenue Service,
and representing a client at conferences, hearings, and meetings.
(f) Practitioner means any individual described in paragraphs
(a), (b), (c), or (d) of section 10.3 of this part.
(g) A tax return includes an amended tax return and a claim
for refund.
(h) Service means the Internal Revenue Service.
§10.3 Who may practice.
(a) Attorneys. Any attorney who is not currently under
suspension or disbarment from practice before the Internal Revenue
Service may practice before the Service by filing with the Service a
written declaration that he or she is currently qualified as an
attorney and is authorized to represent the party(ies) on whose
behalf he or she acts.
(b) Certified public accountants. Any certified public
accountant who is not currently under suspension or disbarment from
practice before the Internal Revenue Service may practice before the
Service by filing with the Service a written declaration that he or
she is currently qualified as a certified public accountant and is
authorized to represent the party(ies) on whose behalf he or she
acts.
(c) Enrolled agents. Any individual enrolled as an agent
pursuant to this part who is not currently under suspension or
disbarment from practice before the Internal Revenue Service may
practice before the Service.
(d) Enrolled actuaries.
(1) Any individual who is enrolled as an actuary by the Joint
Board for the Enrollment of Actuaries pursuant to 29 U.S.C. 1242 who
is not currently under suspension or disbarment from practice before
the Internal Revenue Service may practice before the Service by
filing with the Service a written declaration stating that he or she
is currently qualified as an enrolled actuary and is authorized to
represent the party(ies) on whose behalf he or she acts.
(2) Practice as an enrolled actuary is limited to
representation with respect to issues involving the following
statutory provisions in title 26 of the United States Code: sections
401 (relating to qualification of employee plans), 403(a) (relating
to whether an annuity plan meets the requirements of section 404(a)
(2)), 404 (relating to deductibility of employer contributions), 405
(relating to qualification of bond purchase plans), 412 (relating to
funding requirements for certain employee plans), 413 (relating to
application of qualification requirements to collectively bargained
plans and to plans maintained by more than one employer), 414
(relating to definitions and special rules with respect to the
employee plan area), 419 (relating to treatment of funded welfare
benefits), 419A (relating to qualified asset accounts), 420
(relating to transfers of excess pension assets to retiree health
accounts), 4971 (relating to excise taxes payable as a result of an
accumulated funding deficiency under section 412), 4972 (relating to
tax on nondeductible contributions to qualified employer plans),
4976 (relating to taxes with respect to funded welfare benefit
plans), 4980 (relating to tax on reversion of qualified plan assets
to employer), 6057 (relating to annual registration of plans), 6058
(relating to information required in connection with certain plans
of deferred compensation), 6059 (relating to periodic report of
actuary), 6652(e) (relating to the failure to file annual
registration and other notifications by pension plan), 6652(f)
(relating to the failure to file information required in connection
with certain plans of deferred compensation), 6692 (relating to the
failure to file actuarial report), and 7805(b) (relating to the
extent to which a Internal Revenue Service ruling or determination
letter coming under the statutory provisions listed here will be
applied without retroactive effect); and 29 U.S.C. 1083 (relating to
the waiver of funding for nonqualified plans).
(3) An individual who practices before the Internal Revenue
Service pursuant to paragraph (d)(1) of this section is subject to
the provisions of this part in the same manner as attorneys,
certified public accountants and enrolled agents.
(e) Others. Any individual qualifying under paragraph (c) of
§10.5 or §10.7 is eligible to practice before the Internal
Revenue Service to the extent provided in those sections.
(f) Government officers and employees, and others. An
individual, who is an officer or employee of the executive,
legislative, or judicial branch of the United States Government; an
officer or employee of the District of Columbia; a Member of
Congress; or a Resident Commissioner may not practice before the
Internal Revenue Service if such practice violates 18 U.S.C. 203 or
205.
(g) State officers and employees. No officer or employee of
any State, or subdivision of any State, whose duties require him or
her to pass upon, investigate, or deal with tax matters for such
State or subdivision, may practice before the Internal Revenue
Service, if such employment may disclose facts or information
applicable to Federal tax matters. §10.4 Eligibility for
enrollment.
(a) Enrollment upon examination. The Director of Practice may
grant enrollment to an applicant who demonstrates special competence
in tax matters by written examination administered by, or
administered under the oversight of, the Director and who has not
engaged in any conduct that would justify the censure, suspension,
or disbarment of any practitioner under the provisions of this part.
(b) Enrollment of former Internal Revenue Service employees.
The Director of Practice may grant enrollment to an applicant who,
by virtue of his or her past service and technical experience in the
Internal Revenue Service, has qualified for such enrollment and who
has not engaged in any conduct that would justify the censure,
suspension, or disbarment of any practitioner under the provisions
of this part, under the following circumstances--
(1) The former employee applies for enrollment to the
Director of Practice on a form supplied by the Director and supplies
the information requested on the form and such other information
regarding the experience and training of the applicant as may be
relevant.
(2) An appropriate office of the Internal Revenue Service, at
the request of the Director of Practice, will provide the Director
with a detailed report of the nature and rating of the applicant's
work while employed by the Service and a recommendation whether such
employment qualifies the applicant technically or otherwise for the
desired authorization.
(3) Enrollment based on an applicant's former employment with
the Internal Revenue Service may be of unlimited scope or it may be
limited to permit the presentation of matters only of the particular
class or only before the particular unit or division of the Service
for which the applicant's former employment has qualified the
applicant.
(4) Application for enrollment based on an applicant's former
employment with the Internal Revenue Service must be made within 3
years from the date of separation from such employment.
(5) An applicant for enrollment who is requesting such
enrollment based on his or her former employment with the Internal
Revenue Service must have had a minimum of 5 years continuous
employment with the Service during which he or she must have been
regularly engaged in applying and interpreting the provisions of the
Internal Revenue Code and the regulations thereunder relating to
income, estate, gift, employment, or excise taxes.
(6) For the purposes of paragraph (b)(5) of this section, an
aggregate of 10 or more years of employment in positions involving
the application and interpretation of the provisions of the Internal
Revenue Code, at least 3 of which occurred within the 5 years
preceding the date of application, is the equivalent of 5 years
continuous employment.
(c) Natural persons. Enrollment to practice may be granted
only to natural persons. §10.5 Application for enrollment.
(a) Form; address. An applicant for enrollment must file an
application on Form 23, "Application for Enrollment to Practice
Before the Internal Revenue Service", properly executed under oath
or affirmation, with the Director of Practice. The address of the
applicant entered on Form 23 will be the address under which a
successful applicant is enrolled and is the address to which the
Director will send correspondence concerning enrollment. An enrolled
agent must send notification of any change to his or her enrollment
address to the Director of Practice, Internal Revenue Service, 1111
Constitution Avenue, NW., Washington, DC 20224, or at such other
address specified by the Director. This notification must include
the enrolled agent's name, old address, new address, social security
number, signature, and the date.
(b) Fee. The application for enrollment must be accompanied
by a check or money order in the amount set forth on Form 23,
payable to the Internal Revenue Service, which amount constitutes a
fee charged to each applicant for enrollment. This fee will be
retained by the United States whether or not the applicant is
granted enrollment.
(c) Additional information; examination. The Director of
Practice, as a condition to consideration of an application for
enrollment, may require the applicant to file additional information
and to submit to any written or oral examination under oath or
otherwise. The Director will, on written request filed by an
applicant, afford such applicant the opportunity to be heard with
respect to his or her application for enrollment.
(d) Temporary recognition. On receipt of a properly executed
application, the Director of Practice may grant the applicant
temporary recognition to practice pending a determination as to
whether enrollment to practice should be granted. Temporary
recognition will be granted only in unusual circumstances and it
will not be granted, in any circumstance, if the application is not
regular on its face, if the information stated in the application,
if true, is not sufficient to warrant enrollment to practice, or if
there is any information before the Director indicating that the
statements in the application are untrue or that the applicant would
not otherwise qualify for enrollment. Issuance of temporary
recognition does not constitute enrollment to practice or a finding
of eligibility for enrollment, and the temporary recognition may be
withdrawn at any time by the Director.
(e) Appeal from denial of application. The Director of
Practice must inform the applicant as to the reason(s) for any
denial of an application for enrollment. The applicant may, within
30 days after receipt of the notice of denial of enrollment, file a
written appeal of the denial of enrollment with the Secretary of the
Treasury. A decision on the appeal will be rendered by the Secretary
of the Treasury, or his or her designate, as soon as practicable.
§10.6 Enrollment.
(a) Roster. The Director of Practice will maintain rosters of
all individuals--
(1) Who have been granted active enrollment to practice
before the Internal Revenue Service;
(2) Whose enrollment has been placed in inactive status for
failure to meet the requirements for renewal of enrollment;
(3) Whose enrollment has been placed in inactive retirement
status;
(4) Who have been censured, suspended, or disbarred from
practice before the Internal Revenue Service;
(5) Whose offer of consent to resign from enrollment to
practice before the Internal Revenue Service has been accepted by
the Director of Practice under §10.61 of this part; and
(6) Whose application for enrollment has been denied.
(b) Enrollment card. The Director of Practice will issue an
enrollment card to each individual whose application for enrollment
to practice before the Internal Revenue Service is approved after
the effective date of this regulation. Each enrollment card will be
valid for the period stated on the enrollment card. Enrollment cards
issued to individuals before February 1, 1999, are invalid. An
individual is not eligible to practice before the Service if his or
her enrollment card is not valid.
(c) Term of enrollment. Each individual enrolled to practice
before the Internal Revenue Service will be accorded active
enrollment status subject to his or her renewal of enrollment as
provided in this part.
(d) Renewal of enrollment. To maintain active enrollment to
practice before the Internal Revenue Service, each individual
enrolled is required to have his or her enrollment renewed. Failure
by an individual to receive notification from the Director of
Practice of the renewal requirement will not be justification for
the failure to satisfy this requirement.
(1) All individuals enrolled to practice before the Internal
Revenue Service must apply for renewal of enrollment between
November 1, 2001, and January 31, 2002. Those who receive initial
enrollment between November 1, 2001, and January 31, 2002, must
apply for renewal of enrollment by March 1, 2002. The renewal will
be effective April 1, 2002.
(2) Thereafter, applications for renewal will be required
between November 1, 2004, and January 31, 2005, and between November
1 and January 31 of every subsequent third year. Those who receive
initial enrollment during the renewal application period must apply
for renewal of enrollment by March 1 of the renewal year. Renewed
enrollment will be effective April 1, 2005, and April 1 of every
subsequent third year.
(3) The Director of Practice will notify the individual of his
or her renewal of enrollment and will issue the individual a card
evidencing renewal.
(4) A reasonable nonrefundable fee may be charged for each
application for renewal of enrollment filed with the Director of
Practice.
(5) Forms required for renewal may be obtained from the
Director of Practice, Internal Revenue Service, Washington, DC
20224.
(e) Condition for renewal: Continuing professional education.
In order to qualify for renewal of enrollment, an individual
enrolled to practice before the Internal Revenue Service must
certify, on the application for renewal form prescribed by the
Director of Practice, that he or she has satisfied the following
continuing professional education requirements.
(1) For renewed enrollment effective April 1, 2002.
(i) A minimum of 24 hours of continuing education credit must
be completed between January 1, 2001, and January 31, 2002.
(ii) An individual who receives initial enrollment between
January 1, 2001, and January 31, 2002, is exempt from the continuing
education requirement for the renewal of enrollment effective April
1, 2002, but is required to file a timely application for renewal of
enrollment.
(2) For renewed enrollment effective April 1, 2005, and every
third year thereafter.
(i) A minimum of 72 hours of continuing education credit must be
completed between February 1, 2002, and January 31, 2005, and during
each subsequent three year period. Each such three year period is
known as an enrollment cycle.
(ii) A minimum of 16 hours of continuing education credit must
be completed in each year of an enrollment cycle.
(iii) An individual who receives initial enrollment during an
enrollment cycle must complete two (2) hours of qualifying
continuing education credit for each month enrolled during the
enrollment cycle. Enrollment for any part of a month is considered
enrollment for the entire month.
(f) Qualifying continuing education--(1) General. To qualify
for continuing education credit, a course of learning must--
(i) Be a qualifying program designed to enhance professional
knowledge in Federal taxation or Federal tax related matters, i.e.,
programs comprised of current subject matter in Federal taxation or
Federal tax related matters, including accounting, tax preparation
software and taxation; and
(ii) Be conducted by a qualifying sponsor.
(2) Qualifying programs--
(i) Formal programs. A formal program qualifies as continuing
education programs if it--
(A) Requires attendance. Additionally, the program sponsor
must provide each attendee with a certificate of attendance; and
(B) Requires that the program be conducted by a qualified
instructor, discussion leader, or speaker, i.e., a person whose
background, training, education and experience is appropriate for
instructing or leading a discussion on the subject matter of the
particular program; and
(C) Provides or requires a written outline, textbook, or
suitable electronic educational materials.
(ii) Correspondence or individual study programs (including
taped programs). Qualifying continuing education programs include
correspondence or individual study programs that are conducted by
qualifying sponsors and completed on an individual basis by the
enrolled individual. The allowable credit hours for such programs
will be measured on a basis comparable to the measurement of a
seminar or course for credit in an accredited educational
institution. Such programs qualify as continuing education programs
if they--
(A) Require registration of the participants by the sponsor;
(B) Provide a means for measuring completion by the
participants (e.g., a written examination), including the issuance
of a certificate of completion by the sponsor; and
(C) Provide a written outline, textbook, or suitable
electronic educational materials.
(iii) Serving as an instructor, discussion leader or speaker.
(A) One hour of continuing education credit will be awarded for each
contact hour completed as an instructor, discussion leader, or
speaker at an educational program that meets the continuing
education requirements of paragraph (f) of this section.
(B) Two hours of continuing education credit will be awarded
for actual subject preparation time for each contact hour completed
as an instructor, discussion leader, or speaker at such programs. It
is the responsibility of the individual claiming such credit to
maintain records to verify preparation time.
(C) The maximum credit for instruction and preparation may not
exceed 50 percent of the continuing education requirement for an
enrollment cycle.
(D) An instructor, discussion leader, or speaker who makes
more than one presentation on the same subject matter during an
enrollment cycle, will receive continuing education credit for only
one such presentation for the enrollment cycle.
(iv) Credit for published articles, books, etc. (A) Continuing
education credit will be awarded for publications on Federal
taxation or Federal tax related matters, including accounting,
financial management, tax preparation software, and taxation,
provided the content of such publications is current and designed
for the enhancement of the professional knowledge of an individual
enrolled to practice before the Internal Revenue Service.
(B) The credit allowed will be on the basis of one hour credit
for each hour of preparation time for the material. It is the
responsibility of the person claiming the credit to maintain records
to verify preparation time.
(C) The maximum credit for publications may not exceed 25
percent of the continuing education requirement of any enrollment
cycle.
(3) Periodic examination.
(i) Individuals may establish eligibility for renewal of
enrollment for any enrollment cycle by--
(A) Achieving a passing score on each part of the Special
Enrollment Examination administered under this part during the three
year period prior to renewal; and
(B) Completing a minimum of 16 hours of qualifying continuing
education during the last year of an enrollment cycle.
(ii) Courses designed to help an applicant prepare for the
examination specified in paragraph (a) of §10.4 are considered
basic in nature and are not qualifying continuing education.
(g) Sponsors. (1) Sponsors are those responsible for
presenting programs.
(2) To qualify as a sponsor, a program presenter must--
(i) Be an accredited educational institution;
(ii) Be recognized for continuing education purposes by the
licensing body of any State, possession, territory, Commonwealth, or
the District of Columbia responsible for the issuance of a license
in the field of accounting or law;
(iii) Be recognized by the Director of Practice as a
professional organization or society whose programs include offering
continuing professional education opportunities in subject matters
within the scope of paragraph (f)(1)(i) of this section; or
(iv) File a sponsor agreement with the Director of Practice
and obtain approval of the program as a qualified continuing
education program.
(3) A qualifying sponsor must ensure the program complies with
the following requirements--
(i) Programs must be developed by individual(s) qualified in
the subject matter;
(ii) Program subject matter must be current;
(iii) Instructors, discussion leaders, and speakers must be
qualified with respect to program content;
(iv) Programs must include some means for evaluation of
technical content and presentation;
(v) Certificates of completion must be provided those who have
successfully completed the program; and
(vi) Records must be maintained by the sponsor to verify the
participants who attended and completed the program for a period of
three years following completion of the program. In the case of
continuous conferences, conventions, and the like, records must be
maintained to verify completion of the program and attendance by
each participant at each segment of the program.
(4) Professional organizations or societies wishing to be
considered as qualified sponsors must request this status from the
Director of Practice and furnish information in support of the
request together with any further information deemed necessary by
the Director.
(5) A professional organization or society recognized as a
qualified sponsor by the Director of Practice will retain its status
for one enrollment cycle. The Director will publish the names of
such sponsors on a periodic basis.
(h) Measurement of continuing education coursework. (1) All
continuing education programs will be measured in terms of contact
hours. The shortest recognized program will be one contact hour.
(2) A contact hour is 50 minutes of continuous participation
in a program. Credit is granted only for a full contact hour, i.e.,
50 minutes or multiples thereof. For example, a program lasting more
than 50 minutes but less than 100 minutes will count as one contact
hour.
(3) Individual segments at continuous conferences,
conventions and the like will be considered one total program. For
example, two 90-minute segments (180 minutes) at a continuous
conference will count as three contact hours.
(4) For university or college courses, each semester hour
credit will equal 15 contact hours and a quarter hour credit will
equal 10 contact hours.
(i) Recordkeeping requirements. (1) Each individual applying
for renewal must retain for a period of three years following the
date of renewal of enrollment the information required with regard
to qualifying continuing professional education credit hours. Such
information includes--
(i) The name of the sponsoring organization;
(ii) The location of the program;
(iii) The title of the program and description of its
content;
(iv) Written outlines, course syllibi, textbook, and/or
electronic materials provided or required for the course;
(v) The dates attended;
(vi) The credit hours claimed;
(vii) The name(s) of the instructor(s), discussion leader(s),
or speaker(s), if appropriate; and
(viii) The certificate of completion and/or signed statement
of the hours of attendance obtained from the sponsor.
(2) To receive continuing education credit for service
completed as an instructor, discussion leader, or speaker, the
following information must be maintained for a period of three years
following the date of renewal of enrollment--
(i) The name of the sponsoring organization;
(ii) The location of the program;
(iii) The title of the program and description of its content;
(iv) The dates of the program; and
(v) The credit hours claimed.
(3) To receive continuing education credit for publications,
the following information must be maintained for a period of three
years following the date of renewal of enrollment--
(i) The publisher;
(ii) The title of the publication;
(iii) A copy of the publication;
(iv) The date of publication; and
(v) Records that substantiate the hours worked on the
publication.
(j) Waivers. (1) Waiver from the continuing education
requirements for a given period may be granted by the Director of
Practice for the following reasons--
(i) Health, which prevented compliance with the continuing
education requirements;
(ii) Extended active military duty;
(iii) Absence from the United States for an extended period
of time due to employment or other reasons, provided the individual
does not practice before the Internal Revenue Service during such
absence; and
(iv) Other compelling reasons, which will be considered on a
case-by-case basis.
(2) A request for waiver must be accompanied by appropriate
documentation. The individual is required to furnish any additional
documentation or explanation deemed necessary by the Director of
Practice. Examples of appropriate documentation could be a medical
certificate or military orders.
(3) A request for waiver must be filed no later than the last
day of the renewal application period.
(4) If a request for waiver is not approved, the individual
will be placed in inactive status, so notified by the Director of
Practice, and placed on a roster of inactive enrolled individuals.
(5) If a request for waiver is approved, the individual will
be notified and issued a card evidencing renewal.
(6) Those who are granted waivers are required to file timely
applications for renewal of enrollment.
(k) Failure to comply. (1) Compliance by an individual with
the requirements of this part is determined by the Director of
Practice. An individual who fails to meet the requirements of
eligibility for renewal of enrollment will be notified by the
Director at his or her enrollment address by first class mail. The
notice will state the basis for the determination of noncompliance
and will provide the individual an opportunity to furnish
information in writing relating to the matter within 60 days of the
date of the notice. Such information will be considered by the
Director in making a final determination as to eligibility for
renewal of enrollment.
(2) The Director of Practice may require any individual, by
notice sent by first class mail to his or her enrollment address, to
provide copies of any records required to be maintained under this
part. The Director may disallow any continuing professional
education hours claimed if the individual fails to comply with this
requirement.
(3) An individual who has not filed a timely application for
renewal of enrollment, who has not made a timely response to the
notice of noncompliance with the renewal requirements, or who has
not satisfied the requirements of eligibility for renewal will be
placed on a roster of inactive enrolled individuals. During this
time, the individual will be ineligible to practice before the
Internal Revenue Service.
(4) Individuals placed in inactive enrollment status and
individuals ineligible to practice before the Internal Revenue
Service may not, directly or indirectly, indicate that they are
enrolled to practice before the Service, or use the term "enrolled
agent," the designation "E. A.," or other form of reference to
eligibility to practice before the Service.
(5) An individual placed in an inactive status may be
reinstated to an active enrollment status by filing an application
for renewal of enrollment and providing evidence of the completion
of the all required continuing professional education hours for the
enrollment cycle. Continuing education credit under this subsection
may not be used to satisfy the requirements of the enrollment cycle
in which the individual has been placed back on the active roster.
(6) An individual placed in an inactive status must file an
application for renewal of enrollment and satisfy the requirements
for renewal as set forth in this section within three years of being
placed in an inactive status. The name of such individual otherwise
will be removed from the inactive enrollment roster and his or her
enrollment will terminate. Eligibility for enrollment must then be
reestablished by the individual as provided in this section.
(7) Inactive enrollment status is not available to an
individual who is the subject of a disciplinary matter in the Office
of Director of Practice.
(l) Inactive retirement status. An individual who no longer
practices before the Internal Revenue Service may request being
placed in an inactive status at any time and such individual will be
placed in an inactive retirement status. The individual will be
ineligible to practice before the Service. Such individual must file
a timely application for renewal of enrollment at each applicable
renewal or enrollment period as provided in this section. An
individual who is placed in an inactive retirement status may be
reinstated to an active enrollment status by filing an application
for renewal of enrollment and providing evidence of the completion
of the required continuing professional education hours for the
enrollment cycle. Inactive retirement status is not available to an
individual who is subject of a disciplinary matter in the Office of
Director of Practice.
(m) Renewal while under suspension or disbarment. An
individual who is ineligible to practice before the Internal Revenue
Service by virtue of disciplinary action is required to be in
conformance with the requirements for renewal of enrollment before
his or her eligibility is restored.
(n) Verification. The Director of Practice may review the
continuing education records of an enrolled individual and/or
qualified sponsor in a manner deemed appropriate to determine
compliance with the requirements and standards for renewal of
enrollment as provided in paragraph (f) of this section.
(o) Enrolled Actuaries. The enrollment and the renewal of
enrollment of actuaries authorized to practice under paragraph (d)
of §10.3 are governed by the regulations of the Joint Board for
the Enrollment of Actuaries at 20 CFR 901.1 et seq. §10.7
Representing oneself; participating in rulemaking; limited practice;
special appearances; and return preparation.
(a) Representing oneself. Individuals may appear on their own
behalf before the Internal Revenue Service provided they present
satisfactory identification.
(b) Participating in rulemaking. Individuals may participate
in rulemaking as provided by the Administrative Procedure Act. See 5
U.S.C. 553.
(c) Limited practice--
(1) In general. Subject to the limitations in paragraph (c)(2)
of this section, an individual who is not a practitioner may
represent a taxpayer before the Internal Revenue Service in the
circumstances described in this paragraph (c)(1), even if the
taxpayer is not present, provided the individual presents
satisfactory identification and proof of his or her authority to
represent the taxpayer. The circumstances described in this
paragraph (c)(1) are as follows:
(i) An individual may represent a member of his or her
immediate family.
(ii) A regular full-time employee of an individual employer
may represent the employer.
(iii) A general partner or a regular full-time employee of a
partnership may represent the partnership.
(iv) A bona fide officer or a regular full-time employee of a
corporation (including a parent, subsidiary, or other affiliated
corporation), association, or organized group may represent the
corporation, association, or organized group.
(v) A regular full-time employee of a trust, receivership,
guardianship, or estate may represent the trust, receivership,
guardianship, or estate.
61
(vi) An officer or a regular employee of a governmental unit,
agency, or authority may represent the governmental unit, agency, or
authority in the course of his or her official duties.
(vii) An individual may represent any individual or entity,
who is outside the United States, before personnel of the Internal
Revenue Service when such representation takes place outside the
United States.
(viii) An individual who prepares and signs a taxpayer's tax
return as the preparer, or who prepares a tax return but is not
required (by the instructions to the tax return or regulations) to
sign the tax return, may represent the taxpayer before revenue
agents, customer service representatives or similar officers and
employees of the Internal Revenue Service during an examination of
the taxable year or period covered by that tax return, but this
right does not permit such individual to represent the taxpayer,
regardless of the circumstances requiring representation, before
appeals officers, revenue officers, Counsel or similar officers or
employees of the Service or the Department of Treasury.
(2) Limitations.
(i) An individual who is under suspension or disbarment from
practice before the Internal Revenue Service may not engage in
limited practice before the Service under paragraph (c)(1) of this
section.
(ii) The Director, after notice and opportunity for a
conference, may deny eligibility to engage in limited practice
before the Internal Revenue Service under paragraph (c)(1) of this
section to any individual who has engaged in conduct that would
justify censuring, suspending, or disbarring a practitioner from
practice before the Service.
(iii) An individual who represents a taxpayer under the
authority of paragraph (c)(1) of this section is subject, to the
extent of his or her authority, to such rules of general
applicability regarding standards of conduct and other matters as
the Director of Practice prescribes.
(d) Special appearances. The Director of Practice may,
subject to such conditions as he or she deems appropriate, authorize
an individual who is not otherwise eligible to practice before the
Service to represent another person in a particular matter.
(e) Preparing tax returns and furnishing information. Any
individual may prepare a tax return, appear as a witness for the
taxpayer before the Internal Revenue Service, or furnish information
at the request of the Service or any of its officers or employees.
(f) Fiduciaries. For purposes of this part, a fiduciary
(i.e., a trustee, receiver, guardian, personal representative,
administrator, or executor) is considered to be the taxpayer and not
a representative of the taxpayer. §10.8 Customhouse brokers.
Nothing contained in the regulations in this part will
affect or limit the right of a customhouse broker, licensed as such
by the Commissioner of Customs in accordance with the regulations
prescribed therefor, in any customs district in which he or she is
so licensed, at the local office of the Internal Revenue Service or
before the National Office of the Service, to act as a
representative in respect to any matters relating specifically to
the importation or exportation of merchandise under the customs or
internal revenue laws, for any person for whom he or she has acted
as a customhouse broker.
Subpart B -- Duties and Restrictions Relating to Practice
Before the Internal Revenue Service §10.20 Information to be
furnished.
(a) To the Internal Revenue Service. A practitioner must, on
a proper and lawful request by a duly authorized officer or employee
of the Internal Revenue Service, promptly submit records or
information in any matter before the Internal Revenue Service unless
the practitioner believes in good faith and on reasonable grounds
that the records or information are privileged. Where the requested
records or information are not in the possession or control of the
practitioner or the practitioner's client, the practitioner must
promptly notify the requesting officer or employee, and must provide
any information that either the practitioner or the practitioner's
client has regarding the identity of any person who may have
possession or control of the requested records or information. A
practitioner may not interfere, or attempt to interfere, with any
proper and lawful effort by the Service or its officers or employees
to obtain any record or information unless the practitioner believes
in good faith and on reasonable grounds that the record or
information is privileged.
(b) To the Director of Practice. When a proper and lawful
request is made by the Director of Practice, a practitioner must
provide the Director with any information the practitioner has
concerning a violation or possible violation of the regulations in
this part by any person, and to testify regarding this information
in any proceeding instituted under this part, unless the
practitioner believes in good faith and on reasonable grounds that
the information is privileged. §10.21 Knowledge of client's
omission.
A practitioner who, having been retained by a client with
respect to a matter administered by the Internal Revenue Service,
knows that the client has not complied with the revenue laws of the
United States or has made an error in or omission from any return,
document, affidavit, or other paper which the client submitted or
executed under the revenue laws of the United States, must advise
the client promptly of the fact of such noncompliance, error, or
omission, the manner in which corrective action may be taken, and
the possible consequences of not taking corrective action.
§10.22 Diligence as to accuracy.
(a) In general. A practitioner must exercise due diligence--
(1) In preparing or assisting in the preparation of,
approving, and filing tax returns, documents, affidavits, and other
papers relating to Internal Revenue Service matters;
(2) In determining the correctness of oral or written
representations made by the practitioner to the DEPARTMENT OF THE
TREASURY; and
(3) In determining the correctness of oral or written
representations made by the practitioner to clients with reference
to any matter administered by the Internal Revenue Service.
(b) Reliance on others. Except as provided in
§§10.33, 10.34, and 10.35, a practitioner will be presumed
to have exercised due diligence for purposes of this section if the
practitioner relies on the work product of another person and the
practitioner used reasonable care in engaging, supervising,
training, and evaluating the person, taking proper account of the
nature of the relationship between the practitioner and the person.
§10.23 Prompt disposition of pending matters.
A practitioner may not unreasonably delay the prompt
disposition of any matter before the Internal Revenue Service.
§10.24 Assistance from or to disbarred or suspended persons and
former Internal Revenue Service employees.
A practitioner may not, knowingly and directly or indirectly:
(a) Accept assistance from or assist any person who is under
disbarment or suspension from practice before the Internal Revenue
Service if the assistance relates to a matter or matters
constituting practice before the Service.
(b) Accept assistance from any former government employee
where the provisions of §10.25 of this part or any Federal law
would be violated. §10.25 Practice by former Government
employees, their partners and their associates.
(a) Definitions. For purposes of this section--
(1) Assist means to act in such a way as to advise, furnish
information to, or otherwise aid another person, directly or
indirectly.
(2) Government employee is an officer or employee of the
United States or any agency of the United States, including a
special government employee as defined in 18 U.S.C. 202(a), or of
the District of Columbia, or of any State, or a member of Congress
or of any State legislature.
(3) Member of a firm is a sole practitioner or an employee or
associate thereof, or a partner, stockholder, associate, affiliate
or employee of a partnership, joint venture, corporation,
professional association or other affiliation of two or more
practitioners who represent nongovernmental parties.
(4) Practitioner includes any individual described in
paragraph (f) of §10.2.
(5) Official responsibility means the direct administrative
or operating authority, whether intermediate or final, and either
exercisable alone or with others, and either personally or through
subordinates, to approve, disapprove, or otherwise direct Government
action, with or without knowledge of the action.
(6) Participate or participation means substantial
involvement as a Government employee by making decisions, or
preparing or reviewing documents with or without the right to
exercise a judgment of approval or disapproval, or participating in
conferences or investigations, or rendering advice of a substantial
nature.
(7) Rule includes Treasury Regulations, whether issued or
under preparation for issuance as Notices of Proposed Rule Making or
as Treasury Decisions; revenue rulings; and revenue procedures
published in the Internal Revenue Bulletin. Rule does not include a
transaction as defined in paragraph (a)(8) of this section.
(8) Transaction means any decision, determination, finding,
letter ruling, technical advice, Chief Counsel advice, or contract
or the approval or disapproval thereof, relating to a particular
factual situation or situations involving a specific party or
parties whose rights, privileges, or liabilities under laws or
regulations administered by the Internal Revenue Service, or other
legal rights, are determined or immediately affected therein and to
which the United States is a party or in which it has a direct and
substantial interest, whether or not the same taxable periods are
involved. Transaction does not include rule as defined in paragraph
(a)(7) of this section.
(b) General rules.
(1) No former Government employee may, subsequent to his or
her Government employment, represent anyone in any matter
administered by the Internal Revenue Service if the representation
would violate 18 U.S.C. 207 or any other laws of the United States.
(2) No former Government employee who participated in a
transaction may, subsequent to his or her Government employment,
represent or knowingly assist, in that transaction, any person who
is or was a specific party to that transaction.
(3) A former Government employee who within a period of one
year prior to the termination of Government employment had official
responsibility for a transaction may not, within two years after his
or her Government employment is ended, represent or knowingly assist
in that transaction any person who is or was a specific party to
that transaction.
(4) No former Government employee may, within one year after
his or her Government employment is ended, appear before any
employee of the Treasury Department in connection with the
publication, withdrawal, amendment, modification, or interpretation
of a rule in the development of which the former Government employee
participated or for which, within a period of one year prior to the
termination of his or her Government employment, he or she had
official responsibility. This paragraph (b)(4) does not, however,
preclude such former employee from appearing on his or her own
behalf or from representing a taxpayer before the Internal Revenue
Service in connection with a transaction involving the application
or interpretation of such a rule with respect to that transaction,
provided that such former employee does not utilize or disclose any
confidential information acquired by the former employee in the
development of the rule.
(c) Firm representation.
(1) No member of a firm of which a former Government employee
is a member may represent or knowingly assist a person who was or is
a specific party in any transaction with respect to which the
restrictions of paragraph (b)(2) or (3) of this section apply to the
former Government employee, in that transaction, unless the firm
isolates the former Government employee in such a way to ensure that
the former Government employee cannot assist in the representation.
(2) When isolation of a former Government employee is required
under paragraph (c)(1) of this section, a statement affirming the
fact of such isolation must be executed under oath by the former
Government employee and by another member of the firm acting on
behalf of the firm. The statement must clearly identify the firm,
the former Government employee, and the transaction(s) requiring
isolation and it must be filed with the Director of Practice and in
such other place and in the manner prescribed by rule or regulation.
(d) Pending representation. Practice by former Government
employees, their partners and associates with respect to
representation in specific matters where actual representation
commenced before adoption of this regulation is governed by the
regulations set forth at 31 CFR Part 10 immediately preceding the
adoption of these regulations. The burden of showing that
representation commenced before adoption of the revised regulations
lies with the former Government employees, and their partners and
associates. §10.26 Notaries.
A practitioner may not take acknowledgments, administer oaths,
certify papers, or perform any official act as a notary public with
respect to any matter administered by the Internal Revenue Service
and for which he or she is employed as counsel, attorney, or agent,
or in which he or she may be in any way interested. (26 Op. Atty.
Gen. 236). §10.27 Fees.
(a) Generally. A practitioner may not charge an unconscionable
fee for representing a client in a matter before the Internal
Revenue Service.
(b) Contingent fees. A practitioner may not charge a
contingent fee for preparing an original tax return or for any
advice rendered in connection with a position taken or to be taken
on an original tax return. A practitioner may charge a contingent
fee for preparing, or for any advice rendered in connection with a
position taken or to be taken on, an amended tax return or a claim
for refund (other than a claim for refund made on an original tax
return) if the practitioner reasonably anticipates at the time the
fee arrangement is entered into that the amended tax return or
refund claim will receive substantive review by the Internal Revenue
Service. For purposes of this section, a contingent fee is any fee
that is based, in whole or in part, on whether or not a position
taken on a tax return or in a refund claim is sustained by the
Service or in litigation. A contingent fee includes an indemnity
agreement, a guarantee, rescission rights, insurance, or any other
arrangement under which the taxpayer or other person would be
entitled to be compensated or reimbursed by the practitioner in the
event a position taken on a tax return or in a refund claim is not
sustained, or any other arrangement that has a similar effect.
§10.28 Return of client's records.
On the request of a client, a practitioner must promptly
return any and all records of the client. The existence of a dispute
over fees does not relieve the practitioner of his or her
responsibility under this section. The practitioner may retain
copies of the records returned to a client. §10.29 Conflicting
interests.
(a) A practitioner may not represent potential conflicting
interests in his or her practice before the Internal Revenue
Service, unless--
(1) The practitioner reasonably believes that the
representation of any party before the Service will not be adversely
affected; and
(2) All parties represented by the practitioner who have an
interest in the matter before the Service expressly consent in
writing to the representation after the practitioner has fully
disclosed the potential conflict.
(b) Copies of the written consents must be retained by the
practitioner for at least 36 months from the date of the conclusion
of the representation of the affected clients and the written
consents must be provided to any officer or employee of the Internal
Revenue Service on request.
(c) A practitioner may not represent a party in his or her
practice before the Internal Revenue Service if the representation
of the party may be materially limited by the practitioner's own
interests, unless the practitioner reasonably believes the
representation will not be adversely affected and the client
consents after the practitioner has fully disclosed the potential
conflict, including disclosure of the implications of the potential
conflict and the risks involved. §10.30 Solicitation.
(a) Advertising and solicitation restrictions.
(1) A practitioner may not, with respect to any Internal
Revenue Service matter, in any way use or participate in the use of
any form of public communication or private solicitation containing
a false, fraudulent, or coercive statement or claim; or a misleading
or deceptive statement or claim. Enrolled agents, in describing
their professional designation, may not utilize the term of art
"certified" or "licensed" or indicate an employer/employee
relationship with the Service. Examples of acceptable descriptions
are "enrolled to represent taxpayers before the Internal Revenue
Service," "enrolled to practice before the Internal Revenue
Service," and "admitted to practice before the Internal Revenue
Service." Enrolled agents and enrolled actuaries may abbreviate such
designation as either EA or E.A. Examples of unacceptable
descriptions are "Internal Revenue Service (or IRS) Enrolled Agent,"
"Enrolled Agent of the Internal Revenue Service (or IRS),"
"Certified Enrolled Agent," or "Licensed to practice before the
Internal Revenue Service (or IRS)."
(2) A practitioner may not make, directly or indirectly, an
uninvited written or oral solicitation of employment in matters
related to the Internal Revenue Service if the solicitation violates
Federal or State law or other applicable rule, e.g., attorneys are
precluded from making a solicitation that is prohibited by the rules
of the State bar to which they are members. Any lawful solicitation
made by or on behalf of a practitioner eligible to practice before
the Service must, nevertheless, clearly identify the solicitation as
such and, if applicable, identify the source of the information used
in choosing the recipient.
(b) Fee information.
(1)(i) A practitioner may publish the availability of a
written schedule of fees and disseminate the following fee
information--
(A) Fixed fees for specific routine services.
(B) Hourly rates.
(C) Range of fees for particular services.
(D) Fee charged for an initial consultation.
(ii) Any statement of fee information concerning matters in
which costs may be incurred must include a statement disclosing
whether clients will be responsible for such costs.
(2) A practitioner may charge no more than the rate(s)
published under paragraph (b)(1) of this section for a reasonable
period of time after the last date on which the schedule of fees was
published (which, in no event, may be shorter than 30 days).
(c) Communication of fee information. Fee information may be
communicated in professional lists, telephone directories, print
media, mailings, electronic mail, facsimile, hand delivered flyers,
radio, television, and any other method. The method chosen, however,
must not cause the communication to become untruthful, deceptive, or
otherwise in violation of these regulations. A practitioner may not
persist in attempting to contact a prospective client if the
prospective client has made it known to the practitioner that he or
she does not desire to be solicited. In the case of radio and
television broadcasting, the broadcast must be recorded and the
practitioner must retain a recording of the actual transmission. In
the case of direct mail and e-commerce communications, the
practitioner must retain a copy of the actual communication, along
with a list or other description of persons to whom the
communication was mailed or otherwise distributed. The copy must be
retained by the practitioner for a period of at least 36 months from
the date of the last transmission or use.
(d) Improper associations. A practitioner may not, in matters
related to the Internal Revenue Service, assist, or accept
assistance from, any person or entity who, to the knowledge of the
practitioner, obtains clients or otherwise practices in a manner
forbidden under this section.
§10.31 Negotiation of taxpayer checks.
A practitioner who prepares tax returns may not endorse or
otherwise negotiate any check issued to a client by the government
in respect of a Federal tax liability. §10.32 Practice of law.
Nothing in the regulations in this part may be construed as
authorizing persons not members of the bar to practice law.
§10.33 Tax shelter opinions used by third parties to market tax
shelters.
(a) In general. A practitioner who provides a tax shelter
opinion that does not conclude that the Federal tax treatment of a
tax shelter item or items is more likely than not the proper
treatment must comply with each of the following requirements with
respect to each such item.
(1) Factual matters.
(i) The practitioner must make inquiry as to all relevant
facts, be satisfied that the opinion takes account of all relevant
facts, and be satisfied that the material facts (including factual
assumptions and representations) are accurately and completely
described in the opinion and in any related offering materials or
sales promotion materials.
(ii) The opinion must not be based, directly or indirectly, on
any unreasonable factual assumptions (including assumptions as to
future events). Unreasonable factual assumptions include--
(A) A factual assumption that the practitioner knows or has
reason to believe is incorrect, incomplete, inconsistent with an
important fact or another factual assumption, or implausible in any
material respect; or
(B) A factual assumption regarding a fact or facts that the
practitioner could reasonably request to be provided or to be
represented.
(iii) A practitioner may, where it would be reasonable based
on all the facts and circumstances, rely upon factual
representations, statements, findings, or agreements (factual
representations) (including representations describing the specific
business reasons for the transaction, the potential profitability of
the transaction apart from tax benefits, or a valuation prepared by
an independent party). Factors relevant to whether such factual
representations are reasonable include, but are not limited to,
whether the person making the factual representations is
knowledgeable as to the facts being represented and is the
appropriate person to make such factual representations. A
practitioner does not need to conduct an audit or independent
verification of a factual representation, but the practitioner may
not rely on factual representations if the practitioner knows or has
reason to believe, based on his or her background and knowledge,
that the relevant information is, or otherwise appears to be,
unreasonable, incorrect, incomplete, inconsistent with an important
fact or another factual representation, or implausible in any
material respect. For example, a representation is incomplete if it
states that there are business reasons for the transaction without
describing those reasons, or if it states that a transaction is
potentially profitable apart from tax benefits without providing
adequate factual support. In addition, a valuation is inconsistent
with an important fact or factual assumption or is implausible if it
appears to be based on facts that are inconsistent with the facts of
the transaction.
(iv) If the fair market value of property or the expected
financial performance of an investment is relevant to the tax
shelter item, a practitioner may not accept an appraisal or
financial projection as support for the matters claimed therein
unless--
(A) The appraisal or financial projection makes sense on its
face;
(B) The practitioner reasonably believes that the person
making the appraisal or financial projection is reputable and
competent to perform the appraisal or projection; and
(C) The appraisal is based on the definition of fair market
value prescribed under the relevant Federal tax provisions.
(v) If the fair market value of purchased property is to be
established by reference to its stated purchase price, the
practitioner must examine the terms and conditions on which the
property was (or is to be) purchased to determine whether the stated
purchase price reasonably may be considered to be its fair market
value.
(2) Relate law to facts.
(i) The opinion must relate the applicable law to the relevant
facts.
(ii) The opinion must clearly identify the facts upon which
the opinion's conclusions are based.
(iii) The opinion must contain a reasoned analysis of the
pertinent facts and legal authorities and must not assume the
favorable resolution of any Federal tax issue material to the
analysis or otherwise rely on any unreasonable legal assumptions.
(iv) The opinion must not contain legal analyses or
conclusions with respect to Federal tax issues that are inconsistent
with each other.
(3) Analysis of material Federal tax issues. The practitioner
must ascertain that all material Federal tax issues have been
considered, and that all of those issues that involve the reasonable
possibility of a challenge by the Internal Revenue Service have been
fully and fairly addressed. The opinion must state that the
practitioner has considered the possible application to the facts of
all potentially relevant judicial doctrines, including the step
transaction, business purpose, economic substance, substance over
form, and sham transaction doctrines, as well as potentially
relevant statutory and regulatory anti-abuse rules, and the opinion
must analyze whether the tax shelter item is vulnerable to challenge
under all potentially relevant doctrines and anti- abuse rules. In
analyzing such judicial doctrines and statutory and regulatory anti-
abuse rules, the opinion must take into account the typical
investor's non-tax and tax purposes (and the relative weight of such
purposes) for entering into a transaction and for structuring a
transaction in a particular manner.
(4) Evaluation of material Federal tax issues. The
practitioner must, where possible, clearly provide his or her
conclusion as to the likelihood that a typical investor of the type
to whom the tax shelter is or will be marketed will prevail on the
merits with respect to each material Federal tax issue that involves
the reasonable possibility of a challenge by the Internal Revenue
Service. If the practitioner is unable to reach such a conclusion
with respect to one or more Federal tax issues, he or she must
clearly state that he or she is unable to reach such a conclusion
with respect to those issues. The practitioner's opinion must fully
describe the reasons for the practitioner's conclusions or fully
describe the reasons for his or her inability to reach a conclusion
as to one or more issues.
(5) Overall conclusion.
(i) The practitioner must, where possible, clearly provide an
overall conclusion as to the likelihood that the Federal tax
treatment of the tax shelter item or items is the proper treatment.
If the practitioner is unable to reach such an overall conclusion,
he or she must clearly state that he or she is unable to reach such
an overall conclusion and the opinion must fully describe the
reasons for the practitioner's inability to reach a conclusion.
(ii) The fact that the practitioner's opinion does not reach
an overall conclusion that the Federal tax treatment of the tax
shelter item or items is more likely than not the proper treatment,
or the fact that the practitioner is unable to reach an overall
conclusion, must be clearly and prominently disclosed on the first
page of the opinion.
(iii) The opinion must clearly and prominently disclose on
the first page of the opinion that the opinion was not written for
the purpose of establishing--
(A) Under section 6662(d)(2)(C)(i)(II) of the Internal
Revenue Code and 26 CFR 1.6662-4(g)(4), that a taxpayer other than a
corporation reasonably believed at the time a tax return was filed
that the tax treatment of a tax shelter item was more likely than
not the proper treatment of that item; or
(B) Under section 6664(c)(1) of the Internal Revenue Code and
26 CFR 1.6664- 4(e), that a corporate taxpayer acted with reasonable
cause and in good faith with respect to a tax shelter item.
(iv) In ascertaining that all material Federal tax issues
have been considered, evaluating the merits of those issues and
evaluating whether the Federal tax treatment of the tax shelter item
or items is the proper treatment, the possibility that a tax return
will not be audited, that an issue will not be raised on audit, or
that an issue will be settled may not be taken into account.
(6) Description of opinion. The practitioner must take
reasonable steps to assure that any written materials or promotional
efforts that distribute, reflect or refer to the tax shelter
opinion, correctly and fairly represent the nature and extent of the
opinion.
(b) Competence to provide opinion; reliance on opinions of
others. (1) The practitioner must be knowledgeable in all of the
aspects of Federal tax law relevant to the opinion being rendered.
(i) A practitioner may not provide a tax shelter opinion that
does not clearly provide his or her conclusion as to the likelihood
that a typical investor of the type to whom the tax shelter is or
will be marketed will prevail on the merits with respect to each
material Federal tax issue that involves the reasonable possibility
of a challenge by the Internal Revenue Service (or, alternatively,
if the practitioner is unable to reach a conclusion with respect to
one or more material Federal tax issues, an opinion that does not
clearly state that he or she is unable to reach a conclusion with
respect to those issues), or does not provide an overall conclusion
as to the likelihood that the Federal tax treatment of the tax
shelter item or items is the proper treatment (or, alternatively, if
the practitioner is unable to reach an overall conclusion, an
opinion that does not clearly state that he or she is unable to
reach such an overall conclusion), unless--
(A) At least one other competent practitioner provides an
opinion on the likely outcome with respect to all of the other
material Federal tax issues which involve a reasonable possibility
of challenge by the Internal Revenue Service, and with respect to
the tax shelter item or items; and
(B) The practitioner, on reviewing such other opinions and
any written materials that distribute, reflect or refer to such
other opinions, has no reason to believe that the other practitioner
did not comply with the standards of paragraph (a) of this section.
(ii) Notwithstanding the foregoing, a practitioner who has
not been retained to provide an overall evaluation may issue an
opinion on less than all the material tax issues only if he or she
has no reason to believe, based on his or her knowledge and
experience, that an overall conclusion given by the practitioner who
reaches an overall conclusion is incorrect on its face. Such
practitioner also must ensure that the limited opinion satisfies the
requirements of this section that are otherwise applicable.
(2) Financial forecasts and projections. A practitioner who
makes financial forecasts or projections relating to or based on the
tax consequences of the tax shelter item that are included in
written materials disseminated to any or all of the same persons as
the opinion may rely on the opinion of another practitioner as to
any or all material Federal tax issues, provided that the
practitioner who desires to rely on the other opinion has no reason
to believe the practitioner rendering such other opinion has not
complied with the standards of paragraph (a) of this §10.33,
and the requirements of paragraphs (b)(1)(i)(A) and (B) and the
first sentence of paragraph (b)(1)(ii) of this section are
satisfied. The practitioner's report must disclose any material
Federal tax issue not covered by, or incorrectly opined on, by the
other opinion, and shall set forth his or her opinion with respect
to each such issue in a manner that satisfies the requirements of
paragraph (a) of this section.
(c) Definitions. For purposes of this section--
(1) Practitioner includes any individual described in
paragraph (f) of §10.2.
(2) The definition of tax shelter is set forth in section
6662(d)(2)(C)(iii) of the Internal Revenue Code.
(3) A tax shelter item is an item of income, gain, loss,
deduction or credit if the item is directly or indirectly
attributable to a tax shelter as defined in section 6662(d)(2)(C)
(iii) of the Internal Revenue Code.
(4) A tax shelter opinion, as the term is used in this
section, is written advice by a practitioner concerning the Federal
tax aspects of a tax shelter item or items that a practitioner knows
or has reason to believe will be used or referred to by a person
other than the practitioner (or person who is a member of,
associated with, or employed by the practitioner's firm or company)
in promoting, marketing or recommending the tax shelter to one or
more taxpayers, irrespective of whether such promotional, marketing,
or similar activities are conducted privately or publicly. The term
tax shelter opinion includes the Federal tax aspects or tax risks
portion of offering materials prepared for the person who is
promoting, marketing or recommending the tax shelter by or at the
direction of a practitioner, whether or not a separate opinion
letter is issued or whether or not the practitioner's name is
referred to in offering materials or in connection with sales
promotion efforts. Similarly, a financial forecast or projection
prepared by a practitioner is a tax shelter opinion if it is
predicated on assumptions regarding Federal tax aspects of the
investment and that meets the other requirements of the first
sentence of this paragraph. The term tax shelter opinion does not
include advice provided in connection with the review of portions of
offering or sales promotion materials, provided neither the name of
the practitioner or the practitioner's firm, nor the fact that a
practitioner has rendered advice concerning the Federal tax aspects,
is referred to in the offering materials or related sales promotion
efforts.
(5) A material Federal tax issue, as the term is used in this
section, is any Federal tax issue the resolution of which could have
a significant impact (whether beneficial or adverse) on a taxpayer
under any reasonably foreseeable circumstance. A material Federal
tax issue includes the potential applicability of penalties,
additions to tax, or interest charges that reasonably could be
asserted by the Internal Revenue Service with respect to the tax
shelter item.
(6) The following examples illustrate this section--
Example 1. A practitioner is requested by a third party to
prepare a memorandum evaluating whether the purported Federal tax
treatment of a tax shelter item arising from a series of
transactions will be sustained if challenged by the Internal Revenue
Service. The practitioner concludes that there is a realistic
possibility that the purported treatment of the tax shelter item is
the proper treatment and has reason to believe that the third party
will use or refer to the memorandum he prepares in promoting,
marketing or recommending the transaction to one or more taxpayers.
The memorandum is a tax shelter opinion for purposes of this
section.
Example 2. A practitioner writes a memorandum that evaluates
whether a hypothetical taxpayer which enters into a series of
transactions can offset a preexisting capital gain against certain
losses arising from the series of transactions. The practitioner
concludes that, while a significant purpose for entering into the
series of transactions is the avoidance or evasion of Federal income
tax within the meaning of section 6662(d)(2)(C)(iii) of the Internal
Revenue Code, there is a realistic possibility that the tax loss
arising from this series of transactions is the proper treatment.
The practitioner plans to provide this memorandum directly to
clients who have capital gains. The memorandum is not a tax shelter
opinion for purposes of this section because the promoting,
marketing or recommending of the tax shelter is not being done by a
person other than the practitioner. §10.34 Standards for
advising with respect to tax return positions and for preparing or
signing returns.
(a) Realistic possibility standard. A practitioner may not
sign a tax return as a preparer if the practitioner determines that
the tax return contains a position that does not have a realistic
possibility of being sustained on its merits (the realistic
possibility standard) unless the position is not frivolous and is
adequately disclosed to the Internal Revenue Service. A practitioner
may not advise a client to take a position on a tax return, or
prepare the portion of a tax return on which a position is taken,
unless--
(1) The practitioner determines that the position satisfies
the realistic possibility standard; or
(2) The position is not frivolous and the practitioner
advises the client of any opportunity to avoid the accuracy-related
penalty in section 6662 of the Internal Revenue Code by adequately
disclosing the position and of the requirements for adequate
disclosure.
(b) Advising clients on potential penalties. A practitioner
advising a client to take a position on a tax return, or preparing
or signing a tax return as a preparer, must inform the client of the
penalties reasonably likely to apply to the client with respect to
the position advised, prepared, or reported. The practitioner also
must inform the client of any opportunity to avoid any such penalty
by disclosure, if relevant, and of the requirements for adequate
disclosure. This paragraph (b) applies even if the practitioner is
not subject to a penalty with respect to the position.
(c) Relying on information furnished by clients. A
practitioner advising a client to take a position on a tax return,
or preparing or signing a tax return as a preparer, generally may
rely in good faith without verification upon information furnished
by the client. The practitioner may not, however, ignore the
implications of information furnished to, or actually known by, the
practitioner, and must make reasonable inquiries if the information
as furnished appears to be incorrect, inconsistent with an important
fact or another factual assumption, or incomplete.
(d) Definitions. For purposes of this section--
(1) Realistic possibility. A position is considered to have a
realistic possibility of being sustained on its merits if a
reasonable and well informed analysis by a person knowledgeable in
the tax law would lead such a person to conclude that the position
has approximately a one in three, or greater, likelihood of being
sustained on its merits. The authorities described in 26 CFR
1.6662-4(d)(3)(iii), or any successor provision, of the substantial
understatement penalty regulations may be taken into account for
purposes of this analysis. The possibility that a tax return will
not be audited, that an issue will not be raised on audit, or that
an issue will be settled may not be taken into account.
(2) Frivolous. A position is frivolous if it is patently
improper.
§10.35 More likely than not tax shelter opinions.
(a) In general. A practitioner who provides a tax shelter
opinion that concludes that the Federal tax treatment of a tax
shelter item or items is more likely than not (or at a higher level
of confidence) the proper treatment must comply with each of the
following requirements with respect to each such item.
(1) Factual matters.
(i) The practitioner must make inquiry as to all relevant facts, be
satisfied that the opinion takes account of all relevant facts, and
be satisfied that the material facts (including factual assumptions
and representations) are accurately and completely described in the
opinion, and, where appropriate, in any related offering materials
or sales promotion materials.
(ii) The opinion must not be based, directly or indirectly,
on any unreasonable factual assumptions (including assumptions as to
future events). Unreasonable factual assumptions include--
(A) A factual assumption that the practitioner knows or has
reason to believe is incorrect, incomplete, inconsistent with an
important fact or another factual assumption, or implausible in any
material respect; or
(B) A factual assumption regarding a fact or facts that the
practitioner could reasonably request to be provided or to be
represented.
(C) A factual assumption that the transaction has a business
reason, an assumption that the transaction is potentially profitable
apart from tax benefits, or an assumption with respect to a material
valuation issue.
(iii) A practitioner may, where it would be reasonable based
on all the facts and circumstances, rely on factual representations,
statements, findings, or agreements of the taxpayer or other persons
((factual representations) (including representations describing the
specific business reasons for the transaction, the potential
profitability of the transaction apart from tax benefits, or a
valuation prepared by an independent party). Factors relevant to
whether such factual representations are reasonable include, but are
not limited to, whether the person making the factual
representations is knowledgeable as to the facts being represented
and is the appropriate person to make such factual representations.
A practitioner does not need to conduct an audit or independent
verification of a factual representation, but the practitioner may
not rely on factual representations if the practitioner knows or has
reason to believe, based on his or her background and knowledge,
that the relevant information is, or otherwise appears to be,
unreasonable, incorrect, incomplete, inconsistent with an important
fact or another factual representation, or implausible in any
material respect. For example, a representation is incomplete if it
states that there are business reasons for the transaction without
describing those reasons, or if it states that a transaction is
potentially profitable apart from tax benefits without providing
adequate factual support. In addition, a valuation is inconsistent
with an important fact or factual assumption or is implausible if it
appears to be based on facts that are inconsistent with the facts of
the transaction.
(iv) If the fair market value of property or the expected
financial performance of an investment is relevant to the tax
shelter item, a practitioner may not accept an appraisal or
financial projection as support for the matters claimed therein
unless--
(A) The appraisal or financial projection makes sense on its
face;
(B) The practitioner reasonably believes that the person
making the appraisal or financial projection is reputable and
competent to perform the appraisal or projection; and
(C) The appraisal is based on the definition of fair market
value prescribed under the relevant Federal tax provisions.
(v) If the fair market value of purchased property is to be
established by reference to its stated purchase price, the
practitioner must examine the terms and conditions on which the
property was (or is to be) purchased to determine whether the stated
purchase price reasonably may be considered to be its fair market
value.
(2) Relate law to facts.
(i) The opinion must relate the applicable law to the relevant
facts.
(ii) The opinion must clearly identify the facts upon which
the opinion's conclusions are based.
(iii) The opinion must contain a reasoned analysis of the
pertinent facts and legal authorities and must not assume the
favorable resolution of any Federal tax issue material to the
analysis or otherwise rely on any unreasonable legal assumptions.
(iv) The opinion must not contain legal analyses or
conclusions with respect to Federal tax issues that are inconsistent
with each other.
(3) Analysis of material Federal tax issues. The practitioner
must ascertain that all material Federal tax issues have been
considered, and that all of those issues which involve the
reasonable possibility of a challenge by the Internal Revenue
Service have been fully and fairly addressed. The opinion must state
that the practitioner has considered the possible application to the
facts of all potentially relevant judicial doctrines, including the
step transaction, business purpose, economic substance, substance
over form, and sham transaction doctrines, as well as potentially
relevant statutory and regulatory anti-abuse rules, and the opinion
must analyze whether the tax shelter item is vulnerable to challenge
under all potentially relevant doctrines and anti- abuse rules. In
analyzing such judicial doctrines and statutory and regulatory anti-
abuse rules, the opinion must take into account the taxpayer's non-
tax and tax purposes (and the relative weight of such purposes) for
entering into a transaction and for structuring a transaction in a
particular manner.
(4) Evaluation of material Federal tax issues and overall
conclusion.
(i) The practitioner must clearly provide his or her
conclusion as to the likelihood that an investor (or, where the
practitioner is relying on a representation as to the
characteristics of potential investors, a typical investor of the
type to whom the tax shelter is or will be marketed) will prevail on
the merits with respect to each material Federal tax issue that
involves the reasonable possibility of a challenge by the Internal
Revenue Service. This requirement is not satisfied by including a
statement in the opinion that the practitioner was unable to opine
with respect to certain material Federal tax issues, including but
not limited to whether the transaction has a business purpose or
economic substance.
(ii) The opinion must unambiguously conclude that the Federal
tax treatment of the tax shelter item or items is more likely than
not (or at a higher level of confidence) the proper tax treatment. A
favorable overall conclusion may not be based solely on the
conclusion that the taxpayer more likely than not will prevail on
the merits of each material Federal tax issue.
(iii) In ascertaining that all material Federal tax issues
have been considered, evaluating the merits of those issues and
evaluating whether the Federal tax treatment of the tax shelter item
or items is the proper tax treatment, the possibility that a tax
return will not be audited, that an issue will not be raised on
audit, or that an issue will be settled may not be taken into
account.
(5) Description of opinion. The practitioner must take
reasonable steps to assure that any written materials or promotional
efforts that distribute, reflect or refer to the tax shelter
opinion, correctly and fairly represent the nature and extent of the
opinion.
(b) Competence to provide opinion; reliance on opinions of
others.
(1) The practitioner must be knowledgeable in all of the
aspects of Federal tax law relevant to the opinion being rendered.
If the practitioner is not sufficiently knowledgeable to render an
informed opinion with respect to particular material Federal tax
issues, then the practitioner may rely on the opinion of another
practitioner with respect to such issues, provided the practitioner
is satisfied that the other practitioner is sufficiently
knowledgeable regarding such issues and the practitioner does not
know and has no reason to believe that such opinion should not be
relied on.
(2) To the extent the practitioner relies on an opinion of
another practitioner, the opinion rendered by the practitioner must
identify the other practitioner, state the date on which the opinion
was rendered, and set forth the conclusions reached in such opinion.
(3) The practitioner also must be satisfied that the combined
analysis, taken as a whole, satisfies the requirements of this
§10.35.
(4) Financial forecasts and projections. A practitioner who
makes financial forecasts or projections relating to or based on the
tax consequences of the tax shelter item that are included in
written materials disseminated to any or all of the same persons as
the opinion may rely on the opinion of another practitioner as to
any or all material Federal tax issues, provided that the
practitioner who desires to rely on the other opinion has no reason
to believe the practitioner rendering such other opinion has not
complied with the standards of paragraph (a) of this §10.35, is
satisfied that the other practitioner is sufficiently knowledgeable
and does not know and has no reason to believe that the opinion of
the other practitioner should not be relied on. The practitioner's
report must disclose any material Federal tax issue not covered by,
or incorrectly opined on, by the other opinion, and shall set forth
his or her opinion with respect to each such issue in a manner that
satisfies the requirements of paragraph (a) of this section.
(c) Definitions. For purposes of this section--
(1) Practitioner includes any individual described in
paragraph (f) of §10.2.
(2) The definition of tax shelter is set forth in section
6662(d)(2)(C)(iii) of the Internal Revenue Code. Excluded from the
term are municipal bonds and qualified retirement plans.
(3) A tax shelter item is an item of income, gain, loss,
deduction or credit if the item is directly or indirectly
attributable to a tax shelter as defined in section 6662(d)(2)(C)
(iii) of the Internal Revenue Code.
(4) A tax shelter opinion, as the term is used in this
section, is written advice by a practitioner concerning the Federal
tax aspects of a tax shelter item or items. The term tax shelter
opinion includes the Federal tax aspects or tax risks portion of
offering materials prepared by or at the direction of a
practitioner, whether or not a separate opinion letter is issued and
whether or not the practitioner's name is referred to in offering
materials or in connection with sales promotion efforts. Similarly,
a financial forecast or projection prepared by a practitioner is a
tax shelter opinion if it is predicated on assumptions regarding
Federal tax aspects of the investment and that meets the other
requirements of the first sentence of this paragraph. The term tax
shelter opinion does not include advice provided in connection with
the review of portions of offering materials or sales promotion
materials, provided neither the name of the practitioner or the
practitioner's firm nor the fact that a practitioner has rendered
advice concerning the Federal tax aspects, is referred to in the
offering materials or related sales promotion materials.
(5) A material Federal tax issue, as the term is used in this
section, is any Federal tax issue the resolution of which could have
a significant impact (whether beneficial or adverse) on a taxpayer
under any reasonably foreseeable circumstance.
(d) Effect of opinion that meets these standards. An opinion
of a practitioner that meets these requirements will satisfy the
practitioner's responsibilities under this section, but the
persuasiveness of the opinion with regard to the tax issues in
question and the taxpayer's good faith reliance on the opinion will
be separately determined under applicable provisions of the law and
regulations.
(e) For purposes of advising the Director of Practice whether
an individual may have violated §10.33 or 10.35, the Director
is authorized to establish an Advisory Committee composed of at
least five individuals authorized to practice before the Internal
Revenue Service. Under procedures established by the Director, such
Advisory Committee will, at the request of the Director, review and
make recommendations with regard to the alleged violations of
§10.33 or 10.35. §10.36 Procedures to ensure compliance.
A practitioner who is a member of, associated with, or
employed by a firm must take reasonable steps, consistent with his
or her authority and responsibility for the firm's practice advising
clients regarding matters arising under the Federal tax laws, to
make certain that the firm has adequate procedures in effect for
purposes of ensuring compliance with §10.33, 10.34, and 10.35.
The Director of Practice may take disciplinary action against any
practitioner for failing to comply with the requirements of the
preceding sentence if, and only if--
(a) The practitioner through willfulness, recklessness, or
gross incompetence does not take such reasonable steps and the
practitioner and one or more persons who are members of, associated
with, or employed by the firm have, in connection with their
practice with the firm, engaged in a pattern or practice of failing
to comply with §10.33, 10.34 or 10.35; or
(b) The practitioner takes such reasonable steps but has
actual knowledge that one or more persons who are members of,
associated with, or employed by the firm have, in connection with
their practice with the firm, engaged in a pattern or practice of
failing to comply with §10.33, 10.34 or 10.35 and the
practitioner, through willfulness, recklessness, or gross
incompetence, fails to take prompt action, consistent with his or
her authority and responsibility for the firm's practice advising
clients regarding matters under the Federal tax laws, to correct
such pattern or practice.
Subpart C -- San tions for Violation of the Regulations
§10.50 Sanctions.
(a) Authority to censure, suspend, or disbar. The Secretary
of the Treasury, or his or her designate, after notice and an
opportunity for a proceeding, may censure, suspend or disbar any
practitioner from practice before the Internal Revenue Service if
the practitioner is shown to be incompetent or disreputable, fails
to comply with any regulation in this part, or with intent to
defraud, willfully and knowingly misleads or threatens a client or
prospective client. Censure is a public reprimand.
(b) Authority to disqualify. The Secretary of the Treasury,
or his or her designate, after due notice and opportunity for
hearing, may disqualify any appraiser with respect to whom a penalty
has been assessed under section 6701(a) of the Internal Revenue
Code.
(1) If any appraiser is disqualified pursuant to this subpart
C, such appraiser is barred from presenting evidence or testimony in
any administrative proceeding before the Department of Treasury or
the Internal Revenue Service, regardless of whether such evidence or
testimony would pertain to an appraisal made prior to or after such
date.
(2) Any appraisal made by a disqualified appraiser after the
effective date of disqualification will not have any probative
effect in any administrative proceeding before the DEPARTMENT OF THE
TREASURY or the Internal Revenue Service. However, an appraisal
otherwise barred from admission into evidence pursuant to this
section may be admitted into evidence solely for the purpose of
determining the taxpayer's reliance in good faith on such appraisal.
§10.51 Incompetence and disreputable conduct.
Incompetence and disreputable conduct for which a practitioner
may be censured, suspended or disbarred from practice before the
Internal Revenue Service includes, but is not limited to--
(a) Conviction of any criminal offense under the revenue laws
of the United States;
(b) Conviction of any criminal offense involving dishonesty,
or breach of trust;
(c) Conviction of any felony under Federal or State law for
which the conduct involved renders the practitioner unfit to
practice before the Internal Revenue Service;
(d) Giving false or misleading information, or participating
in any way in the giving of false or misleading information to the
DEPARTMENT OF THE TREASURY or any officer or employee thereof, or to
any tribunal authorized to pass upon Federal tax matters, in
connection with any matter pending or likely to be pending before
them, knowing such information to be false or misleading. Facts or
other matters contained in testimony, Federal tax returns, financial
statements, applications for enrollment, affidavits, declarations,
or any other document or statement, written or oral, are included in
the term information.
(e) Solicitation of employment as prohibited under
§10.30, the use of false or misleading representations with
intent to deceive a client or prospective client in order to procure
employment, or intimating that the practitioner is able improperly
to obtain special consideration or action from the Internal Revenue
Service or officer or employee thereof.
(f) Willfully failing to make a Federal tax return in
violation of the revenue laws of the United States, willfully
evading, attempting to evade, or participating in any way in evading
or attempting to evade any assessment or payment of any Federal tax,
or knowingly counseling or suggesting to a client or prospective
client an illegal plan to evade Federal taxes or payment thereof.
(g) Misappropriation of, or failure properly and promptly to
remit funds received from a client for the purpose of payment of
taxes or other obligations due the United States.
(h) Directly or indirectly attempting to influence, or
offering or agreeing to attempt to influence, the official action of
any officer or employee of the Internal Revenue Service by the use
of threats, false accusations, duress or coercion, by the offer of
any special inducement or promise of advantage or by the bestowing
of any gift, favor or thing of value.
(i) Disbarment or suspension from practice as an attorney,
certified public accountant, public accountant, or actuary by any
duly constituted authority of any State, possession, territory,
Commonwealth, the District of Columbia, any Federal court of record
or any Federal agency, body or board.
(j) Knowingly aiding and abetting another person to practice
before the Internal Revenue Service during a period of suspension,
disbarment, or ineligibility of such other person.
(k) Contemptuous conduct in connection with practice before
the Internal Revenue Service, including the use of abusive language,
making false accusations and statements, knowing them to be false,
or circulating or publishing malicious or libelous matter.
(l) Giving a false opinion, knowingly, recklessly, or through
gross incompetence, including an opinion which is intentionally or
recklessly misleading, or engaging in a pattern of providing
incompetent opinions on questions arising under the Federal tax
laws. False opinions described in this paragraph (l) include those
which reflect or result from a knowing misstatement of fact or law,
from an assertion of a position known to be unwarranted under
existing law, from counseling or assisting in conduct known to be
illegal or fraudulent, from concealing matters required by law to be
revealed, or from consciously disregarding information indicating
that material facts expressed in the tax opinion or offering
material are false or misleading. For purposes of this paragraph,
reckless conduct is a highly unreasonable omission or
misrepresentation involving an extreme departure from the standards
of ordinary care that a practitioner should observe under the
circumstances. A pattern of conduct is a factor that will be taken
into account in determining whether a practitioner acted knowingly,
recklessly, or through gross incompetence. Gross incompetence
includes conduct that reflects gross indifference, preparation which
is grossly inadequate under the circumstances, and a consistent
failure to perform obligations to the client.
§10.52 Violation of regulations.
A practitioner may be censured, suspended or disbarred from
practice before the Internal Revenue Service for any of the
following--
(a) Willfully violating any of the regulations contained in
this part.
(b) Recklessly or through gross incompetence (within the
meaning of §10.51(l)) violating §10.33, 10.34, or 10.35.
§10.53 Receipt of information concerning practitioner.
(a) Officer or employee of the Internal Revenue Service. If an
officer or employee of the Internal Revenue Service has reason to
believe that a practitioner has violated any provision of this part,
the officer or employee will promptly make a written report to the
Director of Practice of the alleged violation.
(b) Other persons. Any person other than an officer or
employee of the Internal Revenue Service having information of a
violation of any provision of this part may make an oral or written
report of the alleged violation to the Director of Practice or any
officer or employee of the Service. If the report is made to an
officer or employee of the Service, the officer or employee will
make a written report of the alleged violation to the Director.
Subpart D -- Rules Applicable to Disciplinary Proceedings
§10.60 Institution of proceeding.
(a) Whenever the Director of Practice determines that a
practitioner violated any provision of the laws or regulations
governing practice before the Internal Revenue Service, the Director
may reprimand the practitioner or, in accordance with §10.62,
institute a proceeding for censure, suspension, or disbarment of the
practitioner.
(b) Whenever the Director of Practice is advised or becomes
aware that a penalty has been assessed against an appraiser under
section 6701(a) of the Internal Revenue Code, the Director may
reprimand the appraiser or, in accordance with §10.62,
institute a proceeding for disqualification of the appraiser.
(c) A proceeding for censure, suspension, or disbarment of a
practitioner or disqualification of an appraiser is instituted by
the filing of a complaint, the contents of which are more fully
described in §10.62. Except as provided in §10.82, a
proceeding will not be instituted under this section unless the
proposed respondent previously has been advised in writing of the
facts or conduct warranting such action and has been accorded an
opportunity to provide an explanation or description of mitigating
circumstances.
§10.61 Conferences.
(a) In general. The Director of Practice may confer with a
practitioner or an appraiser concerning allegations of misconduct
irrespective of whether a proceeding for censure, suspension,
disbarment, or disqualification has been instituted against the
practitioner or appraiser. If the conference results in a
stipulation in connection with a proceeding in which the
practitioner or appraiser is the respondent, the stipulation may be
entered in the record by either party to the proceeding.
(b) Resignation or voluntary suspension or censure. To avoid
the institution or conclusion of a proceeding under paragraph (a) of
§10.60, a practitioner may offer his or her consent to the
issuance of a censure, suspension or disbarment, or may resign, as
the case may be, from practice before the Internal Revenue Service.
It is within the discretion of the Director of Practice to accept
the offered censure, suspension, disbarment, or resignation, in
accordance with the consent offered.
(c) Voluntary disqualification. To avoid the institution or
conclusion of a proceeding under paragraph (b) of §10.60, an
appraiser may offer his or her consent to disqualification. It is
within the discretion of the Director of Practice to accept the
offered disqualification in accordance with the consent offered.
§10.62 Contents of complaint.
(a) Charges. A complaint must name the respondent, give a
plain and concise description of the allegations that constitute the
basis for the proceeding, and be signed by the Director of Practice.
A complaint is sufficient if it fairly informs the respondent of the
charges brought so that he or she is able to prepare a defense. In
the case of a complaint filed against an appraiser, the complaint is
sufficient if it refers to a penalty imposed previously on the
respondent under section 6701(a) of the Internal Revenue Code.
(b) Demand for answer. The Director of Practice must notify
the respondent of the place and time for answering the complaint,
the time for which may not be less than 15 days from the date of
service of the complaint, and notice must be given that a decision
by default may be rendered against the respondent in the event an
answer is not filed as required.
§10.63 Service of complaint and other papers.
(a) Complaint. The complaint or a copy of the complaint must
be served on the respondent by certified mail or first class mail,
as provided below; by delivering it to the respondent or the
respondent's authorized representative in person; by leaving it at
the office or place of business of the respondent or the
respondent's authorized representative; or in any other manner that
has been agreed to by the respondent. Where service is by certified
mail, the returned post office receipt duly signed by or on behalf
of the respondent will be proof of service. If the certified mail is
not claimed or accepted by the respondent and is returned
undelivered, complete service may be made on the respondent by
mailing the complaint to the respondent by first class mail,
provided the complaint is addressed to the respondent at the
respondent's last known address as determined under section 6212 of
the Internal Revenue Code and the regulations thereunder. If service
is made on the respondent or the respondent's authorized
representative in person, by leaving the complaint at the office or
place of business of the respondent or the respondent's authorized
representative, or by other means agreed to by the respondent, the
sworn or affirmed written statement of service by the person making
service, setting forth the manner of service, including the place,
recipient, date and time of service, will be proof of service.
(b) Service of papers other than complaint. Any paper other
than the complaint may be served on the respondent as provided in
paragraph (a) of this section or by mailing the paper by first class
mail to the respondent at his or her last known address as
determined under section 6212 of the Internal Revenue Code and the
regulations thereunder, or by mailing the paper by first class mail
to the respondent's authorized representative. This mailing
constitutes complete service.
(c) Filing of papers. Whenever the filing of a paper is
required or permitted in connection with a proceeding under this
part, and the place of filing is not specified by these regulations,
rule, or order of the Administrative Law Judge, the paper must be
filed with the Director of Practice, Internal Revenue Service, 1111
Constitution Avenue, NW., Washington, DC 20224. All papers must be
filed in duplicate. §10.64 Answer.
(a) Filing. The respondent's answer must be filed in writing
within the time specified in the complaint unless, on application of
the respondent, the time is extended by the Director of Practice or
the Administrative Law Judge. The answer is to be filed in duplicate
with the Director.
(b) Contents. The answer must contain a statement of facts
that constitute the respondent's grounds of defense. The respondent
must specifically admit or deny each allegation set forth in the
complaint, except that the respondent may state that the respondent
is without sufficient information to admit or deny a specific
allegation. The respondent, nevertheless, may not deny a material
allegation in the complaint which the respondent knows to be true,
or state that the respondent is without sufficient information to
form a belief, when the respondent possesses the required
information. The respondent also must state affirmatively any
special matters of defense on which he or she relies.
(c) Failure to deny or answer allegations in the complaint.
Every allegation in the complaint that is not denied in the answer
is deemed admitted and may be considered proved; no further evidence
in respect of such allegation need be adduced at a hearing. Failure
to file an answer within the time prescribed (or within the time for
answer as extended by the Director of Practice or the Administrative
Law Judge), constitutes an admission of the allegations of the
complaint and a waiver of hearing, and the Administrative Law Judge
may make the decision by default without a hearing or further
procedure.
(d) Signature. The answer must be signed by the respondent or
the respondent's authorized representative and must include a
statement directly above the signature acknowledging that the
statements made in the answer are true and correct and that knowing
and willful false statements may be punishable under 18 U.S.C. 1001.
§10.65 Supplemental charges.
If it appears that the respondent, in his or her answer,
falsely and in bad faith, denies a material allegation of fact in
the complaint or states that the respondent has insufficient
knowledge to form a belief, when the respondent in fact possesses
such information, or if it appears that the respondent has knowingly
introduced false testimony during proceedings for his or her
censure, suspension, disbarment, or disqualification, the Director
of Practice may file supplemental charges against the respondent.
The supplemental charges may be tried with other charges in the
case, provided the respondent is given due notice of the charges and
is afforded an opportunity to prepare a defense to such charges.
§10.66 Reply to answer.
The Director of Practice may file a reply to the respondent's
answer, but unless otherwise ordered by the Administrative law
Judge, no reply to the respondent's answer is required. If a reply
is not filed, new matter in the answer is deemed denied. §10.67
Proof; variance; amendment of pleadings.
In the case of a variance between the allegations in pleadings
and the evidence adduced in support of the pleadings, the
Administrative Law Judge may order or authorize amendment of the
pleadings to conform to the evidence. The party who would otherwise
be prejudiced by the amendment must be given a reasonable
opportunity to address the allegations of the pleadings as amended
and the Administrative Law Judge must make findings on any issue
presented by the pleadings as amended.
§10.68 Motions and requests.
Unless the Administrative Law Judge directs otherwise, motions
and requests may be filed with the Director of Practice or with the
Administrative Law Judge. §10.69 Representation.
A respondent or proposed respondent may appear in person or he
or she may be represented by a practitioner. The Director of
Practice may be represented by an attorney or other employee of the
Internal Revenue Service. §10.70 Administrative Law Judge.
(a) Appointment. Proceedings on complaints for the censure,
suspension or disbarment of a practitioner or the disqualification
of an appraiser will be conducted by an Administrative Law Judge
appointed as provided by 5 U.S.C. 3105.
(b) Powers of the Administrative Law Judge. The Administrative
Law Judge, among other powers, has the authority, in connection with
any proceeding under §10.60 assigned or referred to him or her,
to do the following--
(1) Administer oaths and affirmations;
(2) Make rulings on motions and requests, which rulings may
not be appealed prior to the close of a hearing except in
extraordinary circumstances and at the discretion of the
Administrative Law Judge;
(3) Determine the time and place of hearing and regulate its
course and conduct;
(4) Adopt rules of procedure and modify the same from time to
time as needed for the orderly disposition of proceedings;
(5) Rule on offers of proof, receive relevant evidence, and
examine witnesses;
(6) Take or authorize the taking of depositions;
(7) Receive and consider oral or written argument on facts or
law;
(8) Hold or provide for the holding of conferences for the
settlement or simplification of the issues with the consent of the
parties;
(9) Perform such acts and take such measures as are necessary
or appropriate to the efficient conduct of any proceeding; and
(10) Make decisions. §10.71 Hearings.
(a) In general. An Administrative Law Judge will preside at the
hearing on a complaint filed under paragraph (c) of §10.60 for
the censure, suspension, or disbarment of a practitioner or
disqualification of an appraiser. Hearings will be stenographically
recorded and transcribed and the testimony of witnesses will be
taken under oath or affirmation. Hearings will be conducted pursuant
to 5 U.S.C. 556. A hearing in a proceeding requested under paragraph
(g) of §10.82 will be conducted de novo.
(b) Failure to appear. If either party to the proceeding fails
to appear at the hearing, after notice of the proceeding has been
sent to him or her, the party will be deemed to have waived the
right to a hearing and the Administrative Law Judge may make his or
her decision against the absent party by default.
§10.72 Evidence.
(a) In general. The rules of evidence prevailing in courts of
law and equity are not controlling in hearings on complaints filed
under paragraph (c) of §10.60. However, the Administrative Law
Judge may exclude evidence that is irrelevant, immaterial, or unduly
repetitious. (b) Depositions. The deposition of any witness taken
pursuant to §10.73 may be admitted into evidence in any
proceeding instituted under §10.60.
(c) Proof of documents. Official documents, records, and papers
of the Internal Revenue Service and the Office of Director of
Practice are admissible in evidence without the production of an
officer or employee to authenticate them. Any such documents,
records, and papers may be evidenced by a copy attested or
identified by an officer or employee of the Service or the Treasury
Department, as the case may be.
(d) Exhibits. If any document, record, or other paper is
introduced in evidence as an exhibit, the Administrative Law Judge
may authorize the withdrawal of the exhibit subject to any
conditions that he or she deems proper.
(e) Objections. Objections to evidence are to be made in short
form, stating the grounds for the objection. Except as ordered by
the Administrative Law Judge, argument on objections will not be
recorded or transcribed. Rulings on objections are to be a part of
the record, but no exception to a ruling is necessary to preserve
the rights of the parties.
§10.73 Depositions.
(a) Depositions for use at a hearing may be taken, with the
written approval of the Administrative Law Judge, by either the
Director of Practice or the respondent or their duly authorized
representatives. Depositions may be taken before any officer duly
authorized to administer an oath for general purposes or before an
officer or employee of the Internal Revenue Service who is
authorized to administer an oath in internal revenue matters.
(b) The party taking the deposition must provide the deponent
and the other party with 10 days written notice of the deposition,
unless the deponent and the parties agree otherwise. The notice must
specify the name of the deponent, the time and place where the
deposition is to be taken, and whether the deposition will be taken
by oral or written interrogatories. When a deposition is taken by
written interrogatories, any cross-examination also will be by
written interrogatories. Copies of the written interrogatories must
be served on the other party with the notice of deposition, and
copies of any written cross-interrogation must be mailed or
delivered to the opposing party at least 5 days before the date that
the deposition will be taken, unless the parties mutually agree
otherwise. A party on whose behalf a deposition is taken must file
the responses to the written interrogatories or a transcript of the
oral deposition with the Administrative Law Judge and serve copies
on the opposing party and the deponent. Expenses in the reporting of
depositions will be borne by the party that requested the
deposition.
§10.74 Transcript.
In cases where the hearing is stenographically reported by a
Government contract reporter, copies of the transcript may be
obtained from the reporter at rates not to exceed the maximum rates
fixed by contract between the Government and the reporter. Where the
hearing is stenographically reported by a regular employee of the
Internal Revenue Service, a copy will be supplied to the respondent
either without charge or upon the payment of a reasonable fee.
Copies of exhibits introduced at the hearing or at the taking or
depositions will be supplied to the parties upon the payment of a
reasonable fee (Sec. 501, Public Law 82-137)(65 Stat. 290)(31 U.S.C.
483a). §10.75 Proposed findings and conclusions.
Except in cases where the respondent has failed to answer the
complaint or where a party has failed to appear at the hearing, the
parties must be afforded a reasonable opportunity to submit proposed
findings and conclusions and their supporting reasons to the
Administrative Law Judge. §10.76 Decision of the Administrative
Law Judge.
As soon as practicable after the conclusion of a hearing and
the receipt of any proposed findings and conclusions timely
submitted by the parties, the Administrative Law Judge will make the
decision in the case. The decision must include a statement of
findings and conclusions, as well as the reasons or basis for making
such findings and conclusions, and an order of censure, suspension,
disbarment, disqualification, or dismissal of the complaint. The
Administrative Law Judge will file the decision with the Director of
Practice, who will transmit a copy of the decision to the respondent
or the respondent's authorized representative. In the absence of an
appeal to the Secretary of the Treasury, or review of the decision
on motion of the Secretary, the decision of the Administrative Law
Judge will without further proceedings become the decision of the
Secretary of the Treasury 30 days after the date of the
Administrative Law Judge's decision.
§10.77 Appeal to the Secretary.
Within 30 days from the date of the Administrative Law
Judge's decision, either party may appeal to the Secretary of the
Treasury, or his or her designate. The respondent must file his or
her appeal with the Director of Practice in duplicate and notice of
appeal must include exceptions to the decision of the Administrative
Law Judge and supporting reasons for such exceptions. If the
Director files an appeal, he or she must transmit a copy to the
respondent. Within 30 days after receipt of an appeal or copy
thereof, the other party may file a reply brief in duplicate with
the Director. If the reply brief is filed by the Director, he or she
must transmit a copy of it to the respondent. The Director must
transmit the entire record to the Secretary of the Treasury, or his
or her designate, after the appeal and any reply brief has been
filed. §10.78 Decision of the Secretary.
On appeal from or review of the decision of the
Administrative Law Judge, the Secretary of the Treasury, or his or
her designate, will make the agency decision. A copy of the agency's
decision will be transmitted to the respondent by the Director of
Practice.
§10.79 Effect of disbarment, suspension, or censure.
(a) Disbarment. Where the final order in a case is against
the respondent and is for disbarment, the respondent will not be
permitted to practice before the Internal Revenue Service unless and
until authorized to do so by the Director of Practice pursuant to
§10.81.
(b) Suspension. Where the final order in a case is against
the respondent and is for suspension, the respondent will not be
permitted to practice before the Internal Revenue Service during the
period of suspension.
(c) Censure. Where the final order in the case is against the
respondent and is for censure, the respondent may be permitted to
practice before the Internal Revenue Service, but the respondent's
future representations may be subject to conditions prescribed by
the Director of Practice designed to promote high standards of
conduct. For example, where a practitioner is censured because he or
she failed to advise his or her clients about a potential conflict
of interest and obtain the clients' written consents, the Director
of Practice may require the practitioner to provide the Director or
another Internal Revenue Service official with a copy of all future
consents obtained by the practitioner, whether or not such consents
are specifically requested. §10.80 Notice of disbarment,
suspension, censure, or disqualification.
On the issuance of a final order censuring, suspending, or
disbarring a practitioner or a final order disqualifying an
appraiser, the Director of Practice may give notice of the censure,
suspension, disbarment, or disqualification to appropriate officers
and employees of the Internal Revenue Service and to interested
departments and agencies of the Federal government. The Director may
determine the manner of giving notice to the proper authorities of
the State by which the censured, suspended, or disbarred person was
licensed to practice.
§10.81 Petition for reinstatement.
The Director of Practice may entertain a petition for
reinstatement from any person disbarred from practice before the
Internal Revenue Service or any disqualified appraiser after the
expiration of 5 years following such disbarment or disqualification.
Reinstatement may not be granted unless the Director is satisfied
that the petitioner, thereafter, is not likely to conduct himself
contrary to the regulations in this part, and that granting such
reinstatement would not be contrary to the public interest.
§10.82 Expedited suspension upon criminal conviction or loss of
license for cause.
(a) When applicable. Whenever the Director of Practice
determines that a practitioner is described in paragraph (b) of this
section, the Director may institute a proceeding under this section
to suspend the practitioner from practice before the Internal
Revenue Service.
(b) To whom applicable. This section applies to any
practitioner who, within 5 years of the date a complaint instituting
a proceeding under this section is served--
(1) Has had his or her license to practice as an attorney,
certified public accountant, or actuary suspended or revoked for
cause (not including a failure to pay a professional licensing fee)
by any authority or court, agency, body, or board described in
§10.51(i); or
(2) Has been convicted of any crime under title 26 of the
United States Code, any crime involving dishonesty or breach of
trust, or any felony for which the conduct involved renders the
practitioner unfit to practice before the Internal Revenue Service.
(c) Instituting a proceeding. A proceeding under this section
will be instituted by a complaint that names the respondent, is
signed by the Director of Practice, is filed in the Director's
office, and is served according to the rules set forth in paragraph
(a) of §10.63. The complaint must give a plain and concise
description of the allegations that constitute the basis for the
proceeding. The complaint must notify the respondent--
(1) Of the place and due date for filing an answer;
(2) That a decision by default may be rendered if the
respondent fails to file an answer as required;
(3) That the respondent may request a conference with the
Director of Practice to address the merits of the complaint and that
any such request must be made in the answer; and
(4) That the respondent may be suspended either immediately
following the expiration of the period by which an answer must be
filed or, if a conference is requested, immediately following the
conference.
(d) Answer. The answer to a complaint described in this
section must be filed no later than 30 calendar days following the
date the complaint is served, unless the Director of Practice
extends the time for filing. The answer must be filed in accordance
with the rules set forth in §10.64, except as otherwise
provided in this section. A respondent is entitled to a conference
with the Director only if the conference is requested in a timely
filed answer. If a request for a conference is not made in the
answer or the answer is not timely filed, the respondent will be
deemed to have waived his or her right to a conference and the
Director may suspend such respondent at any time following the date
on which the answer was due.
(e) Conference. The Director of Practice or his or her
designee will preside at a conference described in this section. The
conference will be held at a place and time selected by the
Director, but no sooner than 14 calendar days after the date by
which the answer must be filed with the Director, unless the
respondent agrees to an earlier date. An authorized representative
may represent the respondent at the conference. Following the
conference, upon a finding that the respondent is described in
paragraph (b) of this section, or upon the respondent's failure to
appear at the conference either personally or through an authorized
representative, the Director may immediately suspend the respondent
from practice before the Internal Revenue Service.
(f) Duration of suspension. A suspension under this section
will commence on the date that written notice of the suspension is
issued. A practitioner's suspension will remain effective until the
earlier of the following--
(1) The Director of Practice lifts the suspension after
determining that the practitioner is no longer described in
paragraph (b) of this section or for any other reason; or
(2) The suspension is lifted by an Administrative Law Judge or
the Secretary of the Treasury in a proceeding referred to in
paragraph (g) of this section and instituted under §10.60.
(g) Proceeding instituted under §10.60. If the Director
of Practice suspends a practitioner under this section, the
practitioner may ask the Director to issue a complaint under
§10.60. The request must be made in writing within 2 years from
the date on which the practitioner's suspension commences. The
Director must issue a complaint requested under this paragraph
within 30 calendar days of receiving the request.
Subpart E -- General Provisions
§10.90 Records.
(a) Availability. The Director of Practice will make
available for public inspection at the Office of Director of
Practice the roster of all persons enrolled to practice, the roster
of all persons censured, suspended, or disbarred from practice
before the Internal Revenue Service, and the roster of all
disqualified appraisers. Other records of the Director may be
disclosed upon specific request, in accordance with the applicable
disclosure rules of the Internal Revenue Service and the Treasury
Department.
(b) Disciplinary procedures. A request by a practitioner or
appraiser that a hearing in a disciplinary proceeding concerning him
or her be public, and that the record of such disciplinary
proceeding be made available for inspection by interested persons
may be granted by the Director of Practice where the parties
stipulate in advance to protect from disclosure confidential tax
information in accordance with all applicable statutes and
regulations. §10.91 Saving clause.
Any proceeding instituted under this part, but not closed
prior to the effective date of these revised regulations, will not
be affected by the revisions. Any proceeding under this part based
on conduct engaged in prior to the effective date of these
regulations may be instituted subsequent to the effective date of
these revisions. Conduct engaged in prior to the effective date of
these regulations is subject to the regulations in effect at the
time the conduct occurred. §10.92 Special orders.
The Secretary of the Treasury reserves the power to issue such
special orders as he or she deems proper in any cases within the
purview of this part.
§10.93 Effective date.
Subject to §10.91, Part 10 is applicable on the date
final regulations are published in the Federal Register.
Robert E. Wenzel
Deputy Commissioner of Internal Revenue
Approved: January 3, 2001
Jonathan Talisman
Assistant Secretary (Tax Policy)
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