[Federal Register Volume 67, Number 144 (Friday, July 26, 2002)]
[Rules and Regulations]
[Pages 48760-48780]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-18598]


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DEPARTMENT OF THE TREASURY

Office of the Secretary

31 CFR Part 10

[TD 9011]
RIN 1545-AY05


Regulations Governing Practice Before the Internal Revenue 
Service

AGENCY: Office of the Secretary, Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations governing practice 
before the Internal Revenue Service (Circular 230). These regulations 
affect individuals who are eligible to practice before the Internal 
Revenue Service. These regulations modify the general standards of 
practice before the Internal Revenue Service.

DATES: Effective Date: These regulations are effective July 26, 2002.
    Applicability Date: For dates of applicability, see Sec. 10.91.

FOR FURTHER INFORMATION CONTACT: Brinton Warren at (202) 622-4940.

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in these final regulations 
has been reviewed and approved by the Office of Management and Budget 
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)) under control number 1545-1726. The collection of information 
in these final regulations is in Secs. 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

[[Page 48761]]

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 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.
    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.
    Books or records relating to a collection of information must be 
retained as long as their contents might become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

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, inter alia, 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 of Practice'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. On January 12, 2001, 
a notice of proposed rulemaking (REG-111835-99) was published (66 FR 
3276) that proposed amendments to the regulations, requested comments 
on the proposed amendments, and announced a public hearing on the 
subject of the proposed amendments. The January 12, 2001 notice of 
proposed rulemaking addressed both general matters pertaining to 
practice before the Internal Revenue Service and also matters 
pertaining specifically to tax shelter opinions. A public hearing was 
held on these proposals on May 2, 2001. The final regulations in this 
document encompass only those proposals addressing non-tax shelter 
related matters pertaining to practice before the Internal Revenue 
Service. Accordingly, this document does not contain final regulations 
governing standards for tax shelter opinions. The standards that 
currently govern tax shelter opinions remain in effect. The Department 
of Treasury and Internal Revenue Service intend to issue a second 
notice of proposed rulemaking that re-proposes amendments for such 
standards. The Department of Treasury and Internal Revenue Service also 
intend to issue an additional advance notice of proposed rulemaking 
that will cover additional non-tax shelter matters pertaining to 
practice before the Internal Revenue Service. Many of the matters 
covered by the advance notice of proposed rulemaking will be distinct 
from those that have been the focus of the non-tax shelter revisions of 
Circular 230 to this point, e.g., matters concerning unenrolled 
practice and whether the use of contingent fee arrangements should be 
further restricted.

Summary of Comments

    Fifty-one written comments were received concerning revisions to 
Circular 230. All comments were considered and are available for public 
inspection upon request. These comments addressed both the tax shelter 
and non-tax shelter related proposed amendments. Many commentators 
expressed general support for amending Circular 230. The following 
paragraphs provide a summary of significant comments concerning the 
non-tax shelter proposals.
    One commentator recommended specific language for proposed 
Sec. 10.6 with respect to determining credits for continuing 
professional education through distance learning programs, and another 
recommended that the standards for continuing professional education 
classes be modified to include more diverse subjects beyond those 
strictly related to taxation, such as in the fields of financial 
services and practice management.
    With regard to unenrolled practice under proposed 
Sec. 10.7(c)(1)(viii), one commentator argued that a restriction on the 
right of non-practitioners to practice hampers the ability of taxpayers 
to obtain a speedy and inexpensive resolution of matters before the 
Internal Revenue Service. In contrast, some commentators recommended 
that unenrolled practice as permitted by Sec. 10.7(c)(1)(viii) be 
further restricted or eliminated outright. One of these commentators 
suggested that it is not appropriate to allow a tax return preparer who 
may not have demonstrated knowledge of tax law or tax procedure to 
represent a taxpayer during an examination merely because the preparer 
has signed the return under examination.
    A number of commentators expressed concern regarding the 
information to be furnished to the Internal Revenue Service under 
proposed Sec. 10.20. Commentators were concerned that the proposal is 
overly burdensome, puts an improper affirmative obligation on a 
practitioner, fails to respect privileged communications, and impairs a 
represented taxpayer's right to challenge an unlawful request for 
information by the Internal Revenue Service. Particular concern was 
expressed as to the removal

[[Page 48762]]

of the phrase ``of doubtful legality,'' appearing in the current 
section governing the topic.
    Commentators both supported and criticized the proposed amendment 
to Sec. 10.21 regarding a practitioner's duties when discovering a 
client's error or omission on a return, claim for refund, or other 
document. Two commentators suggested that the proposal to mandate that 
a practitioner advise a client regarding the consequences of not taking 
corrective action was a good one, but should be expanded to include 
advice regarding the consequences of taking corrective action. Some 
commentators criticized the proposal on the ground that it would 
require some practitioners to offer advice beyond their competence.
    Commentators suggested that the Internal Revenue Service's 
interpretation of Sec. 10.26 is too strict and thus imposes obligations 
on the firms of former government employees that are more burdensome 
than the related criminal statute.
    With regard to the proposed clarification of the prohibition on 
contingent fees in Sec. 10.27, one commentator was supportive of the 
clarification, but recommended further amendments to address 
ambiguities, uncertainties, and opportunities for abuse with regard to 
the section's application. Another commentator urged that the section 
be amended so that contingent fees can be charged for advice regarding 
return positions on original returns when the practitioner reasonably 
anticipates that the return position will be substantively reviewed by 
the Internal Revenue Service prior to the filing of the return.
    A number of commentators expressed concern regarding the proposed 
amendment in Sec. 10.28 that would require a practitioner to return a 
client's records upon a client's request regardless of a dispute over 
fees. One commentator recommended that the section distinguish between 
records pertaining to tax and non-tax matters because Circular 230 
should not attempt to regulate a practitioner's conduct with respect to 
non-tax matters. A number of commentators urged that the section be 
revised to distinguish more completely the records of the client from 
the practitioner's work product, so that a client may not take 
advantage of a practitioner by obtaining the practitioner's work 
product without paying for it. A number of commentators objected to the 
section on the grounds that it conflicts with state laws governing 
attorneys' liens.
    With regard to the proposal regarding representation of conflicting 
interests in Sec. 10.29, many commentators expressed concern with the 
use of the word ``potential'' to modify ``conflicting interests,'' 
arguing that the use of the word made the section's application too 
ambiguous. A number of commentators objected to the proposal that 
consents from taxpayers be in writing, some arguing that the 
requirement could create disharmony among clients. Some commentators 
observed that the section incongruously failed to require written 
consents when the conflict arises with the practitioner's own interest.
    Some commentators objected to the proposal in Sec. 10.30 to 
prohibit enrolled agents from using the term licensed in describing 
their professional designation. These commentators argued that the term 
``licensed'' is not misleading to the public and does accurately 
describe the professional status of enrolled agents.
    With regard to the proposal to add censure as a sanction available 
under Circular 230, as proposed in Sec. 10.50, some commentators 
questioned the statutory authority for the censure sanction. One 
commentator expressed concern that the censure sanction as proposed did 
not fulfill the role of an intermediate sanction because the remedial 
conditions proposed for censured practitioners appear to be of 
indefinite duration.
    With regard to proposed Sec. 10.53, governing the receipt of 
information by the Director of Practice concerning practitioners, some 
commentators recommended that the section provide for the destruction 
of information determined to be frivolous and also establish a 
timetable for the Director of Practice's destruction of records in 
general.
    With regard to the proposed amendments in Subpart D, governing the 
conduct of disciplinary proceedings under Circular 230, one commentator 
praised the proposal to merge the provisions governing proceedings for 
appraisers into the same subpart. One commentator urged that the 
standard of proof in a Circular 230 hearing be specified, and that such 
standard should be one of clear and convincing evidence. This 
commentator also recommended that Subpart D be amended to provide for 
additional discovery procedures.

Explanation of Provisions

    The final regulations adopted in this document concern only the 
non-tax shelter related provisions as proposed in the January 12, 2001, 
notice of proposed rulemaking. The Department of Treasury and Internal 
Revenue Service intend to issue a second notice of proposed rulemaking 
that re-proposes amendments for the standards governing tax shelter 
opinions.

Who May Practice

    Paragraph (d)(2) of Sec. 10.3 of the regulations adopts the 
proposed changes that expanded the list of issues with respect to which 
an enrolled actuary is authorized to represent a taxpayer in limited 
practice before the Internal Revenue Service. The list is expanded 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 Sec. 10.6 sets forth the conditions and process 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 in 
programs comprised of current subject matter in Federal taxation or 
Federal tax related matters. The final regulations do not adopt the 
commentator's suggestion to expand the subjects of qualifying tax 
programs to non-tax related matters, nor do they adopt the suggested 
language for determining distance learning credits.
    Section Sec. 10.6 as adopted differs from the proposed section in 
that it incorporates a system of rolling renewals for enrollment. The 
year in which enrolled agents will be required to apply for renewal of 
enrollment will vary based on the last digit of the enrolled agent's 
social security number. This change is ministerial only and is made in 
order to balance the workflow involved in processing renewals.
    The final regulations adopt new paragraph 10.6(a) that clarifies 
that enrollment and the renewal of enrollment of actuaries is also 
governed by the regulations of the Joint Board for the Enrollment of 
Actuaries at 20 CFR 901.1 et seq.

Unenrolled Practice

    The final regulations adopt the provisions governing unenrolled 
practice as proposed in paragraph 10.7(c)(viii). This amendment 
preserves the scope of unenrolled practice as it has existed and only 
makes non-substantive changes in nomenclature that are necessitated by 
the

[[Page 48763]]

organizational restructuring of the Internal Revenue Service.

Information To Be Furnished

    Section 10.20 of the regulations adopts the proposed changes in 
modified form. Paragraph (a) of Sec. 10.20 requires a practitioner to 
respond promptly to a proper and lawful request for records and 
information, unless the practitioner believes in good faith and on 
reasonable grounds that the records or information are privileged. The 
right and ability of practitioners to resist efforts that the 
practitioner believes to be of doubtful legality is preserved. The 
phrase ``of doubtful legality'' was excised from Sec. 10.20 merely to 
eliminate the redundancy in the section's text, which requires requests 
from the Internal Revenue Service to be ``proper and lawful,'' not to 
effectuate a substantive change with regard to a practitioner's ability 
to resist efforts by the government to obtain documents or information 
that are irrelevant to an inquiry, confidential, privileged, or 
otherwise immune from compulsion.
    The final regulations adopt, with amendment and clarification, the 
proposed amendment to require a practitioner to provide information 
regarding the identity of persons the practitioner reasonably believes 
may have possession or control of requested documents. The requirement, 
in paragraph (a)(2) of Sec. 10.20, applies only when requested records 
or information are not in the possession or control of the practitioner 
or the practitioner's client. The paragraph is modified from its 
proposed form to clarify that the practitioner's duty is limited only 
to making reasonable inquiry of the practitioner's client and that 
there exists no obligation on the practitioner to make inquiry of any 
other person or to independently verify information provided by a 
client.
    The right and ability of a practitioner to resist a request by the 
Director of Practice regarding an alleged violation of Circular 230 
that the practitioner believes to be of doubtful legality is similarly 
unchanged in paragraph (b), which requires practitioners to provide 
information to the Director of Practice regarding the alleged 
violations of Circular 230 by any person. An alleged violation under 
paragraph (b) is not limited to a violation that is the subject of a 
proceeding under subpart D, for the necessary reason that the Director 
of Practice should be able to obtain evidence regarding alleged 
violations to determine whether they merit formal charges.

Knowledge of Client's Omission

    Section 10.21 of Circular 230 has historically required a 
practitioner to advise a client promptly of any noncompliance, error, 
or omission. The proposed rules expanded the practitioner's duty under 
Sec. 10.21 to include providing advice to the client regarding the 
manner in which the error or omission might be corrected and the 
possible consequences of a failure to take such corrective action. 
Rather than adopting Sec. 10.21 as proposed, the final regulations 
modify the preexisting duty by simply requiring that, in addition to 
notifying the client of the fact of the noncompliance, error, or 
omission, the practitioner advise the client of the consequences as 
provided under the Code and regulations of the noncompliance, error, or 
omission. This change requires practitioners to provide information 
that taxpayers who consult tax professionals typically expect to 
receive.

Diligence as to Accuracy

    The final regulations adopt the proposed clarification in 
Sec. 10.22 that a practitioner is presumed to have exercised due 
diligence if the practitioner relies on the work product of another 
person and the practitioner uses reasonable care in engaging, 
supervising, training, and evaluating such person, taking proper 
account of the relationship between the practitioner and the person. It 
is expected that practitioners will use common sense and experience in 
guiding their conduct under this section. The section applies both in 
the context of a firm and in circumstances involving a practitioner's 
engagement of an outside practitioner. For example, in circumstances in 
which a practitioner must hire another practitioner for a specialized 
or complicated matter, such practitioner's duty under the section will 
be more focused on the reasonable care taken in the engagement of the 
specialist. Supervising and training are not part of a practitioner's 
engagement of a specialist. Conversely, in the context of a firm, the 
section's application will focus more on supervising and training, if 
there is an issue with regard to a supervisory practitioner's reliance 
on a subordinate. Finally, the presumption of due diligence provided by 
this section does not apply for purposes of Sec. 10.33 and Sec. 10.34, 
governing tax shelter opinions and standards for advising with respect 
to tax return positions, respectively, which have their own rules 
concerning due diligence.

Practice by Former Government Employees, Their Partners and Their 
Associates

    The final regulations adopt without change the proposed amendments 
found in Sec. 10.25 (former Sec. 10.26) governing the restrictions on 
the practice of former Government employees, their partners, and their 
associates with respect to matters that the former Government employees 
participated in during the course of their Government employment. This 
section reflects changes to the Federal statutes governing post-
employment restrictions applicable to former Government employees. The 
former Sec. 10.25, governing the practice of partners of former 
Government employees, is removed, as was proposed, because the 
statutory prohibition implemented by the provision was repealed.

Contingent Fees

    The final regulations adopt the proposed clarification governing 
the prohibition on contingent fees in connection with advice rendered 
in connection with a position taken or to be taken on an original tax 
return. The Department of the Treasury and the Internal Revenue Service 
remain concerned regarding the use of contingent fees and will request 
further public comments regarding contingent fees in the upcoming 
advance notice of proposed rulemaking.

Return of Client's Records

    The final regulations adopt, with substantial changes, the proposed 
amendment to Sec. 10.28 that requires a practitioner to return a 
client's records upon the client's request, regardless of a fee 
dispute. As recommended by one commentator, the section's application 
is restricted by paragraph (a) to the client's records that are 
necessary for the client to comply with his or her Federal tax 
obligations.
    Further, as recommended by a number of commentators, the term 
records of the client is defined to exclude items such as returns or 
other documents prepared by the practitioner that the practitioner is 
withholding pending the client's payment of fees for those documents. 
These changes are incorporated to protect practitioners from being 
disadvantaged or compromised by clients seeking to obtain an unfair 
advantage under this section. In consideration of various state laws 
that may permit liens on a client's records in favor of practitioners 
during the course of fee disputes, the regulations provide that a 
practitioner must only return those records that

[[Page 48764]]

must be attached to the client's return if a fee dispute has triggered 
an applicable state lien provision. The practitioner, however, must 
provide the client access to review and copy any of the client's 
records retained by the practitioner under state law that are necessary 
for the client to comply with his Federal tax obligations.

Conflicting Interests

    The final regulations adopt the amendments as proposed in 
Sec. 10.29, with modification. The modifier potential has been removed 
in the identification of conflicts of interest. The final regulations 
have been modified from the proposed regulations to conform more 
closely with the approach of the recently revised Model Rule 1.7 of the 
American Bar Association Rules of Professional Conduct. Section 10.29 
requires a client to give informed consent, confirmed in writing, to 
representation by a practitioner when the representation of one client 
will be directly adverse to another client or there is a significant 
risk that the representation of one or more clients will be materially 
limited by the practitioner's responsibilities to another client, a 
former client or a third person or by a personal interest of the 
practitioner. The adoption of this requirement results in parallel 
application to conflicts with another client and conflicts with the 
practitioner's own interest. The section requires a practitioner to 
retain the written consent for at least 36 months after the conclusion 
of the representation and to provide the written consents to the 
Internal Revenue Service, if requested to do so.

Solicitation

    The final regulations adopt some but not all of the changes to the 
solicitation standards from the proposed regulations. Under the final 
regulations, a practitioner is prohibited from making written and oral 
solicitations of employment in matters related to the Internal Revenue 
Service if such solicitations would violate Federal or State statutes 
or other rules applicable to the practitioner regarding the uninvited 
solicitation of prospective clients. For example, if an attorney is 
prohibited under that attorney's governing State bar rules from making 
a certain type of uninvited solicitation, the attorney's uninvited 
solicitation with respect to a matter related to the Internal Revenue 
Service will constitute a violation of Sec. 10.30. Conversely, if such 
a solicitation is permissible under the relevant State bar rule, the 
making of the solicitation with respect to a matter related to the 
Internal Revenue Service is permissible under Sec. 10.30.
    Section 10.30 also expands the prohibition of deceptive and other 
improper solicitation practices to cover private, as well as public, 
solicitations. The final regulations provide that 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.
    In consideration of the comments received, the final regulations do 
not adopt the change that would have prohibited enrolled agents from 
using the term licensed in describing their professional designation. 
The Department of Treasury and the Internal Revenue Service recognize 
the valuable services provided by the over thirty-thousand enrolled 
agents in the United States, but want to ensure that the respective 
roles of enrolled agents, attorneys and certified public accountants 
are understood by taxpayers. The Treasury Department and Internal 
Revenue Service will solicit comments in an advance notice of proposed 
rulemaking regarding whether an additional designation may be employed 
to describe the professional services of enrolled agents.

Sanctions

    The final regulations adopt the additional sanction of censure, 
which is defined as a public reprimand, as proposed in the amendments 
to Sec. 10.50. The sanction of censure is not listed with disbarment or 
suspension in 31 U.S.C. 330(b), but the authority of the Secretary to 
regulate practice before the Internal Revenue Service is not limited to 
those specific sanctions. A censure sanction is authorized by the 
general grant of authority to ``regulate the practice of 
representatives of persons before the Department of the Treasury'' as 
provided in 31 U.S.C. 330(a). Additionally, the final regulations are 
modified in Sec. 10.79 to clarify that suspended representatives may be 
subject to conditions and the conditions placed upon suspended or 
censured practitioners may only be imposed for a period that is 
reasonable in light of the gravity of a practitioner's violations.

Disreputable Conduct

    Section 10.51 defines disreputable conduct for which a practitioner 
may be censured, suspended, or disbarred. Such disreputable conduct 
includes the filing of a complaint against Internal Revenue Service 
personnel under section 1203 of the Internal Revenue Service 
Restructuring and Reform Act of 1998, if the practitioner knows the 
complaint is false. Similarly, disreputable conduct also includes 
knowingly advancing frivolous arguments in collection due process 
hearings, or in connection with offers in compromise, installment 
agreements, or the appeals process. Additionally, the definition of 
disreputable conduct is amended, as proposed, to include conviction of 
any felony involving conduct that renders the practitioner unfit to 
practice before the Internal Revenue Service.

Receipt of Information Concerning Practitioner

    The final regulations incorporate provisions for the destruction of 
documents by the Director of Practice. Section 10.53 of the final 
regulations requires the Director of Practice to destroy reports as 
soon as permissible under the applicable record control schedules 
approved by the National Archives and Records Administration and 
designated in the Internal Revenue Manual.
    Evidence that alleges practitioner misconduct, but which is on its 
face without merit, should not be maintained in a manner that falsely 
conveys a willingness of the Director of Practice to use such evidence 
at an indefinite time in the future. This same principle applies to 
evidence that merits investigation, but is eventually determined to be 
insufficient to justify the initiation of disciplinary proceedings. If 
the currently applicable records control schedule proves to be 
unsuitable in assuring fairness to practitioners, or if it proves to be 
unworkable given the demands placed upon the Director of Practice, the 
Internal Revenue Service will initiate the public process required to 
request a change of the records control schedule through the National 
Archives and Records Administration.

Consolidation of Appraiser Disqualification Rules

    The final regulations adopt without change the consolidation of the 
virtually identical rules applicable to disciplinary proceedings 
against practitioners and appraisers that heretofore have been 
separately set out in separate subparts. The final regulations 
consolidate the rules regarding sanctions of practitioners and 
appraisers under subpart D.

Various Aspects of Disciplinary Proceedings

    The final regulations adopt the proposed rules of subpart D 
regarding the conduct of disciplinary proceedings

[[Page 48765]]

largely without change. In response to the request of a commentator, 
Sec. 10.76 has been modified to specifically provide that the standard 
of proof in Circular 230 proceedings is that of a preponderance of the 
evidence, if the sanction sought by the Director of Practice is censure 
or a suspension of less than six month's duration. If the Director of 
Practice seeks a sanction of disbarment or a suspension of six months 
or longer or the disqualification of an appraiser, the standard of 
proof is clear and convincing evidence. The Treasury Department and 
Internal Revenue Service conclude that the preponderance of evidence 
standard is justified in the case of the less severe sanctions of 
censure and suspension of a short duration. When the Director of 
Practice seeks a more significant sanction, the clear and convincing 
evidence standard is adopted to protect the interests of the 
practitioner.

Effective Date

    These regulations are effective on July 26, 2002.

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 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. 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 was submitted to the Chief Counsel for Advocacy 
of the Small Business Administration for comment on its impact on small 
businesses.

Drafting Information

    The principal authors of these regulations are Richard S. Goldstein 
and Brinton T. Warren, of the Office of Associate Chief Counsel 
(Procedure and Administration), Administrative Provisions and Judicial 
Practice Division.

List of Subjects in 31 CFR Part 10

    Accountants, Administrative practice and procedure, Lawyers, 
Reporting and recordkeeping requirements, Taxes.

Adoption of Amendments to the Regulations

    Accordingly, 31 CFR part 10 is amended as follows:

    1. The table of contents reads 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 disposition 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.
10.34   Standards for advising with respect to tax return positions 
and for preparing or signing returns.
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; service and filing of other papers.
10.64   Answer; default.
10.65   Supplemental charges.
10.66   Reply to answer.
10.67   Proof; variance; amendment of pleadings.
10.68   Motions and requests.
10.69   Representation; ex parte communication.
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 Administrative Law Judge.
10.77   Appeal of decision of Administrative Law Judge.
10.78   Decision on appeal.
10.79   Effect of disbarment, suspension, or censure.
10.80   Notice of disbarment, suspension, censure, or 
disqualification.
10.81   Petition for reinstatement.
10.82   Expedited suspension 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. 321; 31 U.S.C. 330.


Sec. 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 the 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.

    2. In part 10, subpart A is revised to read as follows:

Subpart A--Rules Governing Authority to Practice


Sec. 10.1  Director of Practice.

    (a) Establishment of office. The Office of Director of Practice is 
established in the Office of the Secretary of the Treasury. The 
Director of Practice is

[[Page 48766]]

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 
inquiries 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 delegate.
    (c) Acting Director of Practice. The Secretary of the Treasury, or 
his or her delegate, 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.


Sec. 10.2  Definitions.

    As used in this part, except where the text clearly provides 
otherwise:
    (a) Attorney means any person who is a member in good standing of 
the bar of the highest court of any State, territory, or possession of 
the United States, including a 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, 
territory, or possession of the United States, including a 
Commonwealth, or the District of Columbia.
    (c) Commissioner refers to the Commissioner of Internal Revenue.
    (d) 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.
    (e) Practitioner means any individual described in paragraphs (a), 
(b), (c), or (d) of Sec. 10.3.
    (f) A tax return includes an amended tax return and a claim for 
refund.
    (g) Service means the Internal Revenue Service.


Sec. 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 Internal Revenue Service by filing with the 
Internal Revenue Service a written declaration that he or she is 
currently qualified as an attorney and is authorized to represent the 
party or parties 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 Internal 
Revenue Service by filing with the Internal Revenue Service a written 
declaration that he or she is currently qualified as a certified public 
accountant and is authorized to represent the party or parties 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 
Internal Revenue 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 
Internal Revenue Service by filing with the Internal Revenue Service a 
written declaration stating that he or she is currently qualified as an 
enrolled actuary and is authorized to represent the party or parties 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), 7805(b) (relating to the 
extent to which an 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 (d) of 
Sec. 10.5 or Sec. 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.


Sec. 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 of Practice 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.

[[Page 48767]]

    (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 of Practice 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 of 
Practice with a detailed report of the nature and rating of the 
applicant's work while employed by the Internal Revenue 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 Internal Revenue 
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 
Internal Revenue 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.


Sec. 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 of Practice 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 of Practice. This 
notification must include the enrolled agent's name, old address, new 
address, social security number or tax identification 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 
of Practice 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 of Practice 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 of Practice.
    (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 or his or 
her delegate. A decision on the appeal will be rendered by the 
Secretary of the Treasury, or his or her delegate, as soon as 
practicable.


Sec. 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 Sec. 10.61; 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 July 26, 
2002. Each enrollment card will be valid for the period stated on the 
enrollment card. An individual is not eligible to practice before the 
Internal Revenue 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

[[Page 48768]]

of the renewal requirement will not be justification for the failure to 
satisfy this requirement.
    (1) All individuals licensed to practice before the Internal 
Revenue Service who have a social security number or tax identification 
number that ends with the numbers 0, 1, 2, or 3, except for those 
individuals who received their initial enrollment after November 1, 
2003, must apply for renewal between November 1, 2003, and January 31, 
2004. The renewal will be effective April 1, 2004.
    (2) All individuals licensed to practice before the Internal 
Revenue Service who have a social security number or tax identification 
number that ends with the numbers 4, 5, or 6, except for those 
individuals who received their initial enrollment after November 1, 
2004, must apply for renewal between November 1, 2004, and January 31, 
2005. The renewal will be effective April 1, 2005.
    (3) All individuals licensed to practice before the Internal 
Revenue Service who have a social security number or tax identification 
number that ends with the numbers 7, 8, or 9, except for those 
individuals who received their initial enrollment after November 1, 
2005, must apply for renewal between November 1, 2005, and January 31, 
2006. The renewal will be effective April 1, 2006.
    (4) Thereafter, applications for renewal will be required between 
November 1 and January 31 of every subsequent third year as specified 
in paragraph (d)(1), (2) or (3) of this section according to the last 
number of the individual's social security number or tax identification 
number. Those individuals who receive initial enrollment after November 
1 and before April 2 of the applicable renewal period will not be 
required to renew their enrollment before the first full renewal period 
following the receipt of their initial enrollment.
    (5) The Director of Practice will notify the individual of his or 
her renewal of enrollment and will issue the individual a card 
evidencing enrollment.
    (6) A reasonable nonrefundable fee may be charged for each 
application for renewal of enrollment filed with the Director of 
Practice.
    (7) Forms required for renewal may be obtained from the Director of 
Practice, Internal Revenue Service, 1111 Constitution Avenue, NW., 
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 after March 31, 2004. (i) A 
minimum of 16 hours of continuing education credit must be completed 
during each calendar year in the enrollment term.
    (2) For renewed enrollment effective after April 1, 2007. (i) A 
minimum of 72 hours of continuing education credit must be completed 
during each three year period described in paragraph (d)(4) of this 
section. Each such three year period is known as an enrollment cycle.
    (ii) A minimum of 16 hours of continuing education credit, 
including 2 hours of ethics or professional conduct, 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 or ethics; 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

[[Page 48769]]

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 Sec. 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, territory, or possession of the United 
States, including a Commonwealth, or the District of Columbia.
    (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 to the participants 
who successfully complete 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 
of Practice.
    (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 of Practice 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 of Practice at

[[Page 48770]]

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 of Practice 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 of Practice 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 state or imply that they are enrolled to practice before the 
Internal Revenue Service, or use the term enrolled agent, the 
designation ``E. A.,'' or other form of reference to eligibility to 
practice before the Internal Revenue 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 all required 
continuing professional education hours for the enrollment cycle. 
Continuing education credit under this paragraph (k)(5) 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 Internal Revenue 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 
Sec. 10.3 are governed by the regulations of the Joint Board for the 
Enrollment of Actuaries at 20 CFR 901.1 through 901.71.

(Approved by the Office of Management and Budget under Control No. 
1545-0946 and 1545-1726)


Sec. 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.
    (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, unless otherwise prescribed by 
regulation or notice, 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 Internal Revenue 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 Internal Revenue Service under 
paragraph (c)(1) of this section.

[[Page 48771]]

    (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 
Internal Revenue 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 Internal Revenue 
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 Internal Revenue 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.


Sec. 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 
a relevant local office of the Internal Revenue Service or before the 
National Office of the Internal Revenue 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.

    3. In part 10, subpart B is amended by revising Secs. 10.20 through 
10.32 and revising Sec. 10.34.

Subpart B--Duties and Restrictions Relating to Practice Before the 
Internal Revenue Service


Sec. 10.20  Information to be furnished.

    (a) To the Internal Revenue Service. (1) 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.
    (2) Where the requested records or information are not in the 
possession of, or subject to the control of, the practitioner or the 
practitioner's client, the practitioner must promptly notify the 
requesting Internal Revenue Service officer or employee and the 
practitioner must provide any information that the practitioner has 
regarding the identity of any person who the practitioner believes may 
have possession or control of the requested records or information. The 
practitioner must make reasonable inquiry of his or her client 
regarding the identity of any person who may have possession or control 
of the requested records or information, but the practitioner is not 
required to make inquiry of any other person or independently verify 
any information provided by the practitioner's client regarding the 
identity of such persons.
    (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 of Practice with any information the practitioner has 
concerning an inquiry by the Director of Practice into an alleged 
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.
    (c) Interference with a proper and lawful request for records or 
information. A practitioner may not interfere, or attempt to interfere, 
with any proper and lawful effort by the Internal Revenue Service, its 
officers or employees, or the Director of Practice, or his or her 
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.


Sec. 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 practitioner 
must advise the client of the consequences as provided under the Code 
and regulations of such noncompliance, error, or omission.


Sec. 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 Secs. 10.33 and 
10.34, 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.


Sec. 10.23  Prompt disposition of pending matters.

    A practitioner may not unreasonably delay the prompt disposition of 
any matter before the Internal Revenue Service.


Sec. 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 Internal Revenue Service.
    (b) Accept assistance from any former government employee where the 
provisions of Sec. 10.25 or any Federal law would be violated.

[[Page 48772]]

Sec. 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 Sec. 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 at such other place(s) 
directed by 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 pecific matters where actual representation commenced before July 
26, 2002 is governed by the regulations set forth at 31 CFR part 10 
revised as of July 1, 2002. The burden of showing that representation 
commenced before July 26, 2002 lies with the former Government 
employees, and their partners and associates.


Sec. 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.


Sec. 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. (1) 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 other filing avoids challenge by the 
Internal Revenue Service or is sustained either by the Internal Revenue 
Service or in litigation. A contingent fee includes any fee arrangement 
in which the practitioner will reimburse the client for all or a 
portion of the client's fee in the event that a position taken on a tax 
return or other filing is challenged by the Internal Revenue Service or 
is not sustained, whether pursuant to an indemnity agreement, a 
guarantee, rescission rights, or any other arrangement with a similar 
effect.
    (2) 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.

[[Page 48773]]

    (3) A contingent fee may be charged for preparation of or advice in 
connection with an amended tax return or a claim for refund (other than 
a claim for refund made on an original tax return), but only 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.


Sec. 10.28  Return of client's records.

    (a) In general, a practitioner must, at the request of a client, 
promptly return any and all records of the client that are necessary 
for the client to comply with his or her Federal tax obligations. The 
practitioner may retain copies of the records returned to a client. The 
existence of a dispute over fees generally does not relieve the 
practitioner of his or her responsibility under this section. 
Nevertheless, if applicable state law allows or permits the retention 
of a client's records by a practitioner in the case of a dispute over 
fees for services rendered, the practitioner need only return those 
records that must be attached to the taxpayer's return. The 
practitioner, however, must provide the client with reasonable access 
to review and copy any additional records of the client retained by the 
practitioner under state law that are necessary for the client to 
comply with his or her Federal tax obligations.
    (b) For purposes of this section, Records of the client include all 
documents or written or electronic materials provided to the 
practitioner, or obtained by the practitioner in the course of the 
practitioner's representation of the client, that preexisted the 
retention of the practitioner by the client. The term also includes 
materials that were prepared by the client or a third party (not 
including an employee or agent of the practitioner) at any time and 
provided to the practitioner with respect to the subject matter of the 
representation. The term also includes any return, claim for refund, 
schedule, affidavit, appraisal or any other document prepared by the 
practitioner, or his or her employee or agent, that was presented to 
the client with respect to a prior representation if such document is 
necessary for the taxpayer to comply with his or her current Federal 
tax obligations. The term does not include any return, claim for 
refund, schedule, affidavit, appraisal or any other document prepared 
by the practitioner or the practitioner's firm, employees or agents if 
the practitioner is withholding such document pending the client's 
performance of its contractual obligation to pay fees with respect to 
such document.


Sec. 10.29  Conflicting interests.

    (a) Except as provided by paragraph (b) of this section, a 
practitioner shall not represent a client in his or her practice before 
the Internal Revenue Service if the representation involves a conflict 
of interest. A conflict of interest exists if:
    (1) The representation of one client will be directly adverse to 
another client; or
    (2) There is a significant risk that the representation of one or 
more clients will be materially limited by the practitioner's 
responsibilities to another client, a former client or a third person 
or by a personal interest of the practitioner.
    (b) Notwithstanding the existence of a conflict of interest under 
paragraph (a) of this section, the practitioner may represent a client 
if:
    (1) The practitioner reasonably believes that the practitioner will 
be able to provide competent and diligent representation to each 
affected client;
    (2) The representation is not prohibited by law;
    (3) Each affected client gives informed consent, confirmed in 
writing.
    (c) 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. y

(Approved by the Office of Management and Budget under Control No. 
1545-1726)


Sec. 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 imply an employer/employee 
relationship with the Internal Revenue 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.''
    (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 conduct rules applicable to 
all attorneys in their State(s) of licensure. Any lawful solicitation 
made by or on behalf of a practitioner eligible to practice before the 
Internal Revenue 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 at least 30 calendar days 
after the last date on which the schedule of fees was published.
    (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 this part. 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

[[Page 48774]]

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.

(Approved by the Office of Management and Budget under Control No. 
1545-1726)


Sec. 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.


Sec. 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.
* * * * *


Sec. 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 of the law and the facts 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.

    4. In part 10, subparts C, D, and E are revised to read as follows:

Subpart C--Sanctions for Violation of the Regulations


Sec. 10.50  Sanctions.

    (a) Authority to censure, suspend, or disbar. The Secretary of the 
Treasury, or his or her delegate, 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 delegate, 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, unless and until authorized to do so by the 
Director of Practice pursuant to Sec. 10.81, 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. 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.


Sec. 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 Sec. 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

[[Page 48775]]

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, territory, possession of the United 
States, including a Commonwealth, or 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 (l), 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.


Sec. 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 
Sec. 10.51(l)) violating Sec. 10.33 or 10.34.


Sec. 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 suspected violation. The report will 
explain the facts and reasons upon which the officer's or employee's 
belief rests.
    (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 Internal Revenue Service. If the report is made to an 
officer or employee of the Internal Revenue Service, the officer or 
employee will make a written report of the suspected violation to the 
Director of Practice.
    (c) Destruction of report. No report made under paragraph (a) or 
(b) of this section shall be maintained by the Director of Practice 
unless retention of such record is permissible under the applicable 
records control schedule as approved by the National Archives and 
Records Administration and designated in the Internal Revenue Manual. 
The Director of Practice must destroy such reports as soon as 
permissible under the applicable records control schedule.
    (d) Effect on proceedings under subpart D. The destruction of any 
report will not bar any proceeding under subpart D of this part, but 
precludes the Director of Practice's use of a copy of such report in a 
proceeding under subpart D of this part.

Subpart D--Rules Applicable to Disciplinary Proceedings


Sec. 10.60  Institution of proceeding.

    (a) Whenever the Director of Practice determines that a 
practitioner violated any provision of the laws governing practice 
before the Internal Revenue Service or the regulations in this part, 
the Director of Practice may reprimand the practitioner or, in 
accordance with Sec. 10.62, institute a proceeding for censure, 
suspension, or disbarment of the practitioner. A proceeding for 
censure, suspension, or disbarment of a practitioner is instituted by 
the filing of a complaint, the contents of which are more fully 
described in Sec. 10.62.
    (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 of Practice may 
reprimand the appraiser or, in accordance with Sec. 10.62, institute a 
proceeding for disqualification of the appraiser. A proceeding for 
disqualification of an appraiser is instituted by the filing of a 
complaint, the contents of which are more fully described in 
Sec. 10.62.
    (c) Except as provided in Sec. 10.82, a proceeding will not be 
instituted under this section unless the proposed respondent previously 
has been advised in writing of the law, facts and conduct warranting 
such action and has been accorded an opportunity to dispute facts, 
assert additional facts, and make arguments (including an explanation 
or description of mitigating circumstances).


Sec. 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 an ongoing 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 censure, suspension or disbarment. In 
lieu of a proceeding being instituted or continued under paragraph (a) 
of Sec. 10.60, a practitioner may offer his or her consent to the 
issuance of a censure, suspension or disbarment, or, if the 
practitioner is an enrolled agent, may offer to resign. The Director of 
Practice may, in his or her discretion, accept or decline the offered 
censure, suspension,

[[Page 48776]]

disbarment, or offer of resignation by an enrolled agent, in accordance 
with the consent offered. In any declination, the Director of Practice 
may state that he or she would accept an offer of censure, suspension, 
or disbarment, or, if the practitioner is an enrolled agent, offer of 
resignation, containing different terms; the Director of Practice may, 
in his or her discretion, accept or reject a revised offer of censure, 
suspension, disbarment, or offer of resignation by an enrolled agent, 
submitted in response to the declination or may counteroffer and act 
upon any accepted counteroffer.
    (c) Voluntary disqualification. In lieu of a proceeding being 
instituted or continued under paragraph (b) of Sec. 10.60, an appraiser 
may offer his or her consent to disqualification. The Director of 
Practice may, in his or her discretion, accept or decline the offered 
disqualification, in accordance with the consent offered. In any 
declination, the Director of Practice may state that he or she would 
accept an offer of disqualification containing different terms; the 
Director of Practice may, in his or her discretion, accept or reject a 
revised offer of censure, suspension or disbarment submitted in 
response to the declination or may counteroffer and act upon any 
accepted counteroffer.


Sec. 10.62  Contents of complaint.

    (a) Charges. A complaint must name the respondent, provide a clear 
and concise description of the facts and law that constitute the basis 
for the proceeding, and be signed by the Director of Practice or a 
person representing the Director of Practice under Sec. 10.69(a)(1). 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) Specification of sanction. The complaint must specify the 
sanction sought by the Director of Practice against the practitioner or 
appraiser. If the sanction sought is a suspension, the duration of the 
suspension sought must be specified.
    (c) Demand for answer. The Director of Practice must, in the 
complaint or in a separate paper attached to the complaint, notify the 
respondent of the time for answering the complaint, the time for which 
may not be less than15 days from the date of service of the complaint, 
the name and address of the Administrative Law Judge with whom the 
answer must be filed, the name and address of the person representing 
the Director of Practice to whom a copy of the answer must be served, 
and that a decision by default may be rendered against the respondent 
in the event an answer is not filed as required.


Sec. 10.63  Service of complaint; service and filing of other papers.

    (a) Service of complaint.
    (1) In general. The complaint or a copy of the complaint must be 
served on the respondent by any manner described in paragraphs (a)(2) 
or (3) of this section.
    (2) Service by certified or first class mail. (i) Service of the 
complaint may be made on the respondent by mailing the complaint by 
certified mail to the last known address (as determined under section 
6212 of the Internal Revenue Code and the regulations thereunder) of 
the respondent. Where service is by certified mail, the returned post 
office receipt duly signed by the respondent will be proof of service.
    (ii) If the certified mail is not claimed or accepted by the 
respondent, or is returned undelivered, service may be made on the 
respondent, by mailing the complaint to the respondent by first class 
mail. Service by this method will be considered complete upon mailing, 
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.
    (3) Service by other than certified or first class mail. (i) 
Service of the complaint may be made on the respondent by delivery by a 
private delivery service designated pursuant to section 7502(f) of the 
Internal Revenue Code to the last known address (as determined under 
section 6212 of the Internal Revenue Code and the regulations 
thereunder) of the respondent. Service by this method will be 
considered complete, 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.
    (ii) Service of the complaint may be made in person on, or by 
leaving the complaint at the office or place of business of, the 
respondent. Service by this method will be considered complete and 
proof of service will be a written statement, sworn or affirmed by the 
person who served the complaint, identifying the manner of service, 
including the recipient, relationship of recipient to respondent, 
place, date and time of service.
    (iii) Service may be made by any other means agreed to by the 
respondent. Proof of service will be a written statement, sworn or 
affirmed by the person who served the complaint, identifying the manner 
of service, including the recipient, relationship of recipient to 
respondent, place, date and time of service.
    (4) For purposes of this paragraph (a), ``respondent'' means the 
practitioner or appraiser named in the complaint or any other person 
having the authority to accept mail on behalf of the practitioner or 
appraiser.
    (b) Service of papers other than complaint. Any paper other than 
the complaint may be served on the respondent, or his or her authorized 
representative under Sec. 10.69(a)(2) by:
    (1) Mailing the paper by first class mail to the last known address 
(as determined under section 6212 of the Internal Revenue Code and the 
regulations thereunder) of the respondent or the respondent's 
authorized representative,
    (2) Delivery by a private delivery service designated pursuant to 
section 7502(f) of the Internal Revenue Code to the last known address 
(as determined under section 6212 of the Internal Revenue Code and the 
regulations thereunder) of the respondent or the respondent's 
authorized representative, or
    (3) As provided in paragraphs (a)(3)(ii) and (a)(3)(iii) of this 
section.
    (c) Service of papers on the Director of Practice. Whenever a paper 
is required or permitted to be served on the Director of Practice in 
connection with a proceeding under this part, the paper will be served 
on the Director of Practice's authorized representative under 
Sec. 10.69(a)(1) at the address designated in the complaint, or at an 
address provided in a notice of appearance. If no address is designated 
in the complaint or provided in a notice of appearance, service will be 
made on the Director of Practice, Internal Revenue Service, 1111 
Constitution Avenue, NW., Washington, DC 20224.
    (d) Filing of papers. Whenever the filing of a paper is required or 
permitted in connection with a proceeding under this part, the original 
paper, plus one additional copy, must be filed with the Administrative 
Law Judge at the address specified in the complaint or at an address 
otherwise specified by the Administrative Law Judge. All papers filed 
in connection with a proceeding under this part must be served on the 
other party, unless the Administrative Law Judge directs otherwise. A 
certificate evidencing such must be attached to the original paper 
filed with the Administrative Law Judge.

[[Page 48777]]

Sec. 10.64  Answer; default.

    (a) Filing. The respondent's answer must be filed with the 
Administrative Law Judge, and served on the Director of Practice, 
within the time specified in the complaint unless, on request or 
application of the respondent, the time is extended by the 
Administrative Law Judge.
    (b) Contents. The answer must be written and contain a statement of 
facts that constitute the respondent's grounds of defense. General 
denials are not permitted. 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 that 
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 will be considered proved; no further evidence in respect 
of such allegation need be adduced at a hearing.
    (d) Default. Failure to file an answer within the time prescribed 
(or within the time for answer as extended by 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. A decision 
by default constitutes a decision under Sec. 10.76.
    (e) Signature. The answer must be signed by the respondent or the 
respondent's authorized representative under Sec. 10.69(a)(2) 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.


Sec. 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 heard 
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.


Sec. 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.


Sec. 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, at any time before decision, 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.


Sec. 10.68  Motions and requests.

    (a) Motions. At any time after the filing of the complaint, any 
party may file a motion with the Administrative Law Judge. Unless 
otherwise ordered by the Administrative Law Judge, motions must be in 
writing and must be served on the opposing party as provided in 
Sec. 10.63(b). A motion must concisely specify its grounds and the 
relief sought, and, if appropriate, must contain a memorandum of facts 
and law in support. Before moving, a party must make a good faith 
effort to resolve with the other party any dispute that gives rise to, 
or is a concern of, the motion. The movant must certify such an attempt 
was made and state, if it is known, whether the opposing party opposes 
the motion.
    (b) Response. Unless otherwise ordered by the Administrative Law 
Judge, the nonmoving party is not required to file a response to a 
motion. If the Administrative Law Judge does not order the nonmoving 
party to file a response, the nonmoving party is deemed to oppose the 
motion.
    (c) Oral motions and arguments. The Administrative Law Judge may, 
for good cause and with notice to the parties, permit oral motions and 
oral opposition to motions. The Administrative Law Judge may, within 
his or her discretion, permit oral argument on any motion.


Sec. 10.69  Representation; ex parte communication.

    (a) Representation. (1) The Director of Practice may be represented 
in proceedings under this part by an attorney or other employee of the 
Internal Revenue Service. An attorney or an employee of the Internal 
Revenue Service representing the Director of Practice in a proceeding 
under this part may sign the complaint or any document required to be 
filed in the proceeding on behalf of the Director of Practice.
    (2) A respondent may appear in person, be represented by a 
practitioner, or be represented by an attorney who has not filed a 
declaration with the Internal Revenue Service pursuant to Sec. 10.3. A 
practitioner or an attorney representing a respondent or proposed 
respondent may sign the answer or any document required to be filed in 
the proceeding on behalf of the respondent.
    (b) Ex parte communication. The Director of Practice, the 
respondent, and any representatives of either party, may not attempt to 
initiate or participate in ex parte discussions concerning a proceeding 
or potential proceeding with the Administrative Law Judge (or any 
person who is likely to advise the Administrative Law Judge on a ruling 
or decision) in the proceeding before or during the pendency of the 
proceeding. Any memorandum, letter or other communication concerning 
the merits of the proceeding, addressed to the Administrative Law 
Judge, by or on behalf of any party shall be regarded as an argument in 
the proceeding and shall be served on the other party.


Sec. 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 Sec. 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;

[[Page 48778]]

    (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.


Sec. 10.71  Hearings.

    (a) In general. An Administrative Law Judge will preside at the 
hearing on a complaint filed under paragraph (c) of Sec. 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 
Sec. 10.82 will be conducted de novo. An evidentiary hearing must be 
held in all proceedings prior to the issuance of a decision by the 
Administrative Law Judge unless: the Director of Practice withdraws the 
complaint; the practitioner consents to a sanction pursuant to 
Sec. 10.61(b); a decision is issued by default pursuant to 
Sec. 10.64(d), a decision is issued under Sec. 10.82(e); the respondent 
requests a decision on the record without a hearing; or the 
Administrative Law Judge issues a decision on a motion that disposes of 
the case prior to the hearing.
    (b) Publicity of proceedings. 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 Administrative Law Judge where the parties stipulate in advance to 
protect from disclosure confidential tax information in accordance with 
all applicable statutes and regulations.
    (c) Location. The location of the hearing will be determined by the 
agreement of the parties with the approval of the Administrative Law 
Judge, but, in the absence of such agreement and approval, the hearing 
will be held in Washington, D.C.
    (d) 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.


Sec. 10.72  Evidence.

    (a) In general. The rules of evidence prevailing in courts of law 
and equity are not controlling in hearings or proceedings conducted 
under this part. The Administrative Law Judge may, however, exclude 
evidence that is irrelevant, immaterial, or unduly repetitious,
    (b) Depositions. The deposition of any witness taken pursuant to 
Sec. 10.73 may be admitted into evidence in any proceeding instituted 
under Sec. 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 Internal Revenue Service or the Treasury Department, as the case 
may be.
    (d) Withdrawal of 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.


Sec. 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.


Sec. 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 of 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).


Sec. 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.


Sec. 10.76  Decision of Administrative Law Judge.

    (a) 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 enter a decision in 
the case. The

[[Page 48779]]

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. If the sanction is censure or a suspension 
of less than six month's duration, the Administrative Law Judge, in 
rendering findings and conclusions, will consider an allegation of fact 
to be proven if it is established by the party who is alleging the fact 
by a preponderance of evidence in the record. In the event that the 
sanction is disbarment or a suspension of a duration of six months or 
longer, an allegation of fact that is necessary for a finding against 
the practitioner must be proven by clear and convincing evidence in the 
record. An allegation of fact that is necessary for a finding of 
disqualification against an appraiser must be proven by clear and 
convincing evidence in the record. The Administrative Law Judge will 
provide the decision to the Director of Practice and a copy of the 
decision to the respondent or the respondent's authorized 
representative.
    (b) In the absence of an appeal to the Secretary of the Treasury or 
his or her designee, or review of the decision on motion of the 
Secretary or his or her designee, the decision of the Administrative 
Law Judge will, without further proceedings, become the decision of the 
agency 30 days after the date of the Administrative Law Judge's 
decision.


Sec. 10.77  Appeal of decision of Administrative Law Judge.

    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 delegate. The respondent must file his or her appeal with 
the Director of Practice in duplicate and a notice of appeal must 
include exceptions to the decision of the Administrative Law Judge and 
supporting reasons for such exceptions. If the Director of Practice 
files an appeal, he or she must provide 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 of 
Practice. If the reply brief is filed by the Director of Practice, he 
or she must provide a copy of it to the respondent. The Director of 
Practice must provide the entire record to the Secretary of the 
Treasury, or his or her delegate, after the appeal and any reply brief 
has been filed.


Sec. 10.78  Decision on appeal.

    On appeal from or review of the decision of the Administrative Law 
Judge, the Secretary of the Treasury, or his or her delegate, will make 
the agency decision. The Secretary of the Treasury, or his or delegate, 
will provide a copy of the agency decision to the Director of Practice 
and the respondent or the respondent's authorized representative. The 
decision of the Administrative Law Judge will not be reversed unless 
the appellant establishes that the decision is clearly erroneous in 
light of the evidence in the record and applicable law. Issues that are 
exclusively matters of law will be reviewed de novo. In the event that 
the Secretary of the Treasury, or his or her delegate, determines that 
there are unresolved issues raised by the record, the case may be 
remanded to the Administrative Law Judge to elicit additional testimony 
or evidence. A copy of the agency decision or that of his or her 
delegate will be provided to the Director of Practice and the 
respondent contemporaneously.


Sec. 10.79  Effect of disbarment, suspension, or censure.

    (a) Disbarment. When the final decision in a case is against the 
respondent (or the respondent has offered his or her consent and such 
consent has been accepted by the Director of Practice) and such 
decision 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 Sec. 10.81.
    (b) Suspension. When the final decision in a case is against the 
respondent (or the respondent has offered his or her consent and such 
consent has been accepted by the Director of Practice) and such 
decision is for suspension, the respondent will not be permitted to 
practice before the Internal Revenue Service during the period of 
suspension. For periods after the suspension, the practitioner's future 
representations may be subject to conditions as authorized by paragraph 
(d) of this section.
    (c) Censure. When the final decision in the case is against the 
respondent (or the respondent has offered his or her consent and such 
consent has been accepted by the Director of Practice) and such 
decision is for censure, the respondent will be permitted to practice 
before the Internal Revenue Service, but the respondent's future 
representations may be subject to conditions as authorized by paragraph 
(d) of this section. o
    (d) Conditions. After being subject to the sanction of either 
suspension or censure, the future representations of a practitioner so 
sanctioned shall be subject to conditions prescribed by the Director of 
Practice designed to promote high standards of conduct. These 
conditions can be imposed for a reasonable period in light of the 
gravity of the practitioner's violations. For example, where a 
practitioner is censured because he or she failed to advise his or her 
clients about a potential conflict of interest or failed to obtain the 
clients' written consents, the Director of Practice may require the 
practitioner to provide the Director of Practice or another Internal 
Revenue Service official with a copy of all consents obtained by the 
practitioner for an appropriate period following censure, whether or 
not such consents are specifically requested.


Sec. 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 of Practice 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.


Sec. 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 of Practice 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.


Sec. 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 of Practice may institute a proceeding under this section to 
suspend the practitioner from practice before the Internal Revenue 
Service.

[[Page 48780]]

    (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 Sec. 10.51(i); 
or
    (2) Has, irrespective of whether an appeal has been taken, 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.
    (3) Has violated conditions designed to promote high standards of 
conduct established pursuant to Sec. 10.79(d).
    (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 or a person representing the Director of 
Practice under Sec. 10.69(a)(1), is filed in the Director of Practice's 
office, and is served according to the rules set forth in paragraph (a) 
of Sec. 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 within 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 Sec. 10.64, except as otherwise provided in this section. A 
respondent is entitled to a conference with the Director of Practice 
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 of Practice 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 of Practice, 
but no sooner than 14 calendar days after the date by which the answer 
must be filed with the Director of Practice, 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 
of Practice 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 Sec. 10.60.
    (g) Proceeding instituted under Sec. 10.60. If the Director of 
Practice suspends a practitioner under this section, the practitioner 
may ask the Director of Practice to issue a complaint under Sec. 10.60. 
The request must be made in writing within 2 years from the date on 
which the practitioner's suspension commences. The Director of Practice 
must issue a complaint requested under this paragraph within 30 
calendar days of receiving the request.

Subpart E--General Provisions


Sec. 10.90  Records.

    Availability. The Director of Practice will make available for 
public inspection at the Office of Director 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 of Practice may be disclosed upon specific request, in 
accordance with the applicable disclosure rules of the Internal Revenue 
Service and the Treasury Department.


Sec. 10.91  Saving clause.

    Any proceeding instituted under regulations in effect prior to July 
26, 2002 that is not final prior to July 26, 2002 will not be affected 
by this part and will apply the rules set forth at 31 CFR part 10 
revised as of July 1, 2002. Any proceeding under this part based on 
conduct engaged in prior to July 26, 2002, which is instituted after 
that date, shall apply Subpart D and E of this part, but the conduct 
engaged in prior to July 26, 2002 shall be judged by the regulations in 
effect at the time the conduct occurred.


Sec. 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.


Sec. 10.93  Effective date.

    Subject to Sec. 10.91, this part is applicable on July 26, 2002.

Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
    Approved: July 17, 2002.
David Aufhauser,
General Counsel, Office of the Secretary
[FR Doc. 02-18598 Filed 7-25-02; 8:45 am]
BILLING CODE 4830-01-P