[Federal Register Volume 79, Number 113 (Thursday, June 12, 2014)]
[Rules and Regulations]
[Pages 33685-33695]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-13739]
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DEPARTMENT OF THE TREASURY
Office of the Secretary
31 CFR Part 10
[TD 9668]
RIN 1545-BF96
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 revising the
regulations governing practice before the Internal Revenue Service
(IRS). These final regulations affect individuals who practice before
the IRS. These final regulations modify the standards governing written
advice and update other related provisions of the regulations.
DATES:
Effective Date. These regulations are effective on June 12, 2014.
Applicability Date: For dates of applicability, see Sec. Sec.
10.1(d), 10.3(j), 10.22(c), 10.31(b), 10.35(b), 10.36(b), 10.37(e),
10.81(b), 10.82(h), and 10.91.
FOR FURTHER INFORMATION CONTACT: Matthew D. Lucey at (202) 317-3400
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
Section 330 of title 31 of the United States Code authorizes the
Secretary of the Treasury to regulate the practice of representatives
of persons before the Treasury Department (Treasury). The Secretary has
published regulations governing practice before the IRS in 31 CFR part
10 and reprinted the regulations as Treasury Department Circular No.
230 (Circular 230).
Treasury and the IRS have consistently maintained that individuals
subject to Circular 230 must meet minimum standards of conduct with
respect to written tax advice, and those who do not should be subject
to disciplinary action, including suspension or disbarment. In
accordance with these principles, the regulations have been amended
from time to time to address issues relating to tax opinions and
written tax advice. These regulations modify the rules governing
written tax advice as well as other related provisions of Circular 230
to ensure that practitioners meet certain standards of conduct when
serving as representatives of persons before the IRS and modify the
consequences of failing to meet those standards, such as the expedited
suspension provisions.
On September 17, 2012, Treasury and the IRS published in the
Federal Register (77 FR 57055) a notice of proposed rulemaking (REG-
138367-06) proposing to amend Circular 230 by revising the rules
governing written tax advice and other related provisions of Circular
230. Previously proposed amendments to the regulations regarding state
or local bond opinions also were withdrawn. The proposed regulations
sought to eliminate the complex rules governing covered opinions in
current Sec. 10.35 and to expand the requirements for written advice
under Sec. 10.37. The proposed regulations also proposed to broaden
the requirement for procedures to ensure compliance under Sec. 10.36
beyond the opinion writing and tax return preparation context by
requiring that an individual who is subject to Circular 230 with
principal authority for overseeing a firm's Federal tax practice take
reasonable steps to ensure the firm has adequate procedures in place to
comply with Circular 230. The proposed regulations further sought to
clarify that practitioners must exercise competence when engaged in the
practice of representing persons before the IRS and that the
prohibition on a practitioner endorsing or otherwise negotiating any
check issued to a taxpayer in respect of a Federal tax liability
applies to government payments made by any means, electronic or
otherwise. Additionally, the proposed regulations expanded the
categories of violations subject to the expedited proceedings in Sec.
10.82 to include failures to comply with a practitioner's personal tax
filing obligations that demonstrate a pattern of willful disreputable
conduct and clarified the Office of Professional Responsibility's scope
of responsibility.
Written comments responding to the proposed regulations were
received. A public hearing on the proposed regulations was held on
December 7, 2012. After consideration of the public comments, the
proposed regulations are adopted as revised by this Treasury decision.
[[Page 33686]]
Summary of Comments and Explanation of Revisions
The IRS received nineteen comments in response to the notice of
proposed rulemaking. All comments were considered and are available for
public inspection. Most of the comments addressing the proposed
regulations are summarized in this preamble. Comments addressing
provisions of Circular 230 not covered by the notice of proposed
rulemaking are not discussed in this preamble. Although these comments
are not discussed in this preamble, they may be considered in
connection with any future amendments to the relevant provisions of
Circular 230.
The overwhelming majority of comments supported the proposed
amendments to the regulations, including the removal of the covered
opinion rules and introduction of one set of rules for all written tax
advice in Sec. 10.37. The final regulations adopt the proposed rules
with some revisions as discussed in further detail in this preamble.
The amended rules governing written tax advice contained in these
final regulations apply to written tax advice rendered on or after June
12, 2014. The scope of these regulations is limited to practice before
the IRS. These regulations do not alter or supplant other ethical or
legal standards applicable to individuals subject to Circular 230.
I. Amendments to Rules Governing Written Advice
A. Elimination of Covered Opinion Rules in Sec. 10.35
Former Sec. 10.35 provided detailed rules for tax opinions that
were ``covered opinions'' under Circular 230. As discussed in the
notice of proposed rulemaking, Treasury and the IRS revisited the
covered opinion rules because their application increased the burden on
practitioners and clients, without necessarily increasing the quality
of the tax advice that the client received. Commenters on the proposed
regulations overwhelmingly supported the elimination of former Sec.
10.35 because the former rules were burdensome and provided minimal
benefit to taxpayers. Commenters agreed that the rules in former Sec.
10.35 contributed to overuse, as well as misleading use, of disclaimers
on most practitioner communications even when those communications did
not constitute tax advice.
The final regulations adopt the approach taken in the proposed
regulations, eliminating the covered opinion rules in former Sec.
10.35 and instead subjecting all written tax advice to one standard
under final Sec. 10.37, as described later in this preamble. Because
former Sec. 10.35 is removed, these regulations also remove cross-
references to former Sec. 10.35 in Sec. Sec. 10.3 and 10.22. The
burden reduction that should result from these regulations is
consistent with the directions in Executive Order 13563 to remove or
modify regulations that are outmoded, ineffective, insufficient, or too
burdensome.
As discussed in the preamble to the proposed regulations, the
elimination of the collection of information requirements in the
covered opinion rules in these regulations should save tax
practitioners a minimum of $5,333,200. These savings come from the
elimination of the provisions in the former regulations requiring
practitioners to make certain disclosures in a covered opinion. In
connection with the issuance of former Sec. 10.35 in 2004, we
estimated that 100,000 practitioners would be required to comply with
the disclosure provisions of Sec. 10.35. We estimated that each
practitioner would spend 5 to 10 minutes complying with the provision
at an average of 8 minutes for a total burden of 13,333 hours. This
burden is no longer imposed on practitioners.
Specifically, the former regulations required a practitioner
providing a covered opinion to make certain disclosures in marketed
opinions, limited scope opinions, and opinions that fail to conclude at
a confidence level of at least more likely than not that the issue will
be resolved in favor of the taxpayer (in other words, when the
practitioner could not conclude that it was more likely than not that
the taxpayer's position would be supported by the IRS). For example, a
marketed opinion had to specifically contain a statement that the
opinion was written to support the marketing of the transaction
addressed in the opinion and that the taxpayer should seek advice from
an independent tax advisor based on the taxpayer's particular
circumstances. In addition, certain relationships between the
practitioner and a person promoting or marketing a tax shelter were
required to be disclosed. These final regulations do not include the
above-referenced collection of information/disclosure requirements, and
practitioners and taxpayers are relieved of the entire cost associated
with those collection of information/disclosure requirements.
Please note that while we estimate that the elimination of this
information collection would save tax practitioners and taxpayers a
minimum of $5,333,200, this estimate does not include the burden
reduction, and the corresponding cost savings, associated with tax
practitioners having to determine whether a covered opinion, and any
related disclosure, is necessary. This determination can often take a
tax practitioner many hours.
Treasury and the IRS anticipate that the elimination of the covered
opinion rules will result in additional, significant savings for both
tax practitioners and taxpayers. Practitioners consistently expressed
dissatisfaction with the covered opinion rules due the difficulty and
cost of compliance with the rules. Practitioners operating under the
former rules spent many hours each year determining whether they needed
to prepare a covered opinion for a client, or if the advice fell into
one of the exceptions. This required significant time to, among other
things, research and review the covered opinion rules to determine the
right course of action. If, after undertaking these activities, the
practitioner decided that a covered opinion was necessary, the
practitioner, to keep the client fully informed had to discuss the
covered opinion rules with the client, including how the rules affected
the scope of the work that the client had asked the practitioner to
perform. This discussion would have also been appropriate because
preparation of a covered opinion under former Sec. 10.35 would have
generally resulted in an increased cost to the client to obtain the
advice the client requested. The significant extra costs associated
with these activities may, in some cases, have discouraged obtaining
written advice. Because the final regulations remove the unnecessary
burden related to the process of preparing a covered opinion, both
practitioners and taxpayers will likely experience an overall decrease
in the costs associated with obtaining written tax advice.
B. Revision of Requirements for Written Advice
1. General Requirements for Written Advice
Robust and relevant standards for written tax advice remain
appropriate because Treasury and the IRS continue to be aware of the
risk for the issuance and marketing of written tax opinions to promote
abusive transactions. Commenters overwhelmingly supported the rules in
proposed Sec. 10.37 as providing practical, flexible rules that are
well suited to the issuance of quality written tax advice, provided in
an
[[Page 33687]]
ethical manner, in today's practice environment. Commenters agreed that
the comprehensive, principles-based approach of these amendments is
more straightforward, simpler, and can be applied to all written tax
advice in a less burdensome manner. Overall, Treasury and the IRS have
determined that these written advice rules strike an appropriate
balance between allowing flexibility in providing written advice, while
at the same time maintaining standards that require individuals to act
ethically and competently.
Like the proposed regulations, final Sec. 10.37 replaces the
covered opinion rules with principles to which all practitioners must
adhere when rendering written advice. Specifically, Sec. 10.37 states
affirmatively the standards to which a practitioner must adhere when
providing written advice on a Federal tax matter. Section 10.37
requires, among other things, that the practitioner base all written
advice on reasonable factual and legal assumptions, exercise reasonable
reliance, and consider all relevant facts that the practitioner knows
or reasonably should know. A practitioner must also use reasonable
efforts to identify and ascertain the facts relevant to written advice
on a Federal tax matter.
As under the proposed regulations, Sec. 10.37, unlike former Sec.
10.35, does not require that the practitioner describe in the written
advice the relevant facts (including assumptions and representations),
the application of the law to those facts, and the practitioner's
conclusion with respect to the law and the facts. Rather, the scope of
the engagement and the type and specificity of the advice sought by the
client, in addition to all other appropriate facts and circumstances,
are factors in determining the extent to which the relevant facts,
application of the law to those facts, and the practitioner's
conclusion with respect to the law and the facts must be set forth in
the written advice. Also, under Sec. 10.37, unlike former Sec. 10.35,
the practitioner may consider these factors in determining the scope of
the written advice. Further, the determination of whether a
practitioner has failed to comply with the requirements of Sec. 10.37
will be based on all facts and circumstances, not on whether each
requirement is addressed in the written advice.
Several commenters were concerned that the proposed regulations did
not include a requirement that the practitioner consider relevant legal
authorities and relate that law to the relevant facts. While this
requirement was not expressly stated in the proposed regulations,
Treasury and the IRS believed that it was implicit in the requirement
that practitioners base the written advice on reasonable legal and
factual assumptions. To further clarify, however, the final regulations
add this requirement to Sec. 10.37. Although the final regulations,
unlike former Sec. 10.35, do not impose a specific requirement for a
practitioner to include in the written advice itself any particular
piece of information or analysis, Treasury and the IRS encourage
practitioners to describe all relevant facts, law, analysis, and
assumptions in appropriate circumstances. As noted above, the
determination of whether a practitioner complied with the requirements
of Sec. 10.37 will be based on all facts and circumstances, including
whether it was appropriate to describe all relevant facts, law,
analysis, and assumptions in a particular piece of written tax advice.
Treasury and the IRS also encourage practitioners to observe the
aspirational best practices described in Sec. 10.33 of Circular 230.
Some commenters requested clarification that Sec. 10.37 will be
applied on the basis of what is reasonable under the facts and
circumstances. These commenters stated that the proposed regulations
did not affirmatively provide that a practitioner should reasonably
consider all facts and circumstances in determining their obligations
under Sec. 10.37. Treasury and the IRS agree that practitioners should
consider what is reasonable under the facts and circumstances when
providing written advice. Although Treasury and IRS believe that
proposed Sec. 10.37(a), (b), and (c) accurately reflected that
principle, Sec. 10.37(a)(2)(ii) has been clarified to more explicitly
include the requirement.
One commenter expressed concern that proposed Sec. 10.37's
requirement for practitioners to rely on ``reasonable'' factual and
legal assumptions is too onerous and would prefer that the rule provide
that practitioners are required to rely on factual and legal
assumptions that are not unreasonable. The commenter would have
preferred a rule similar to former Sec. 10.37(a), which prohibits a
practitioner from basing advice on unreasonable factual or legal
assumptions. The commenter stated that requiring reasonableness puts
the burden on the practitioner to prove reasonableness. Treasury and
the IRS do not view the change from ``not unreasonable'' to
``reasonable'' to be a substantive alteration. This specific amendment
is part of the larger effort undertaken in these regulations to
affirmatively state the requirements and standards for practitioners
rather than merely specifying prohibited conduct. Treasury and the IRS
also disagree that a reasonableness standard is too burdensome. As
other commenters stated, any advice based on invalid representations,
incorrect facts, or unreasonable assumptions has little value. Thus,
the final Sec. 10.37 adopts the requirement of proposed Sec. 10.37
that practitioners rely on reasonable factual and legal assumptions.
Several commenters also stated that requiring reasonable assumptions is
aimed at eliminating informal advice, but Treasury and the IRS
disagree. There is no particular correlation between the requirement to
base advice on reasonable assumptions and the format of that advice.
All forms of advice should be based on reasonable assumptions.
Many individuals currently use a Circular 230 disclaimer at the
conclusion of every email or other writing to remove the communication
from the covered opinion rules in former Sec. 10.35. In many
instances, these disclaimers are inserted without regard to whether the
disclaimer is necessary or appropriate. These types of disclaimers are
routinely inserted in any written transmission, including writings that
do not contain any tax advice. The removal of former Sec. 10.35
eliminates the detailed provisions concerning covered opinions and
disclosures in written opinions. Because amended Sec. 10.37 does not
include the disclosure provisions in the current covered opinion rules,
Treasury and the IRS expect that these amendments will eliminate the
use of a Circular 230 disclaimer in email and other writings. Although
one commenter stated that the proposed regulations would result in
increased use of the disclaimer, the rules in the final regulations are
intended to eliminate the need for unnecessary disclaimers. Another
commenter stated that the required disclaimer should be retained
because it may be helpful in some circumstances. These rules do not,
however, prohibit the use of an appropriate statement describing any
reasonable and accurate limitations of the advice rendered to the
client.
2. Definition of Written Advice Addressing Federal Tax Matters
The proposed regulations did not define written advice. Commenters
on the proposed regulations agreed that a detailed definition of
written advice in Circular 230 is unnecessary. Some commenters,
however, requested clarification that certain items, such as
submissions to a governmental entity and continuing education
presentations,
[[Page 33688]]
would not be considered written tax advice. The final regulations have
been revised to clarify that government submissions on matters of
general policy are not considered written tax advice on a Federal tax
matter for purposes of Sec. 10.37. For example, if a law firm
submitted comments on proposed regulations to Treasury and IRS on a
client's behalf, that submission would not be considered written advice
on a Federal tax matter because comments on proposed regulations are
government submissions on matters of general policy. The final
regulations also clarify that continuing education presentations
provided to an audience solely for the purpose of enhancing
practitioners' professional knowledge on Federal tax matters, such as
presentations at tax professional organization meetings, are not
considered written advice for purposes of Sec. 10.37. Presentations
marketing or promoting transactions will not be considered to be
provided solely for the purpose of enhancing practitioners'
professional knowledge on Federal tax matters. Including contact
information on a continuing education presentation provided solely for
the purpose of enhancing professional knowledge, without more, does not
convert an educational presentation into an item of written tax advice
governed by the final regulations. Even though continuing education
presentations provided to an audience solely for the purpose of
enhancing practitioners' professional knowledge on Federal tax matters
are not considered written advice, Treasury and the IRS nonetheless
expect that practitioners will follow the generally applicable
diligence and competence standards under Sec. Sec. 10.22 and 10.35
when engaged in those activities.
Former Sec. 10.35 governed written tax advice addressing Federal
tax issues. Under the prior regulations, a Federal tax issue was
defined as a question concerning the Federal tax treatment of an item
of income, gain, loss, deduction, or credit, the existence or absence
of a taxable transfer of property, or the value of property for Federal
tax purposes. Because the final regulations eliminate former Sec.
10.35, this definition is no longer applicable.
Section 10.37 of the proposed regulations governed written advice
addressing ``Federal tax matters,'' but did not define Federal tax
matters. Some commenters requested clarification regarding the
definition of a Federal tax matter, and Treasury and the IRS determined
that it is appropriate to define Federal tax matter in the final
regulations. Under final Sec. 10.37(d), a Federal tax matter is any
matter concerning the application or interpretation of (1) a revenue
provision as defined in section 6110(i)(1)(B) of the Internal Revenue
Code (Code), (2) any provision of law impacting a person's obligations
under the internal revenue laws and regulations, including but not
limited to the person's liability to pay tax or obligation to file
returns, or (3) any other law or regulation administered by the IRS.
The definition of Federal tax matter in the final regulations reflects
the broad nature of advice rendered by Federal tax practitioners in
today's practice environment.
Other commenters expressed interest in keeping the definition of
Federal tax issue contained in former Sec. 10.35 for purposes of Sec.
10.37. The final regulations do not retain the term Federal tax issue
or its definition because practitioners provide advice on numerous tax
related issues that are outside the scope of the definition of
``Federal tax issue'' contained in former Sec. 10.35 but nonetheless
are Federal tax matters and should be subject to the reasonable
practitioner standard embodied in final Sec. 10.37.
3. Consideration of Audit Risk and Likelihood of Settlement
Consistent with former Sec. 10.37, the final regulations provide
that a practitioner must not, in evaluating a Federal tax matter, take
into account the possibility that a tax return will not be audited or
that an issue will not be raised on audit. Although commenters agreed
with the retention of this rule, one commenter expressed concern that
stating this rule only in the context of written advice improperly
sends the message that oral advice could take audit risk into account.
Treasury and the IRS agree that audit risk should not be considered by
practitioners in the course of advising a client on a Federal tax
matter, regardless of the form in which the advice is given. Because
Sec. 10.37 addresses only written advice, Treasury and the IRS do not
believe that the rule barring consideration of the possibility that a
return or issue will be audited when giving written advice suggests
that it may be considered when giving oral advice. Therefore, no change
is made to Sec. 10.37 in response to the comment.
Proposed Sec. 10.37 sought to eliminate the provision in the
former regulations that prohibits a practitioner from taking into
account the possibility that an issue will be resolved through
settlement if raised when giving written advice evaluating a Federal
tax matter. Treasury and the IRS concluded that the former rule may
have unduly restricted the ability of a practitioner to provide
comprehensive written advice because the existence or nonexistence of
legitimate hazards that may make settlement more or less likely may be
a material issue for which the practitioner has an obligation to inform
the client. Commenters agreed that this amendment is appropriate, and
the final regulations retain it.
4. Standard for Significant Purpose Transactions
The proposed regulations provided that the IRS will apply a
heightened standard of review to determine whether a practitioner has
satisfied the written advice standards when the practitioner knows or
has reason to know that the written advice will be used in promoting,
marketing, or recommending an investment plan or arrangement a
significant purpose of which is the avoidance or evasion of any tax
imposed by the Code. Some commenters expressed concern that the term
``heightened standard of review'' was too vague and requested that
Treasury and the IRS provide detailed rules and examples with respect
to application of a heightened standard of review in these cases. The
final regulations clarify in Sec. 10.37(c)(2) that the Commissioner,
or delegate, will apply a reasonable practitioner standard that
considers all facts and circumstances with an emphasis given to the
additional risk associated with the practitioner's lack of knowledge of
the taxpayer's particular circumstances.
5. Reliance on Professionals
Proposed Sec. 10.37(b) addressed a practitioner's reliance on the
advice of another practitioner. Commenters asked whether the standards
in Sec. 10.37(b) should apply to a practitioner's reliance on advice
from an appraiser or other individual not described as a practitioner
in Sec. Sec. 10.2 and 10.3 of Circular 230. Treasury and the IRS have
determined that the provisions of Sec. 10.37(b) should apply to a
practitioner who relies on advice from any other person, including
appraisers and other individuals not defined as practitioners under
Circular 230. Final Sec. 10.37(b), therefore, reflects that the
standards apply to a practitioner relying on advice from another
person. This reliance provision in the final regulations is consistent
with reliance standards in current Sec. Sec. 10.22 and 10.34(d), and
former Sec. 10.35(d). Commenters also requested special rules for
reliance on certain professionals, but Treasury and the IRS have
determined that the same standards should apply to all advice upon
which a practitioner relies,
[[Page 33689]]
bearing in mind that the reasonable practitioner standard under Sec.
10.37(c) will be applied considering all facts and circumstances.
Proposed Sec. 10.37(b)(1)-(3) provided that reliance is not
reasonable when the practitioner ``knows or should know'' that the
opinion of the other person should not be relied on, the other person
is not competent to provide the advice, or the other person has a
conflict of interest. Commenters suggested that the reliance provisions
in proposed Sec. 10.37(b)(1)-(3) be revised to use a ``knows or
reasonably should know standard.'' Treasury and the IRS agree.
Accordingly, the final regulations revise Sec. 10.37(b)(1)-(3) to
prohibit reliance when the practitioner ``knows or reasonably should
know'' that the advice is disqualified as specified in each provision.
The standard in final Sec. 10.37(a) for reliance on representations
also has been amended in a consistent manner.
Commenters also suggested that the reliance provision in proposed
Sec. 10.37(b)(2) is too broad because it imposes a duty on a
practitioner to inquire into the skills and experience of the person
whose advice is being relied upon. While Treasury and the IRS do not
believe this standard imposes an affirmative duty on a practitioner to
inquire into the skills and experience of the other person when the
practitioner is already aware of the other person's background,
Treasury and the IRS believe practitioners should consider the skills
and experience of a person when they are relying on the advice of that
person. Relying on advice of another person without considering that
person's expertise and qualifications to provide that advice is
inconsistent with the obligation of diligence required in Sec. 10.22.
Thus, a practitioner intending to rely on the advice of another person
may have an obligation to inquire about that person's background if the
practitioner is not familiar with the person's qualifications to render
the advice on which the practitioner will be relying. Accordingly, the
final regulations retain Sec. 10.37(b)(2), which provides that a
practitioner cannot rely on the advice of another when the practitioner
knows or reasonably should know that the other person is not competent
or lacks necessary qualifications to provide the advice.
Some commenters expressed concern with proposed Sec. 10.37(b)(3),
which provided that a practitioner could not rely on the advice of
another when the practitioner knows or should know that the other
practitioner has a conflict of interest as described in Circular 230.
These commenters stated that this rule may prevent reliance when the
other practitioner has a conflict of interest that has been properly
waived by all affected clients, as permitted by Sec. 10.29 of Circular
230. Treasury and the IRS agree that a practitioner should be able to
rely on the advice of another person who has a conflict of interest
when the practitioner knows that the other person's conflict has been
waived by all affected clients through informed consent, the
representation is not prohibited by law (for example, Federal law
prohibits representation by a former government lawyer in certain
circumstances), and all parties and practitioners reasonably believe
that the practitioner with the conflict can provide competent advice.
Final Sec. 10.37(b)(3), therefore, specifically provides that reliance
is not permitted when the practitioner knows or reasonably should know
that the other person has a conflict of interest in violation of the
rules described in Circular 230.
II. Procedures To Ensure Compliance
Former Sec. 10.36(a) provided requirements for practitioners to
establish procedures to ensure compliance with former Sec. 10.35.
Because these regulations remove former Sec. 10.35, these regulations
also remove former Sec. 10.36(a). As set forth in the notice of
proposed rulemaking preceding these final regulations, Treasury and the
IRS, however, amended Sec. 10.36 to ensure compliance with Circular
230 generally.
The procedures to ensure compliance have produced great success in
encouraging firms to self-regulate without the burden often associated
with a rigid one-size-fits-all approach. Treasury and the IRS expanded
Sec. 10.36 in June 2011 to require firms to have procedures in place
to ensure Circular 230 compliance with respect to a firm's tax return
preparation practice (76 FR 32286). Under proposed Sec. 10.36, the
requirement for procedures to ensure compliance were expanded to
include all provisions in Subparts A (Rules Governing Authority to
Practice), B (Duties and Restrictions Relating to Practice Before the
Internal Revenue Service), and C (Sanctions for Violation of the
Regulations) of Circular 230. Section 10.36 is finalized as proposed,
except for the clarifications described in this preamble.
Commenters generally agreed with the amendments to Sec. 10.36. One
concern expressed by the commenters, however, was that the proposed
rule would arguably permit firm management to be in compliance with
Circular 230 if it had taken reasonable steps to ensure the firm had
adequate procedures in place but did not take any steps to ensure those
procedures are properly followed. Treasury and the IRS agree that Sec.
10.36 should be clarified to require both the existence and
implementation of adequate procedures. Accordingly, Sec. 10.36(b)(2)
of the final regulations is amended to provide this clarification.
Some commenters also expressed concern with the application of
Sec. 10.36 when certain members of firm management are not
practitioners under Circular 230. Treasury and the IRS recognize that
there may be instances when one or more members of firm management have
principal authority and responsibility for overseeing a firm's tax
practice but are not practitioners under Circular 230. In these
instances, other members of firm management may nonetheless be subject
to the provisions of Circular 230. Accordingly, Sec. 10.36 is revised
to apply to any member of firm management subject to Circular 230.
Although Treasury and the IRS realize there may be some instances in
which no member of firm management is subject to Circular 230, the
overwhelming majority of firms will have one or more members of firm
management who are subject to Circular 230. Treasury and the IRS
believe it is reasonable to expect those members of firm management who
are subject to Circular 230 to ensure that the firm will have in place
and implement adequate procedures to ensure compliance with Circular
230. The final regulations make clear that in the absence of a person
or persons identified by the firm as having principal authority and
responsibility, the IRS may identify one or more individuals subject to
Circular 230 who will be held responsible for taking reasonable steps
to ensure that the firm has adequate procedures in effect for all
members for purposes of complying with Circular 230.
Because Sec. 10.36 is expanded to apply to all provisions in
Subparts A, B, and C of Circular 230, including Sec. 10.51 (under
which willful failure to file a tax return and willful evasion of the
assessment or payment of tax is disreputable conduct), one commenter
was concerned that Sec. 10.36 imposes a duty on firm management to
ensure that members of the firm are compliant with their own tax
obligations. Treasury and the IRS recognize that personal filing and
payment obligations are an individual responsibility, and there are
limitations on a firm's responsibility for the compliance of any
member, associate, or employee with their personal tax obligations.
But, Treasury and the IRS believe that firm
[[Page 33690]]
management should not ignore the noncompliance with these obligations
by any practitioner associated with the firm when such noncompliance is
known or should be known to the firm.
One commenter stated that the expansion of Sec. 10.36 should be
limited to the practice standards prescribed in Subpart B of Circular
230, which pertains to Duties and Restrictions Relating to Practice
Before the Internal Revenue Service. Treasury and the IRS disagree that
final Sec. 10.36 should be limited to Subpart B because Subparts A
(Rules Governing Authority to Practice) and C (Sanctions for Violation
of the Regulations) also impose substantive standards with which firm
members must comply. Treasury and the IRS, however, do agree that it is
not necessary for a firm's procedures to ensure compliance with
Subparts D (Rules Applicable to Disciplinary Proceedings) or E (General
Provisions) of Circular 230, and have revised Sec. 10.36 accordingly.
One commenter suggested that firm management should be subject to
discipline even when there is no subordinate individual whose conduct
is subject to sanction. Another commenter suggested that Sec. 10.36 be
expanded to govern contractual relationships occurring outside the firm
or in-house context in which one party may supervise or manage the
other party. Treasury and the IRS considered these comments and have
determined that such authority is not necessary at this time because
Sec. 10.36, as amended, is broad enough for the IRS to be able to
determine whether firm management is taking reasonable steps to comply
with Circular 230. Future consideration may be given to broadening the
rules consistent with these comments, if experience shows that
additional changes are necessary.
III. General Standard of Competence
Section 10.35 of the proposed regulations provided that a
practitioner must possess the necessary competence to engage in
practice before the IRS and that competent practice requires the
appropriate level of knowledge, skill, thoroughness, and preparation
necessary for the matter for which the practitioner is engaged.
Some commenters expressed concern over whether the competence
standard permits practitioners to become competent by consulting other
practitioners with relevant expertise or learning governing law through
research and study. In response to these comments, the competence
standard in final Sec. 10.35 contemplates that practitioners may
become competent in a variety of ways, including, among other things,
consulting with experts in the relevant area and studying the relevant
law. Whether consultation and/or research are adequate to make a
practitioner competent in a particular situation depends on the facts
and circumstances of the particular situation.
The proposed regulations provided that competent practice requires
``the knowledge, skill, thoroughness, and preparation'' necessary for
the matter. Commenters questioned whether it is appropriate to consider
``thoroughness and preparation'' in determining competency because, in
some circumstances, the failure to thoroughly prepare does not
necessarily show a lack of competence. Treasury and the IRS recognize
that a practitioner who is highly experienced in a particular matter
may require less preparation than a practitioner who is handling the
same matter for the first time. Accordingly, the final regulations
clarify that competence requires the ``appropriate level of''
knowledge, skill, thoroughness, and preparation necessary for the
matter for which the practitioner is engaged.
Commenters suggested that the competence standard may be too broad
because it could apply to all advice given to a client. The provision
is intended to apply to all advice a practitioner provides to a client
on a matter within the scope of Circular 230. This competence standard
in Circular 230 does not apply to acts that are outside the scope of
Circular 230. Treasury and the IRS, and the public, expect
practitioners to be competent when they engage clients in matters
covered by Circular 230, including the provision of advice. It is also
expected that practitioners will advise clients to obtain other counsel
when the practitioner is not competent or cannot become competent to
provide advice requested on a matter within the scope of Circular 230.
Treasury and the IRS, thus, believe the competence standard is not
overbroad as it governs conduct within the purview of Circular 230.
Accordingly, the final regulations retain the rules in the proposed
regulations.
Some commenters noted that the proposed competency standard was
nearly identical to the competency standard in the American Bar
Association's Model Rules of Professional Conduct. And a few commenters
expressed confusion about whether the proposed regulations permitted
different competency standards depending on the practitioner's status
as an attorney, CPA, enrolled agent, or other practitioner. The
proposed regulations provided only one competency standard under
Circular 230 and were clear that the same standard applies to all
practitioners, regardless of the practitioner's status as an attorney,
CPA, enrolled agent, or other practitioner. As commenters noted, the
competency standard in Sec. 10.35 is nearly identical to the standard
in the Model Rules of Professional Conduct for attorneys, but, unlike
the Model Rules, Sec. 10.35 applies to all individuals subject to
Circular 230, not just attorneys.
Further, some commenters asked Treasury and the IRS to further
develop the standard that would apply under Sec. 10.52 for determining
whether there is a violation of Sec. 10.35. Section 10.52 provides the
governing standards for determining whether any violation of a Circular
230 provision subjects an individual to sanction. Treasury and the IRS
do not believe the standards in Sec. 10.52 need to be expanded upon at
this time. Section 10.52 already specifies that a practitioner will be
subject to sanction under Sec. 10.52 for violating Sec. 10.35 by
behaving recklessly or through gross incompetence. A pattern or
practice of incompetent conduct may establish a violation of Sec.
10.35. Under current practice, the IRS considers the presence of
aggravating and mitigating factors in determining whether a sanction
for a violation of Circular 230 is appropriate (see Notice 2007-39).
Therefore, Treasury and the IRS do not believe additional guidance
related to Sec. 10.52 is necessary at this time.
Additionally, some commenters requested that the regulations
include examples demonstrating practitioner competence. Treasury and
the IRS have determined that the inclusion of examples in the
regulations is not necessary because competence is not a new standard
or concept, and whether the required standard is met must always be
based on the relevant facts and circumstances. Although not binding on
the IRS, Treasury and the IRS believe that the comments to Rule 1.1 of
the Model Rules of Professional Conduct, State Bar opinions addressing
the competence standard, and the American Institute of Certified Public
Accountant's competency standard are generally informative on the
standard of competency expected of practitioners under Circular 230.
IV. Electronic Negotiation of Taxpayer Refunds
Proposed and final Sec. 10.31 provide that a practitioner may not
endorse or otherwise negotiate any check issued to a client by the
government in respect of
[[Page 33691]]
a Federal tax liability, including directing or accepting payment by
any means, electronic or otherwise, into an account owned or controlled
by the practitioner or any firm or other entity with whom the
practitioner is associated. This prohibition on practitioner
negotiation of taxpayer refunds is intended to provide guidance in the
modern-day electronic environment in which practitioners, taxpayers,
and the IRS operate. Proposed and final Sec. 10.31 also amend former
Sec. 10.31 to apply to all individuals who practice as representatives
of persons before the IRS, not just those practitioners who are tax
return preparers.
Most commenters on the proposed regulations agreed with Treasury
and the IRS that these revisions to Sec. 10.31 are an appropriate
standard for all practitioners as well as a necessary step in
protecting taxpayers in today's electronic commerce environment.
Commenters recognized this is an area of abuse, and observed that the
amendments to Sec. 10.31 will improve public confidence in the
profession. Accordingly, the final regulations retain this rule.
One commenter expressed concern that Sec. 10.31 prohibits certain
arrangements permissible under section 6695(f) of the Code, which
imposes a penalty on a tax return preparer for endorsing or otherwise
negotiating (directly or through an agent) a taxpayer's check. Section
1.6695(f)-1(f)(2) of the Income Tax Regulations sets forth certain
arrangements between a ``tax return preparer-bank'' and a taxpayer to
which section 6695(f) does not apply. Treasury and the IRS do not
believe that the rule in proposed Sec. 10.31 prohibits the
arrangements described in the section 6695 regulations or any
arrangement that is not subject to the penalty under the section
6695(f), and therefore no change to finalized Sec. 10.31 was made in
this regard.
One commenter raised the concern that the administration of a trust
or estate may be impaired due to the prohibition on practitioner check
negotiation. Section 10.31 does not apply to an individual acting
solely in the capacity of a trustee of a trust, or administrator/
executor of an estate because that person is acting as the taxpayer,
not as the taxpayer's representative. See Sec. 10.7(e) of Circular
230.
V. Expedited Suspension Procedures
Section 10.82 authorizes the immediate suspension of a practitioner
who has engaged in certain conduct. The proposed and final regulations
extend the expedited disciplinary procedures to disciplinary
proceedings against practitioners who have willfully failed to comply
with their Federal tax filing obligations.
Amended Sec. 10.82 only permits the use of expedited procedures in
the limited circumstances when a tax noncompliant practitioner
demonstrates a pattern of willful disreputable conduct by (1) failing
to make an annual Federal tax return during four of five tax years
immediately before the institution of an expedited suspension
proceeding, or (2) failing to make a return required more frequently
than annually during five of seven tax periods immediately before the
institution of an expedited suspension proceeding. For purposes of
Sec. 10.82, the phrase ``make a return'' has the same meaning as used
in sections 6011 and 6012 of the Code and Sec. 10.51(a)(6) of Circular
230. Additionally, the practitioner must be noncompliant with a tax
filing obligation at the time the notice of suspension is served on the
practitioner for the expedited procedures to apply.
Commenters generally agreed that a practitioner's willful non-
filing is an appropriate grounds for expedited suspension, and that the
final regulations are narrowly tailored to achieve the desired result.
One commenter, however, opined that the amendments to Sec. 10.82
should only apply to failures with respect to the requirement to file
income tax returns. Treasury and the IRS do not agree with this comment
because repeated instances of non-filing demonstrates a practitioner's
willfulness and potential harm to the tax system regardless of the type
of return at issue.
Some commenters suggested that the periods of noncompliance for
which expedited suspension may apply in the case of non-filing (four of
five years for annual returns, or five of seven tax periods) are too
short. Treasury and the IRS do not agree. Four of five tax years, or
five of seven tax periods, of practitioner non-filing shows a level of
disregard for the tax system beyond negligence. Practitioners engaging
in this repeated pattern of non-filing demonstrate a high level of
disregard for the Federal tax system and a level of willfulness
sufficient for practitioner sanction under Circular 230.
Some commenters expressed concern that the failure to file four out
of five years (or five of seven periods, as applicable) rule deems
willfulness without providing the practitioner an opportunity to
respond or explain any legitimate basis for the non-filing. A similar
comment stated that expedited suspension would not be appropriate if a
practitioner and the IRS may have a legitimate dispute as to whether
employment tax returns were required to be filed. Section 10.82,
however, provides the practitioner with an opportunity to file a
response explaining any circumstances surrounding the failure to file
prior to the suspension.
Accordingly, Treasury and the IRS have determined that the proposed
amendments to Sec. 10.82 are appropriate because practitioners
demonstrating this high level of disregard for the Federal tax system
are unfit to represent others who are making a good faith attempt to
comply with their own Federal tax obligations. Expedited action in
these cases will likely prevent harm to taxpayers and the Federal tax
system. Furthermore, these changes to the regulations provide
appropriate procedures to ensure due process for practitioners.
Prior to these regulations, Circular 230 did not otherwise provide
guidance with respect to the length of suspension or the time period in
which the practitioner is permitted to apply for reinstatement. Section
10.81, however, formerly provided that a disbarred practitioner (or
disqualified appraiser) was eligible to apply for reinstatement after
five years following the practitioner's disbarment or disqualification.
Proposed Sec. 10.81 extended this standard to suspended practitioners.
Consistent with proposed Sec. 10.81, final Sec. 10.81 makes the rules
for disbarred and suspended practitioners consistent and applies the
same five-year time period for both disbarred and suspended
practitioners. One commenter observed that it also should be
appropriate for a suspended practitioner to apply for reinstatement
when the suspension expires, even if the suspension expires before the
end of five years. Treasury and the IRS agree with this observation,
and have revised Sec. 10.81 accordingly.
Consistent with proposed Sec. 10.82, final Sec. 10.82 includes
several non-substantive changes that will help practitioners
distinguish between the expedited suspension procedures of Sec. 10.82
and otherwise generally applicable procedures for sanctions instituted
under Sec. 10.60. For example, to begin an expedited suspension under
these regulations, the IRS would issue a ``show cause order'' instead
of a ``complaint'' and the practitioner would submit a ``response''
instead of an ``answer.'' Prior to the issuance of the proposed
regulations, the terms ``complaint'' and ``answer'' described the
documents used for both expedited suspensions under Sec. 10.82 and
regular
[[Page 33692]]
proceedings under Sec. 10.60. The changes made in the proposed
regulations, which are retained in the final regulations, do not
substantively change the expedited suspension procedures, or the
contents of what must be included in the underlying documents, but are
intended to make it easier to understand Sec. 10.82.
Proposed Sec. 10.82(d) provided that an individual subject to a
proposed expedited suspension must file a response within 30 days of
the show cause order proposing to suspend the individual. One commenter
expressed concern that 30 days is not sufficient time for an individual
out of the country to respond to the show cause order. As noted in the
preceding paragraph, the proposed regulations sought to amend Sec.
10.82 to assist in clarifying the distinction between expedited
suspension procedures and the procedures generally applicable to
disciplinary proceedings instituted under Sec. 10.60. The 30-day
period was not a change from the prior time period contained in Sec.
10.82(d). The IRS has not experienced that individuals outside the
country are defaulting on expedited suspension show cause orders
(formerly referred to as complaints) or requesting additional time more
frequently, as a general matter, than individuals inside the country to
whom a show cause order has been issued. Therefore, Treasury and the
IRS do not believe that it is necessary to extend the 30-day period for
responding to show cause orders for those outside the United States at
this time.
Section 10.82(g), as amended, clarifies that practitioners subject
to an expedited proceeding may demand a complaint under Sec. 10.60.
Former Sec. 10.82(g) provided that the IRS has 30 days to issue a
complaint after receiving the practitioner's demand for a complaint. In
some cases, extra time may be necessary to provide the practitioner and
Administrative Law Judge with the most current information regarding
the practitioner's fitness to practice as a representative of persons
before the IRS. The proposed regulations increased the time to file the
requested complaint to 45 days. No comments were received on this
proposal. But, after further consideration, Treasury and the IRS have
determined that, in some cases, more than 45 days may be needed for the
IRS to provide the Administrative Law Judge with the most current
information regarding the practitioner's fitness to practice. Treasury
and the IRS believe that 60 days will provide the IRS with sufficient
time to ensure the complaint complies with the requirements in Sec.
10.62. Accordingly, final Sec. 10.82(g) provides that the IRS has 60
days to issue a complaint after receiving a demand for a complaint from
a practitioner suspended under the expedited procedures.
Commenters expressed concern about what would happen if the IRS
does not file a complaint within the period provided in Sec. 10.82(g).
In response to this concern, revised Sec. 10.82 is clarified to
provide that if the IRS does not issue a complaint within 60 days of
receiving the demand, the suspension is lifted automatically. Lifting
the suspension in these circumstances will not, however, preclude the
Commissioner, or delegate, from instituting a proceeding under Sec.
10.60.
VI. Scope of the Office of Professional Responsibility
Proposed Sec. 10.1(a)(1) clarified that the Office of Professional
Responsibility has exclusive responsibility for matters related to
practitioner discipline, including disciplinary proceedings and
sanctions. Commenters stated this amendment would abate previously
expressed concerns that other IRS offices may be authorized to handle
practitioner disciplinary proceedings. Accordingly, the final
regulations retain this clarification. However, the effective date
provision of Sec. 10.1(d) is revised to clarify that the only
provision of Sec. 10.1 that has an effective date of June 12, 2014 is
Sec. 10.1(a)(1).
Effect on Other Documents
Notice 2005-47 (2005-1 CB 1373) will be obsolete beginning on June
12, 2014. Notice 2005-47 provided interim guidance and information
concerning State or local bond opinions under Sec. 10.35 of Circular
230, and is obsolete because Sec. 10.35 is removed.
Availability of IRS Documents
IRS notices cited in this preamble are made available by the
Superintendent of Documents, U.S. Government Printing Office,
Washington, DC 20402.
Special Analyses
This rule has been designated a ``significant regulatory action''
although not economically significant, under section 3(f) of Executive
Order 12866. Accordingly, the rule has been reviewed by the Office of
Management and Budget. It is hereby certified that these regulations
will not have a significant economic impact on a substantial number of
small entities. The final rule affects individuals who practice as
representatives of persons before the IRS. Persons authorized to
practice before the IRS have long been required to comply with certain
standards of conduct, and those who provide written tax advice
currently must comply with specific rules for this advice. Because the
final regulations replace rigid rules for written tax advice with more
flexible rules and eliminate the necessity to provide disclaimers in
certain written tax advice, the rules will reduce the burden imposed on
small entities that issue written tax advice. Therefore, the amendments
and requirements for written advice imposed by these regulations will
not have a significant economic impact on a substantial number of small
entities, and 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 Code, the notice of proposed rulemaking
published on September 17, 2012 was submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on its impact
on small businesses, and no comments were received. These regulations
are necessary to provide practitioners and taxpayers with immediate
guidance and to inform taxpayers and practitioners of the burden
reduction associated with these regulations at the earliest possible
date. Accordingly, good cause is found for dispensing with a delayed
effective date pursuant to 5 U.S.C. 553(d).
Drafting Information
The principal author of these regulations is Matthew D. Lucey of
the Office of the Associate Chief Counsel (Procedure and
Administration).
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:
PART 10--PRACTICE BEFORE THE INTERNAL REVENUE SERVICE
0
Paragraph 1. The authority citation for 31 CFR part 10 continues to
read as follows:
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;
Reorg. Plan No. 26 of 1950, 15 FR 4935, 64 Stat. 1280, 3 CFR, 1949-
1953 Comp., p. 1017.
0
Par. 2. Section 10.1 is amended by revising paragraphs (a)(1) and (d)
to read as follows:
Sec. 10.1 Offices.
(a) * * *
[[Page 33693]]
(1) The Office of Professional Responsibility, which shall
generally have responsibility for matters related to practitioner
conduct and shall have exclusive responsibility for discipline,
including disciplinary proceedings and sanctions; and
* * * * *
(d) Effective/applicability date. This section is applicable
beginning August 2, 2011, except that paragraph (a)(1) is applicable
beginning June 12, 2014.
0
Par. 3. Section 10.3 is amended by revising paragraphs (a), (b), (g),
and (j) to read as follows:
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 the attorney is
currently qualified as an attorney and is authorized to represent the
party or parties. Notwithstanding the preceding sentence, attorneys who
are not currently under suspension or disbarment from practice before
the Internal Revenue Service are not required to file a written
declaration with the IRS before rendering written advice covered under
Sec. 10.37, but their rendering of this advice is practice before the
Internal Revenue Service.
(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 the certified public accountant is currently qualified
as a certified public accountant and is authorized to represent the
party or parties. Notwithstanding the preceding sentence, certified
public accountants who are not currently under suspension or disbarment
from practice before the Internal Revenue Service are not required to
file a written declaration with the IRS before rendering written advice
covered under Sec. 10.37, but their rendering of this advice is
practice before the Internal Revenue Service.
* * * * *
(g) Others. Any individual qualifying under Sec. 10.5(e) or Sec.
10.7 is eligible to practice before the Internal Revenue Service to the
extent provided in those sections.
* * * * *
(j) Effective/applicability date. Paragraphs (a), (b), and (g) of
this section are applicable beginning June 12, 2014. Paragraphs (c)
through (f), (h), and (i) of this section are applicable beginning
August 2, 2011.
0
Par. 4. Section 10.22 is amended by revising paragraphs (b) and (c) to
read as follows:
Sec. 10.22 Diligence as to accuracy.
* * * * *
(b) Reliance on others. Except as modified by Sec. Sec. 10.34 and
10.37, 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.
(c) Effective/applicability date. Paragraph (a) of this section is
applicable on September 26, 2007. Paragraph (b) of this section is
applicable beginning June 12, 2014.
0
Par. 5. Section 10.31 is revised to read as follows:
Sec. 10.31 Negotiation of taxpayer checks.
(a) A practitioner may not endorse or otherwise negotiate any check
(including directing or accepting payment by any means, electronic or
otherwise, into an account owned or controlled by the practitioner or
any firm or other entity with whom the practitioner is associated)
issued to a client by the government in respect of a Federal tax
liability.
(b) Effective/applicability date. This section is applicable
beginning June 12, 2014.
0
Par. 6. Section 10.35 is revised to read as follows:
Sec. 10.35 Competence.
(a) A practitioner must possess the necessary competence to engage
in practice before the Internal Revenue Service. Competent practice
requires the appropriate level of knowledge, skill, thoroughness, and
preparation necessary for the matter for which the practitioner is
engaged. A practitioner may become competent for the matter for which
the practitioner has been engaged through various methods, such as
consulting with experts in the relevant area or studying the relevant
law.
(b) Effective/applicability date. This section is applicable
beginning June 12, 2014.
0
Par. 7. Section 10.36 is revised to read as follows:
Sec. 10.36 Procedures to ensure compliance.
(a) Any individual subject to the provisions of this part who has
(or individuals who have or share) principal authority and
responsibility for overseeing a firm's practice governed by this part,
including the provision of advice concerning Federal tax matters and
preparation of tax returns, claims for refund, or other documents for
submission to the Internal Revenue Service, must take reasonable steps
to ensure that the firm has adequate procedures in effect for all
members, associates, and employees for purposes of complying with
subparts A, B, and C of this part, as applicable. In the absence of a
person or persons identified by the firm as having the principal
authority and responsibility described in this paragraph, the Internal
Revenue Service may identify one or more individuals subject to the
provisions of this part responsible for compliance with the
requirements of this section.
(b) Any such individual who has (or such individuals who have or
share) principal authority as described in paragraph (a) of this
section will be subject to discipline for failing to comply with the
requirements of this section if--
(1) The individual through willfulness, recklessness, or gross
incompetence does not take reasonable steps to ensure that the firm has
adequate procedures to comply with this part, as applicable, and one or
more individuals who are members of, associated with, or employed by,
the firm are, or have, engaged in a pattern or practice, in connection
with their practice with the firm, of failing to comply with this part,
as applicable;
(2) The individual through willfulness, recklessness, or gross
incompetence does not take reasonable steps to ensure that firm
procedures in effect are properly followed, and one or more individuals
who are members of, associated with, or employed by, the firm are, or
have, engaged in a pattern or practice, in connection with their
practice with the firm, of failing to comply with this part, as
applicable; or
(3) The individual knows or should know that one or more
individuals who are members of, associated with, or employed by, the
firm are, or have, engaged in a pattern or practice, in connection with
their practice with the firm, that does not comply with this part, as
applicable, and the individual, through willfulness, recklessness, or
gross incompetence fails to take prompt action to correct the
noncompliance.
(c) Effective/applicability date. This section is applicable
beginning June 12, 2014.
0
Par. 8. Section 10.37 is revised to read as follows:
[[Page 33694]]
Sec. 10.37 Requirements for written advice.
(a) Requirements. (1) A practitioner may give written advice
(including by means of electronic communication) concerning one or more
Federal tax matters subject to the requirements in paragraph (a)(2) of
this section. Government submissions on matters of general policy are
not considered written advice on a Federal tax matter for purposes of
this section. Continuing education presentations provided to an
audience solely for the purpose of enhancing practitioners'
professional knowledge on Federal tax matters are not considered
written advice on a Federal tax matter for purposes of this section.
The preceding sentence does not apply to presentations marketing or
promoting transactions.
(2) The practitioner must--
(i) Base the written advice on reasonable factual and legal
assumptions (including assumptions as to future events);
(ii) Reasonably consider all relevant facts and circumstances that
the practitioner knows or reasonably should know;
(iii) Use reasonable efforts to identify and ascertain the facts
relevant to written advice on each Federal tax matter;
(iv) Not rely upon representations, statements, findings, or
agreements (including projections, financial forecasts, or appraisals)
of the taxpayer or any other person if reliance on them would be
unreasonable;
(v) Relate applicable law and authorities to facts; and
(vi) Not, in evaluating a Federal tax matter, take into account the
possibility that a tax return will not be audited or that a matter will
not be raised on audit.
(3) Reliance on representations, statements, findings, or
agreements is unreasonable if the practitioner knows or reasonably
should know that one or more representations or assumptions on which
any representation is based are incorrect, incomplete, or inconsistent.
(b) Reliance on advice of others. A practitioner may only rely on
the advice of another person if the advice was reasonable and the
reliance is in good faith considering all the facts and circumstances.
Reliance is not reasonable when--
(1) The practitioner knows or reasonably should know that the
opinion of the other person should not be relied on;
(2) The practitioner knows or reasonably should know that the other
person is not competent or lacks the necessary qualifications to
provide the advice; or
(3) The practitioner knows or reasonably should know that the other
person has a conflict of interest in violation of the rules described
in this part.
(c) Standard of review. (1) In evaluating whether a practitioner
giving written advice concerning one or more Federal tax matters
complied with the requirements of this section, the Commissioner, or
delegate, will apply a reasonable practitioner standard, considering
all facts and circumstances, including, but not limited to, the scope
of the engagement and the type and specificity of the advice sought by
the client.
(2) In the case of an opinion the practitioner knows or has reason
to know will be used or referred to by a person other than the
practitioner (or a person who is a member of, associated with, or
employed by the practitioner's firm) in promoting, marketing, or
recommending to one or more taxpayers a partnership or other entity,
investment plan or arrangement a significant purpose of which is the
avoidance or evasion of any tax imposed by the Internal Revenue Code,
the Commissioner, or delegate, will apply a reasonable practitioner
standard, considering all facts and circumstances, with emphasis given
to the additional risk caused by the practitioner's lack of knowledge
of the taxpayer's particular circumstances, when determining whether a
practitioner has failed to comply with this section.
(d) Federal tax matter. A Federal tax matter, as used in this
section, is any matter concerning the application or interpretation
of--
(1) A revenue provision as defined in section 6110(i)(1)(B) of the
Internal Revenue Code;
(2) Any provision of law impacting a person's obligations under the
internal revenue laws and regulations, including but not limited to the
person's liability to pay tax or obligation to file returns; or
(3) Any other law or regulation administered by the Internal
Revenue Service.
(e) Effective/applicability date. This section is applicable to
written advice rendered after June 12, 2014.
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Par. 9. Section 10.81 is revised to read as follows:
Sec. 10.81 Petition for reinstatement.
(a) In general. A practitioner disbarred or suspended under Sec.
10.60, or suspended under Sec. 10.82, or a disqualified appraiser may
petition for reinstatement before the Internal Revenue Service after
the expiration of 5 years following such disbarment, suspension, or
disqualification (or immediately following the expiration of the
suspension or disqualification period, if shorter than 5 years).
Reinstatement will not be granted unless the Internal Revenue Service
is satisfied that the petitioner is not likely to engage thereafter in
conduct contrary to the regulations in this part, and that granting
such reinstatement would not be contrary to the public interest.
(b) Effective/applicability date. This section is applicable
beginning June 12, 2014.
0
Par 10. Section 10.82 is amended by:
0
1. Revising paragraph (a) and paragraph (b) introductory text.
0
2. Adding paragraph (b)(5).
0
3. Revising paragraphs (c), (d), (e), (f), (g), and (h).
The revisions and additions read as follows:
Sec. 10.82 Expedited suspension.
(a) When applicable. Whenever the Commissioner, or delegate,
determines that a practitioner is described in paragraph (b) of this
section, the expedited procedures described in this section may be used
to suspend the practitioner from practice before the Internal Revenue
Service.
(b) To whom applicable. This section applies to any practitioner
who, within 5 years prior to the date that a show cause order under
this section's expedited suspension procedures is served:
* * * * *
(5) Has demonstrated a pattern of willful disreputable conduct by--
(i) Failing to make an annual Federal tax return, in violation of
the Federal tax laws, during 4 of the 5 tax years immediately preceding
the institution of a proceeding under paragraph (c) of this section and
remains noncompliant with any of the practitioner's Federal tax filing
obligations at the time the notice of suspension is issued under
paragraph (f) of this section; or
(ii) Failing to make a return required more frequently than
annually, in violation of the Federal tax laws, during 5 of the 7 tax
periods immediately preceding the institution of a proceeding under
paragraph (c) of this section and remains noncompliant with any of the
practitioner's Federal tax filing obligations at the time the notice of
suspension is issued under paragraph (f) of this section.
(c) Expedited suspension procedures. A suspension under this
section will be proposed by a show cause order that names the
respondent, is signed by an authorized representative of the Internal
Revenue Service under Sec. 10.69(a)(1),
[[Page 33695]]
and served according to the rules set forth in Sec. 10.63(a). The show
cause order must give a plain and concise description of the
allegations that constitute the basis for the proposed suspension. The
show cause order must notify the respondent--
(1) Of the place and due date for filing a response;
(2) That an expedited suspension decision by default may be
rendered if the respondent fails to file a response as required;
(3) That the respondent may request a conference to address the
merits of the show cause order and that any such request must be made
in the response; and
(4) That the respondent may be suspended either immediately
following the expiration of the period within which a response must be
filed or, if a conference is requested, immediately following the
conference.
(d) Response. The response to the show cause order described in
this section must be filed no later than 30 calendar days following the
date the show cause order is served, unless the time for filing is
extended. The response must be filed in accordance with the rules set
forth for answers to a complaint in Sec. 10.64, except as otherwise
provided in this section. The response must include a request for a
conference, if a conference is desired. The respondent is entitled to
the conference only if the request is made in a timely filed response.
(e) Conference. An authorized representative of the Internal
Revenue Service will preside at a conference described in this section.
The conference will be held at a place and time selected by the
Internal Revenue Service, but no sooner than 14 calendar days after the
date by which the response must be filed with the Internal Revenue
Service, unless the respondent agrees to an earlier date. An authorized
representative may represent the respondent at the conference.
(f) Suspension--(1) In general. The Commissioner, or delegate, may
suspend the respondent from practice before the Internal Revenue
Service by a written notice of expedited suspension immediately
following:
(i) The expiration of the period within which a response to a show
cause order must be filed if the respondent does not file a response as
required by paragraph (d) of this section;
(ii) The conference described in paragraph (e) of this section if
the Internal Revenue Service finds that the respondent is described in
paragraph (b) of this section; or
(iii) The respondent's failure to appear, either personally or
through an authorized representative, at a conference scheduled by the
Internal Revenue Service under paragraph (e) of this section.
(2) Duration of suspension. A suspension under this section will
commence on the date that the written notice of expedited suspension is
served on the practitioner, either personally or through an authorized
representative. The suspension will remain effective until the earlier
of:
(i) The date the Internal Revenue Service lifts the suspension
after determining that the practitioner is no longer described in
paragraph (b) of this section or for any other reason; or
(ii) The date the suspension is lifted or otherwise modified by an
Administrative Law Judge or the Secretary of the Treasury, or delegate
deciding appeals, in a proceeding referred to in paragraph (g) of this
section and instituted under Sec. 10.60.
(g) Practitioner demand for Sec. 10.60 proceeding. If the Internal
Revenue Service suspends a practitioner under the expedited suspension
procedures described in this section, the practitioner may demand that
the Internal Revenue Service institute a proceeding under Sec. 10.60
and issue the complaint described in Sec. 10.62. The demand must be in
writing, specifically reference the suspension action under Sec.
10.82, and be made within 2 years from the date on which the
practitioner's suspension commenced. The Internal Revenue Service must
issue a complaint demanded under this paragraph (g) within 60 calendar
days of receiving the demand. If the Internal Revenue Service does not
issue such complaint within 60 days of receiving the demand, the
suspension is lifted automatically. The preceding sentence does not,
however, preclude the Commissioner, or delegate, from instituting a
regular proceeding under Sec. 10.60 of this part.
(h) Effective/applicability date. This section is generally
applicable beginning June 12, 2014, except that paragraphs (b)(1)
through (4) of this section are applicable beginning August 2, 2011.
0
Par. 11. Section 10.91 is revised to read as follows:
Sec. 10.91 Saving provision.
Any proceeding instituted under this part prior to June 12, 2014,
for which a final decision has not been reached or for which judicial
review is still available is not affected by these revisions. Any
proceeding under this part based on conduct engaged in prior to June
12, 2014, which is instituted after that date, will apply subpart D and
E of this part as revised, but the conduct engaged in prior to the
effective date of these revisions will be judged by the regulations in
effect at the time the conduct occurred.
John Dalrymple,
Deputy Commissioner for Services and Enforcement.
Approved: June 3, 2014,
Christopher J. Meade,
General Counsel.
[FR Doc. 2014-13739 Filed 6-9-14; 4:15 pm]
BILLING CODE 4830-01-P