[Federal Register Volume 76, Number 107 (Friday, June 3, 2011)]
[Rules and Regulations]
[Pages 32286-32312]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-13666]
[[Page 32285]]
Vol. 76
Friday,
No. 107
June 3, 2011
Part III
Department of the Treasury
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31 CFR Part 10
Regulations Governing Practice Before the Internal Revenue Service;
Final Rule
Federal Register / Vol. 76 , No. 107 / Friday, June 3, 2011 / Rules
and Regulations
[[Page 32286]]
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DEPARTMENT OF THE TREASURY
Office of the Secretary
31 CFR Part 10
[TD 9527]
RIN 1545-BH01
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 (IRS). The regulations affect
individuals who practice before the IRS and providers of continuing
education programs. The regulations modify the general standards of
practice before the IRS and the standards with respect to tax returns.
DATES:
Effective Date. These regulations are effective on August 2, 2011.
Applicability Date: For dates of applicability, see Sec. Sec.
10.0(b), 10.1(c), 10.2(b), 10.3(j), 10.4(f), 10.5(g), 10.6(n), 10.7(f),
10.8(d), 10.9(c), 10.20(c), 10.25(e), 10.30(e), 10.34(e), 10.36(c),
10.38(b), 10.50(e), 10.51(b), 10.53(e), 10.60(d), 10.61(c), 10.62(d),
10.63(f), 10.64(f), 10.65(c), 10.66(b), 10.69(c), 10.72(g), 10.76(e),
10.77(f), 10.78(d), 10.79(e), 10.80(b), 10.81(b), 10.82(h), and
10.90(c).
FOR FURTHER INFORMATION CONTACT: Matthew D. Lucey at (202) 622-4940
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these regulations was
previously 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 regulations is in Sec. Sec. 10.6 and 10.9. The total annual
burden of this collection of information is an increase from the burden
in the current regulations. This information is required in order for
the IRS to ensure that individuals permitted to prepare tax returns are
informed of the latest developments in Federal tax practice.
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.
Background
Section 330 of title 31 of the United States Code authorizes the
Secretary of the Treasury (the Secretary) to regulate the practice of
representatives before the Treasury Department. The Secretary is
authorized, after notice and an opportunity for a proceeding, to
censure, suspend, or disbar from practice before the Treasury
Department those representatives who are incompetent, disreputable, or
who violate regulations prescribed under section 330 of title 31. The
Secretary also is authorized to impose a monetary penalty against these
individuals and the individuals' firms or other entities that employ
them. Additionally, the Secretary may seek an injunction against these
individuals under section 7408 of the Internal Revenue Code (Code).
The Secretary has published regulations governing the practice of
representatives before the IRS in 31 CFR part 10 and reprinted the
regulations as Treasury Department Circular No. 230 (Circular 230).
These regulations authorize the IRS to act upon applications for
enrollment to practice before the IRS; to make inquiries with respect
to matters under Circular 230; to institute proceedings to impose a
monetary penalty or to censure, suspend, or disbar a practitioner from
practice before the IRS; to institute proceedings to disqualify
appraisers; and to perform other duties necessary to carry out these
functions.
Circular 230 has been amended periodically. The regulations were
amended most recently on September 26, 2007 (TD 9359, 72 FR 54540), to
modify various provisions relating to the general standards of
practice. For example, the 2007 regulations established an enrolled
retirement plan agent designation, modified the conflict of interest
rules, limited the use of contingent fees by practitioners, and
required public disclosure of OPR disciplinary decisions after the
decisions become final.
Those final regulations, however, did not finalize the standards
with respect to tax returns under Sec. 10.34(a) and the definitions
under Sec. 10.34(e) because of the amendments to section 6694(a) of
the Code made by the Small Business and Work Opportunity Tax Act of
2007, Public Law 110-28, 121 Stat. 190. Rather, the IRS and the
Treasury Department reserved Sec. 10.34(a) and (e) in those final
regulations and also simultaneously issued a notice of proposed
rulemaking (REG-138637-07) in the Federal Register (72 FR 54621)
proposing to conform the professional standards under Sec. 10.34 of
Circular 230 with the civil penalty standards under section 6694(a) as
amended by the 2007 Act.
On October 3, 2008, the Tax Extenders and Alternative Minimum Tax
Relief Act of 2008, Div. C. of Public Law 110-343, 122 Stat. 3765,
again amended the standard of conduct that must be met to avoid
imposition of the tax return preparer penalty under section 6694(a).
The IRS and the Treasury Department published final regulations (TD
9436) in the Federal Register (73 FR 78430) implementing amendments to
the tax return preparer penalties on December 22, 2008. To generally be
consistent with the return preparer penalty regulations, these final
regulations provide updated rules with respect to the standards for tax
returns under Sec. 10.34(a).
These final regulations also provide new rules governing the
oversight of tax return preparers. Previously, an individual tax return
preparer generally was not subject to the provisions in Circular 230
unless the tax return preparer was an attorney, certified public
accountant, enrolled agent, or other type of practitioner identified in
Circular 230. Prior to the issuance of these final regulations, any
individual could prepare tax returns and claims for refund without
meeting any qualifications or competency standards. A tax return
preparer also used to be able to exercise the privilege of limited
practice before the IRS pursuant to the rules in former Sec.
10.7(c)(1)(viii) of Circular 230 and Revenue Procedure 81-38 (1981-2 CB
592). See Sec. 601.601(d)(2)(ii)(b).
In June 2009, the IRS launched a review of tax return preparers
with the intent to propose a comprehensive set of recommendations to
ensure uniform and high ethical standards of conduct for all tax return
preparers and to increase taxpayer compliance. As part of this effort,
the IRS received input from a large and diverse community through
numerous channels, including public forums, solicitation of written
comments, and meetings with advisory groups.
The IRS made findings and recommendations in Publication 4832,
``Return Preparer Review'' (the Report), which was published on January
4, 2010. The Report recommends increased oversight of the tax return
preparer industry through the issuance of regulations.
To implement recommendations made in the Report, the IRS issued
final
[[Page 32287]]
regulations under section 6109 of the Code (TD 9501) published in the
Federal Register (75 FR 60309) on September 30, 2010. The final
regulations under section 6109 provide that, for returns or claims for
refund filed after December 31, 2010, the identifying number of a tax
return preparer is the individual's preparer tax identification number
(PTIN) or such other number prescribed by the IRS in forms,
instructions, or other appropriate guidance. The regulations also
provide that the IRS is authorized to require through other guidance
(as well as in forms and instructions) that tax return preparers apply
for a PTIN or other prescribed identifying number, the regular renewal
of PTINs or other prescribed identifying number, and the payment of
user fees. The IRS also issued final regulations (TD 9503) establishing
a user fee to apply for or renew a PTIN published in the Federal
Register (75 FR 60316) on September 30, 2010.
On August 23, 2010, the Treasury Department and the IRS published
in the Federal Register (75 FR 51713) a notice of proposed rulemaking
(REG-138637-07) proposing amendments to Circular 230 based upon certain
recommendations made in the Report. The proposed regulations provided
that registered tax return preparers are practitioners under Circular
230 and described the process for becoming a registered tax return
preparer, as well as the scope of a registered tax return preparer's
practice before the IRS. Amendments were also proposed to Sec. 10.30
regarding solicitation, Sec. 10.36 regarding procedures to ensure
compliance, and Sec. 10.51 regarding incompetence and disreputable
conduct. A public hearing was held on the proposed regulations on
October 8, 2010. Written public comments responding to the proposed
regulations were received. After consideration of the public comments,
the proposed regulations are adopted as revised by this Treasury
decision.
Plain Language Summary of the Requirements for Becoming a Registered
Tax Return Preparer or Continuing Education Provider
Am I affected by this regulation?
If you are an attorney or certified public accountant, then the
amendments to Sec. Sec. 10.3, 10.4, 10.5, 10.7 and 10.9 of Circular
230 (rules regarding registered tax return preparers) do not affect
you. If you are not an attorney or certified public accountant and you
prepare, or assist in preparing, all or substantially all of a tax
return or claim for refund for compensation, then you may be affected
by this regulation.
Section 10.2(a)(8) of the final regulations clarifies that the
definition of ``tax return preparer'' in Circular 230 is the same as
the meaning in section 7701(a)(36) of the Code and 26 CFR 301.7701-15.
If you only furnish typing, reproduction, or other mechanical
assistance with respect to a tax return or a claim for refund, you are
not a tax return preparer under Circular 230.
How am I affected by this regulation and how does this regulation work
with other recently issued IRS guidance?
The final regulations, in part, provide details about: (1) The
application process to become a registered tax preparer, (2) the
renewal process to remain a registered tax return preparer, and (3)
other rules that govern practice before the IRS that affect all
practitioners.
Application Process
Generally, you must do the following to apply to become a
registered tax return preparer: (1) Pass a one-time competency exam,
(2) pass a suitability check, and (3) obtain a PTIN (and pay the amount
provided in the PTIN User Fee regulations).
To allow tax return preparers a transition period to pass the
competency examination and, because the competency examination will not
be available until after these final regulations are published, Notice
2011-6 (2011-3 IRB 315), which was published on December 30, 2010,
provides the following guidance to tax return preparers who obtain a
PTIN (in accordance with the PTIN regulations) and pay the applicable
user fee (set forth in the PTIN User Fee regulations) before the
competency examination is offered:
Individuals who obtain a provisional PTIN before the competency
examination is offered may prepare for compensation any tax return or
claim for refund until December 31, 2013, as long as the individual
renews their PTIN, passes a suitability check (when available), and
pays the applicable user fee. After the examination is offered, only
attorneys, certified public accountants, enrolled agents, and
registered tax return preparers, or individuals defined in section
1.02(a) or (b) of Notice 2011-6 may obtain a PTIN.
The tax returns and claims for refund covered by the competency
examination initially offered will be limited to individual tax returns
(Form 1040 series tax returns and accompanying schedules). As provided
in Notice 2011-6, individuals may certify that they do not prepare
individual tax returns and, as a result, will not be required to pass
this initial competency examination or become a registered tax return
preparer at this time.
The process for becoming a registered tax return preparer is
comparable to the existing process for enrolled agents. Enrolled agents
must pass the Special Enrollment Examination and complete continuing
education requirements. These regulations, however, do not change
enrolled agents' status as practitioners under Circular 230.
Renewal Process
You must complete continuing education to maintain your status as a
registered tax return preparer. A registered tax return preparer must
annually renew their PTIN and pay a user fee every year. Generally,
registered tax return preparers must complete a minimum of 15 credits
of continuing education annually. This regulation specifies what
constitutes continuing education. Registered tax return preparers must
retain records of continuing education courses for four years.
If you prepare or assist in preparing all or substantially all of a
tax return for compensation but do not sign the tax return, you are
exempt from the competency examination and continuing education
requirements if the requirements of section 1.02(a) of Notice 2011-6
are met. You must, however, renew your PTIN, pay the applicable PTIN
user fee, and certify that the requirements of Notice 2011-6 are met.
Continuing Education Providers
You are subject to requirements in the final regulations. The final
regulations provide requirements applicable to continuing education
providers who provide continuing education programs to registered tax
return preparers and enrolled agents. Continuing education providers
must obtain and renew continuing education provider numbers and
continuing education provider program numbers and pay any applicable
fees.
Summary of Comments and Explanation of Revisions
The IRS received more than 50 written comments in response to the
notice of proposed rulemaking. All of the comments were considered and
are available for public inspection. Most of the comments that
addressed the proposed regulations are summarized in this preamble.
Some comments addressed other regulations or notices of proposed
rulemaking and are not discussed in this preamble.
[[Page 32288]]
The scope of these rules is limited to practice before the IRS.
These regulations do not change the existing authority of attorneys,
certified public accountants, and enrolled agents to practice before
the IRS under Circular 230 and do not alter or supplant ethical
standards that might otherwise be applicable to these practitioners.
IRS Offices Administering and Enforcing Circular 230
To fully implement the return preparer initiative, the IRS
announced that a new return preparer office was created to administer
PTIN applications, competency testing, and continuing education. The
IRS decided that an office dedicated solely to these matters will allow
the IRS to best serve tax return preparers and taxpayers by providing
efficiency and expertise in this area.
Concurrently, the Office of Professional Responsibility will
continue to enforce the Circular 230 provisions relating to
practitioner conduct and discipline. The Office of Professional
Responsibility will continue to carry out its mission to interpret and
apply the standards of practice for tax professionals in a fair and
equitable manner. As discussed in the Report, a strong enforcement
regime is a key component to increased oversight of the tax return
preparer industry. Commentators on the proposed regulations also
suggested that the return preparer initiative must be met with
appropriate enforcement measures. The IRS recognizes that the Office of
Professional Responsibility is central to the IRS' goal of maintaining
high standards of ethical conduct for all practitioners and that the
Office must operate independently from IRS functions enforcing Title 26
requirements.
The final regulations accommodate the internal structure by
generally removing references to the Office of Professional
Responsibility. The final regulations allow the flexibility to adjust
responsibility appropriately between the offices as the return preparer
initiative is implemented. The Commissioner may delegate necessary
authorities to appropriate offices.
Definitions--Practice Before the Internal Revenue Service, Tax Return
Preparer
The final regulations adopt the proposed amendments to Sec.
10.2(a)(4), which clarify that either preparing a document or filing a
document may constitute practice before the IRS. The final regulations
also adopt the proposed amendments to Sec. 10.2(a)(8), which clarify
that the definition of ``tax return preparer'' in Circular 230 is the
same as the meaning in section 7701(a)(36) of the Code and 26 CFR
301.7701-15.
Who May Practice
The final regulations adopt the proposed amendments to Sec.
10.3(f), which establish a new ``registered tax return preparer''
designation. A registered tax return preparer is any individual so
designated under Sec. 10.4(c) who is not currently under suspension or
disbarment from practice before the IRS. An individual who is a
registered tax return preparer pursuant to this part is a practitioner
authorized to practice before the IRS, subject to the limitations
identified in these regulations. Some commentators stated that the term
registered tax return preparer would confuse the public because it
implies a high level of professional capability. As stated in the
Report, the goal of the return preparer initiative is increased
oversight of the tax return preparer industry and to institute
standards for minimum competence. For those individuals who have passed
a competency examination and have met continuing education
requirements, the Treasury Department and the IRS conclude that the
term ``registered'' is appropriate.
Some commentators requested that the IRS not include registered tax
return preparers as individuals who may practice under proposed Sec.
10.3. Representation is defined as ``[a]cts performed on behalf of a
taxpayer by a representative before the Internal Revenue Service.'' See
26 CFR 601.501(b)(13) (Conference and Practice Requirements). As
discussed earlier in this preamble, practice before the IRS includes
preparing or filing tax returns and other documents with the IRS. Thus,
preparation of a tax return is practice before the IRS. Because
registered tax return preparers are individuals who prepare all or
substantially all of a tax return or claim for refund on behalf of a
taxpayer for compensation, they practice before the IRS and must be
included in Sec. 10.3 of the final regulations.
The Treasury Department and the IRS received comments requesting
clarification with respect to which forms registered tax return
preparers are permitted to prepare. The IRS will prescribe by forms,
instructions, or other appropriate guidance the tax returns and claims
for refund registered tax return preparers are permitted to prepare
after successfully completing the competency examination. Forms,
instructions, or other appropriate guidance may also provide rules with
respect to forms that may be prepared without completion of the
competency examination. Notice 2011-6 permits individuals who prepare
tax returns not covered by the competency examination to obtain a PTIN
if certain requirements are met.
Registered tax return preparers also may represent taxpayers before
revenue agents, customer service representatives, or similar officers
and employees of the IRS (including the Taxpayer Advocate Service)
during an examination if the registered tax return preparer signed the
tax return or claim for refund for the taxable year or period under
examination. Consistent with the limited practice rights previously
available to unenrolled return preparers under former Sec.
10.7(c)(1)(viii), registered tax return preparers are not permitted to
represent taxpayers, regardless of the circumstances requiring
representation, before appeals officers, revenue officers, Counsel, or
similar officers or employees of the IRS or the Treasury Department. A
registered tax return preparer's authorization to practice under this
part also does not include the authority to provide tax advice to a
client or another person except as necessary to prepare a tax return,
claim for refund, or other document intended to be submitted to the
IRS.
Some commentators inquired as to whether the federally authorized
tax practitioner privilege under section 7525 applies to communications
between a taxpayer and a registered tax return preparer. The Treasury
Department and the IRS have concluded that the federally authorized tax
practitioner privilege generally does not apply to communications
between a taxpayer and a registered tax return preparer because the
advice a registered tax return preparer provides ordinarily is intended
to be reflected on a tax return and is not intended to be confidential
or privileged.
The conduct of a registered tax return preparer in connection with
the preparation of the return, claim for refund, or other document, as
well as any representation of the client during an examination, will be
subject to the standards of conduct in Circular 230. Inquiries into
possible misconduct and disciplinary proceedings relating to registered
tax return preparer misconduct will be conducted under the provisions
in Circular 230.
Numerous members of the tax return preparation industry submitted
comments requesting that certain individuals be exempted from the
requirements in the proposed regulations. Commentators suggested that
tax return preparers who are
[[Page 32289]]
supervised by certain practitioners currently authorized to practice
under Circular 230 should not be required to become registered tax
return preparers if the supervising practitioner signs the tax return
prepared in part by the supervised tax return preparer. Commentators
reasoned that certain practitioners who sign tax returns are subject
to, in addition to Circular 230, professional standards and oversight
by state licensing authorities and other professional organizations
that place responsibility for the tax return on the signing
practitioner.
In Notice 2011-6, the Treasury Department and the IRS provided,
pursuant to Sec. 1.6019-2(h), that individuals who are not attorneys,
certified public accountants, enrolled agents, enrolled retirement plan
agents, enrolled actuaries, or registered tax return preparers will be
eligible to obtain a PTIN and, thus, prepare, or assist in preparing,
all or substantially all of a tax return or claim for refund for
compensation in certain discrete circumstances. Section 1.02(a) of the
notice permits certain individuals supervised by an attorney, certified
public accountant, enrolled agent, enrolled retirement plan agent, or
enrolled actuary who signs the return or claim for refund prepared by
the individual to obtain a PTIN. These individuals also are required to
certify in their application to receive a PTIN that they are supervised
by an attorney, certified public accountant, enrolled agent, enrolled
retirement plan agent, or enrolled actuary who signs the tax return or
claim for refund and provide a supervising individual's PTIN or other
number if prescribed by the IRS. These individuals may not sign any tax
return they prepare or assist in preparing for compensation. If at any
point, the individual is no longer supervised by the signing attorney,
certified public accountant, enrolled agent, enrolled retirement plan
agent, or enrolled actuary, the individual must notify the IRS if
prescribed in forms, instructions, or other appropriate guidance and
will no longer be permitted to prepare or assist in preparing all or
substantially all of a tax return or claim for refund for compensation
under this exception. Because individuals meeting these requirements,
as fully set forth in Sec. 1.02(a) of Notice 2011-6, are permitted to
obtain a PTIN, they are not required to become registered tax return
preparers to obtain a PTIN.
Eligibility To Become an Enrolled Agent or Enrolled Retirement Plan
Agent
The final regulations provide that an enrolled agent or enrolled
retirement plan agent must be eighteen years old and obtain a PTIN to
be eligible to practice before the IRS as an enrolled agent or enrolled
retirement plan agent.
Section 10.4(d) of the final regulations also provides that a
former employee who, by virtue of past service and technical experience
in the IRS, may be granted enrollment as an enrolled agent or enrolled
retirement plan agent if certain criteria are satisfied. Some
commentators on the proposed regulations suggested that former IRS
employees should not be granted enrollment because the IRS is not
exempting, or ``grandfathering,'' experienced unenrolled practitioners
from the testing and continuing education requirements. This
recommendation is not adopted because the IRS may easily check a former
employee's IRS employment record to ensure the individual has the past
service and technical experience for the scope of enrollment sought by
the former employee.
Eligibility To Become a Registered Tax Return Preparer
The final regulations require that an individual must be eighteen
years old, possess a current or otherwise valid PTIN or other
prescribed identifying number, and pass a minimum competency
examination to become a registered tax return preparer. Many
commentators supported the IRS' effort to increase the overall
competency of tax return preparers by implementing reasonable
standards. The minimum age requirement included in the final
regulations will assist the Treasury Department and the IRS in
efficient tax administration by ensuring that registered tax return
preparers have a minimum level of experience, knowledge, judgment, and
maturity. Other categories of Circular 230 practitioners are generally
subject to state requirements that result in the individual possessing
a minimum level of experience, knowledge, judgment, and maturity.
The competency examination will be administered by, or administered
under the oversight of, the IRS, similar to the special enrollment
examinations for enrolled agents and enrolled retirement plan agents.
Tax return preparers will be subject to suitability checks to determine
whether the tax return preparer has engaged in disreputable conduct,
which, at the time the application is filed with the IRS, could result
in suspension or disbarment under Circular 230. An individual who has
engaged in disreputable conduct is not eligible to become a registered
tax return preparer.
Commentators requested that the IRS delay implementation of the
testing requirement. The Treasury Department and the IRS did not adopt
any delay in implementation of the testing requirement because it is
currently anticipated that the examination to become a registered tax
return preparer will not be available until after the effective date of
these regulations. Notice 2011-6 provides guidance establishing
transition rules explaining the steps individuals must take to prepare
all or substantially all of a tax return or claim for refund while
awaiting full implementation of the examination process. The IRS will
provide administrative information about the competency examination to
tax return preparers via appropriate channels, including the Tax
Professionals page of the IRS website, http://www.irs.gov/taxpros.
Some commentators also requested that the Treasury Department and
the IRS delay implementation of the continuing education requirements.
In response to these concerns and to ensure the IRS has sufficient time
to implement these requirements appropriately, the Treasury Department
and the IRS announced that the implementation of the continuing
education requirement will be postponed and that there will be no
continuing education requirement at least during the first year of
registration, which commenced on September 30, 2010. The IRS will
provide administrative information about continuing education to tax
return preparers via appropriate channels, including the Tax
Professionals page of the IRS Web site, http://www.irs.gov/taxpros.
Procedures for Becoming or Renewing an Individual's Designation as a
Registered Tax Return Preparer
Section 10.5 of the final regulations sets forth the applicable
procedures related to becoming a registered tax return preparer, which
generally are consistent with the procedures currently utilized for
enrolled agents and enrolled retirement plan agents. The regulations
provide that individuals who want to become a registered tax return
preparer or renew their designation as a registered tax return preparer
must utilize forms and comply with the procedures established and
published by the IRS. The final regulations permit the IRS to change
the procedures to apply to become a registered tax return preparer.
As a condition for consideration of an application, the IRS may
conduct a Federal tax compliance check and
[[Page 32290]]
suitability check. The tax compliance check will be limited to an
inquiry regarding whether the individual has filed all required
individual or business tax returns (such as employment tax returns that
might have been required to be filed by the applicant) and whether the
individual has failed to pay, or make proper arrangements with the IRS
for payment of, any Federal tax debts. The suitability check will be
limited to an inquiry regarding whether the individual has engaged in
any conduct that would justify suspension or disbarment of any
practitioner under the provisions of this part, including whether the
applicant has engaged in disreputable conduct.
The IRS may not designate an individual as a registered tax return
preparer only if the results of the tax compliance or suitability check
are sufficient to establish that the individual engaged in conduct
subject to sanctions under Circular 230 at the time the individual
seeks to become a registered tax return preparer or the individual does
not pass the required competency examination or meet other established
standards. If the individual does not pass the competency examination
or the tax compliance or suitability check, the individual will not be
designated as a registered tax return preparer. Pursuant to Sec.
10.5(f) of these regulations, an applicant denied status as a
registered tax return preparer will be informed in writing as to the
reason(s) for any denial of the application. The applicant may file a
written protest within 30 days after receipt of the denial. The written
protest must be filed as prescribed by the Internal Revenue Service in
forms, guidance, or other appropriate guidance. An individual who is
initially denied status as a registered tax return preparer for failure
pass a tax compliance check may reapply after the initial denial if the
individual becomes current with respect to the individual's tax
liabilities.
Once an individual is approved as a registered tax return preparer,
the IRS will issue a registration card or certificate to each
individual. The card or certificate will be in addition to any
notification provided to an individual who obtains a PTIN. Registered
tax return preparers must have both a valid registration card or
certificate and a current and valid PTIN number to practice before the
IRS.
Section 10.6 of the final regulations sets forth the procedures for
renewing an individual's designation as a registered tax return
preparer. Registered tax return preparers must renew their designation
as prescribed in forms, instructions, or other appropriate guidance. A
condition of renewal is the completion of the requisite number of
continuing education hours by registered tax return preparers.
Registered tax return preparers must complete 15 hours of continuing
education during each registration year, with a minimum of three hours
of Federal tax law updates, two hours of tax-related ethics and 10
hours of Federal tax law topics. The registration year is defined as
each 12-month period that the registered tax return preparer is
authorized to practice before the IRS.
Registered tax return preparers must maintain records with respect
to the completion of the continuing education credit hours and to self-
certify the completion of the continuing education credit at the time
of renewal. These regulations require that a qualifying continuing
education course enhance professional knowledge in Federal taxation or
Federal tax related matters and be consistent with the Code and
effective tax administration.
Section 10.6(f)(2)(iii) of the proposed regulations provided that
the maximum continuing education credit allowed for instruction and
preparation is four hours annually. The proposed regulations also
removed the ability to receive hours for authoring articles, books, or
other publications that was formerly allowed with respect to enrolled
agents and enrolled retirement plan agents. The Treasury Department and
the IRS did receive comments objecting to the reduction of maximum
credit and the removal of the ability to receive credit for authoring
publications. The comments stated that the rules would result in a
lower quality of education and lower diversity.
In Sec. 10.6(f)(2)(iii) of the final regulations, the Treasury
Department and the IRS modified the proposed rules regarding the
maximum credit allowed for instruction and preparation to allow
enrolled agents and enrolled retirement plan agents to earn six hours
annually. The final regulations allow registered tax return preparers
to earn four hours annually. The Treasury Department and the IRS do not
agree with the comments concerning receiving credit for authoring
publications because the learning involved with authoring a publication
does necessarily not equate to the knowledge derived from a continuing
education program that is current and developed by an individual
qualified in the relevant subject matter. Therefore, the final
regulations remove the ability to receive hours for authoring articles,
books, or other publications that was formerly allowed with respect to
enrolled agents and enrolled retirement plan agents.
Sections 10.5(b) and 10.6(d)(7) of the final regulations provide
that the IRS may charge a reasonable nonrefundable fee for each initial
application and renewal of status as a registered tax return preparer
submitted to the IRS. At the outset, the initial application fee refers
to the initial PTIN user fee and the user fee applicable to any
required competency examination. Similarly, a registered tax return
preparer must renew a PTIN and pay the applicable user fee as
prescribed by the IRS in forms, instructions, or other appropriate
guidance. The IRS may in future regulations add or remove fees
applicable to becoming a registered tax return preparer.
The Treasury Department and the IRS received numerous comments
requesting that certain non-signing tax return preparers be exempt from
the testing and continuing education requirements. Commentators
reasoned that the testing and continuing education requirements are not
necessary for non-signing tax return preparers who are supervised
because a supervising practitioner is responsible for the accuracy of
the underlying return and must generally comply with continuing
professional education requirements and ethical standards. Comments
also suggested that fees for the competency examination and continuing
education for paraprofessionals and those assisting in return
preparation would not be justified when the signing tax return preparer
ultimately reviews, and is responsible for, the accuracy of the tax
return. Overall, these comments suggested that the costs of requiring
testing and continuing education for tax return preparers who are
supervised by attorneys, certified public accountants, enrolled agents,
enrolled retirement plan agents, and enrolled actuaries outweighed the
attendant benefits.
The Treasury Department and the IRS addressed these concerns in
Notice 2011-6, which, as previously stated in this preamble, allows
individuals who are not attorneys, certified public accountants,
enrolled agents, or registered tax return preparers to obtain a PTIN
provided the individual is supervised by an attorney, certified public
accountant, enrolled agent, enrolled retirement plan agent, or enrolled
actuary who signs the tax return or claim for refund when the
individual prepares all or substantially all of a tax return or claim
for refund. Because individuals meeting these requirements, as fully
set forth in Sec. 1.02(a) of Notice 2011-6, are permitted to obtain a
PTIN, they are not required to become registered tax return
[[Page 32291]]
preparers and, therefore, are not required to pass the competency
examination or meet the continuing education requirements.
Some commentators requested that the Treasury Department and the
IRS exempt student interns from the requirement to obtain a PTIN. These
commentators suggested that the PTIN requirement would deter interest
in tax accounting internships and make internship programs a money-
losing proposition. The PTIN requirement applies to anyone who prepares
all or substantially all of a tax return for compensation. If an intern
does not receive compensation, the intern is not required to obtain a
PTIN under the Sec. 1.6109-2 regulations. If, however, an intern
engages in tax return preparation activities that make the intern a tax
return preparer for purposes of the Sec. 1.6109-2 regulations and the
intern is compensated for these activities, the intern must obtain a
PTIN.
Continuing Education Providers
In Sec. 10.9 of the proposed regulations, the Treasury Department
and the IRS proposed a new requirement that continuing education
providers obtain approval of each program to be qualified as a
continuing education program. The proposed regulations also required
providers of continuing education courses to maintain records and
educational material concerning continuing education programs and the
individuals who attended them. Section 10.9(a)(6) of the proposed
regulations indicated that the IRS may charge a reasonable
nonrefundable fee for each application for qualification as a qualified
continuing education program.
The Treasury Department and the IRS received numerous comments
requesting that the IRS reconsider the change in the continuing
education approval process. Comments questioned why the IRS would
require pre-approval of continuing education requirements when the
number of individuals required to complete continuing education
requirements is being significantly increased. Commentators suggested
that the pre-approval process would be a substantial burden to
continuing education providers and the IRS. In response to these
comments, the Treasury Department and the IRS chose not to finalize the
rules in proposed Sec. 10.9 regarding pre-approval of individual
continuing education programs.
Because the Treasury Department and the IRS are not finalizing the
rules in proposed Sec. 10.9 with respect to pre-approval of individual
continuing education programs, Sec. 10.9 of these final regulations
adopts rules similar to the rules in former Sec. 10.6(g) applicable to
qualified sponsors. Under Sec. 10.9 of the final regulations,
continuing education providers must be qualified and must obtain a
qualified continuing education provider number to be eligible to offer
qualified continuing education. While continuing education providers
initially will not be required to obtain the IRS' approval of each
continuing education program offered, the regulations authorize the IRS
to require such approval, at its discretion, in appropriate forms,
instructions or other appropriate guidance. Under the final
regulations, continuing education providers are required to obtain a
continuing education program number for each qualified continuing
education program offered. Although the IRS is not currently proposing
charging providers a fee for obtaining a continuing education provider
number or a continuing education program number, these regulations
provide that providers must pay any user fee applicable to obtaining
either number established in future regulations.
Section 10.9 of these final regulations allows those listed in
former Sec. 10.6(g) to be qualified continuing education providers.
Commentators on the proposed regulations suggested that the Treasury
Department and the IRS consider that some professional organizations
have nationally recognized standards for approving continuing education
programs that are comparable to the IRS standards in Circular 230.
Specifically, the comments requested that continuing education
providers approved by these organization's standards be exempted from
the requirement to seek additional approval from the IRS with respect
to each continuing education program.
The Treasury Department and the IRS agree with the commentators
that there is merit in recognizing continuing education providers that
have been approved previously by professional organizations with
standards comparable to Circular 230. Accordingly, Sec. 10.9 of these
regulations includes as qualified continuing education providers those
providers that are recognized and approved as providers of continuing
education on subject matters within Sec. 10.6(f) of these regulations
by a qualifying organization that has minimum education standards
comparable to those set forth in Circular 230. The IRS intends to
identify in forms, instructions, or other appropriate guidance the
professional organizations whose approval will allow a continuing
education provider to be qualified within Sec. 10.9.
Limited Practice Before the IRS, Return Preparation, and Application to
Other Individuals
Section 10.3(f) of these regulations permits registered tax return
preparers to represent a taxpayer during an examination if the
registered tax return preparer prepared the return for the taxable
period under examination. Therefore, the final regulations remove the
limited practice authorization in former Sec. 10.7(c)(1)(viii), which
allowed an unenrolled tax return preparer to represent a taxpayer
during an examination if that individual prepared the return for the
taxable period under examination. Additionally, the final regulations
remove former Sec. 10.8 regarding customhouse brokers from Circular
230 and move the language in former Sec. 10.7(e) to new Sec. 10.8.
Section 10.8(a) of the final regulations provides that any
individual who for compensation prepares or assists with the
preparation of all or substantially all of a tax return or claim for
refund must have a PTIN. Except as otherwise prescribed in forms,
instructions, or other appropriate guidance, an individual must be an
attorney, certified public accountant, enrolled agent, or registered
tax return preparer to obtain a preparer tax identification number.
These rules are consistent with the final PTIN regulations under
section 6109. An individual who is not an attorney, certified public
accountant, enrolled agent, or registered tax return preparer who
nevertheless prepares for compensation all or a substantial portion of
a document (including tax returns and claims for refund) for submission
to the IRS is engaged in practice before the IRS and is subject to the
rules and standards of Circular 230.
Section 10.8(b) of the final regulations provides that any
individual, whether or not the individual is a practitioner, may assist
with the preparation of a tax return or claim for refund (provided the
individual prepares less than substantially all of the tax return or
claim for refund). This revision is consistent with the inclusion of
registered tax return preparers as practitioners authorized to practice
before the IRS and the practice rights available to these
practitioners.
These regulations also establish a new Sec. 10.8(c) regarding
other individuals. Any individual who prepares for compensation all or
a substantial portion of a document pertaining to a taxpayer's tax
liability for submission to the IRS is subject to the duties and
restrictions relating to practice before the IRS and may be sanctioned,
after notice and opportunity for a conference,
[[Page 32292]]
for any conduct that would justify a sanction under Sec. 10.50. An
individual described in 26 CFR 301.7701-15(f) is not treated as having
prepared all or a substantial portion of the document by reason of such
assistance. For example, an individual who only furnishes typing,
reproducing, or other mechanical assistance with respect to a document
is not subject to the duties and restrictions relating to practice
before the IRS.
Solicitation
Section 10.30(a)(1) of these regulations provides that a
practitioner may not, with respect to any IRS matter, in any way use or
participate in the use of any form of public communication or private
solicitation containing a false, fraudulent, coercive, misleading, or
deceptive statement or claim. In describing their designation,
registered tax return preparers may not utilize the term ``certified''
or imply an employer/employee relationship with the IRS.
The proposed regulations provided that registered tax return
preparers were permitted to use the term ``designated as a registered
tax return preparer with the Internal Revenue Service'' when describing
their designation. Some commentators expressed concern that the word
``with'' may imply a closer relationship with the IRS than exists, such
as an employer-employee relationship. These commentators suggested
using the term ``by'' instead. Accordingly, the IRS revised the
language in final Sec. 10.30(a)(1) to take into account this
suggestion.
Standards With Respect to Tax Returns and Documents, Affidavits and
Other Papers
After careful consideration, the IRS and the Treasury Department
continue to conclude that the professional standards in Sec. 10.34(a)
generally should be consistent with the civil penalty standards in
section 6694 for tax return preparers. As discussed in this preamble,
the limited differences between the standards in Sec. 10.34 and
section 6694 arise from the different purposes served by those
provisions and the different manner in which the two standards will be
administered.
The standards with respect to tax returns in Sec. 10.34(a) in the
final regulations provide broader guidelines that are more appropriate
for professional ethics standards. Under Sec. 10.34(a)(1)(i) of the
regulations, a practitioner may not willfully, recklessly, or through
gross incompetence, sign a tax return or claim for refund that the
practitioner knows or reasonably should know contains a position that:
(A) Lacks a reasonable basis; (B) is an unreasonable position as
described in section 6694(a)(2) (including the related regulations and
other published guidance); or (C) is a willful attempt by the
practitioner to understate the liability for tax or a reckless or
intentional disregard of rules or regulations by the practitioner as
described in section 6694(b)(2) (including the related regulations and
other published guidance).
Under Sec. 10.34(a)(1)(ii) of these regulations, a practitioner
may not willfully, recklessly, or through gross incompetence, advise a
client to take a position on a tax return or claim for refund, or
prepare a portion of a tax return or claim for refund containing a
position, that: (A) Lacks a reasonable basis; (B) is an unreasonable
position as described in section 6694(a)(2) (including the related
regulations and other published guidance); or (C) is a willful attempt
by the practitioner to understate the liability for tax or a reckless
or intentional disregard of rules or regulations by the practitioner as
described in section 6694(b)(2) (including the related regulations and
other published guidance).
Commentators on proposed Sec. 10.34 requested that the IRS clarify
whether Notice 2009-5 (2009-3 IRB 309) applies for purposes of
determining whether the tax return preparer prepared a return or claim
for refund with an unreasonable position under Sec. 10.34. An
unreasonable position for purposes of Sec. 10.34 is an unreasonable
position as described in section 6694(a)(2) and related published
guidance. Thus, Notice 2009-5 applies to determine whether the tax
return preparer took an unreasonable position to the extent that it
applies to the tax return preparer for purposes of section 6694.
Some commentators were concerned that a violation of section 6694
would translate to a per se violation of Sec. 10.34. If the IRS,
however, assesses a penalty against a practitioner under section 6694
and also refers the practitioner for possible discipline under Circular
230, an independent determination as to whether the practitioner
engaged in willful, reckless, or grossly incompetent conduct subject to
discipline under Sec. 10.34(a) will be made before any disciplinary
proceedings are instituted or any sanctions are imposed. Thus, a
practitioner liable for a penalty under section 6694 is not
automatically subject to discipline under Sec. 10.34(a) of these
regulations.
Several commentators recommended that the final regulations adopt
the reasonable basis standard as the appropriate return position
standard under Sec. 10.34(a) rather than the civil penalty standards
in section 6694(a) (the substantial authority and reasonable basis with
adequate disclosure standards). These commentators similarly requested
clarification providing that a practitioner is not subject to
discipline under Sec. 10.34(a) if the practitioner fails to adequately
disclose a position on a return or claim for refund for which there is
a reasonable basis. These comments are not adopted in final Sec.
10.34(a). Proposed Sec. 10.34(a)(1)(i)(A) and (a)(1)(ii)(A)
established reasonable basis as the minimum threshold standard for
practitioners because a practitioner acts unethically when the
practitioner advises a taxpayer to take a position on a return or claim
for refund that lacks a reasonable basis. The Treasury Department and
the IRS continue to believe that a practitioner also acts unethically
in violating the civil penalty standards under section 6694(a)
(including when there is a reasonable basis for a position on a return
or claim for refund but the practitioner does not adequately disclose
the position within the meaning of Sec. 1.6694-2(d)(3)) through
willful, reckless, or grossly incompetent conduct. Accordingly, final
Sec. 10.34(a)(1)(i) and (a)(1)(ii) provide three independent standards
of practitioner conduct and a practitioner who fails to satisfy any one
of these three standards is subject to discipline under Sec. 10.34(a).
Procedures To Ensure Compliance
Section 10.36(b) of these regulations provides that firm management
with principal authority and responsibility for overseeing a firm's
practice of preparing tax returns, claims for refunds and other
documents filed with the IRS must take reasonable steps to ensure that
the firm has adequate procedures in effect for purposes of complying
with Circular 230. The Treasury Department and the IRS continue to
believe that expansion of Sec. 10.36 to require firm procedures for
tax return preparation practice, in addition to the pre-existing
application to covered opinions, will help ensure compliance and
encourage firms to self-regulate. Firm responsibility is a critical
factor in ensuring high quality advice and representation for
taxpayers.
Authority To Accept a Practitioner's Consent To Sanction
Section 10.50 of the final regulations provides that the IRS has
the authority to accept a practitioner's offer of consent to be
sanctioned under Sec. 10.50 in lieu of instituting or continuing a
proceeding under Sec. 10.60(a). Section 10.61(b)(2)
[[Page 32293]]
currently provides that the IRS may accept or decline such an offer
from a practitioner. A provision similar to the provision added to
these regulations was removed during a previous revision of Circular
230. Due to the removal, some stakeholders have expressed concern over
whether the IRS has the authority to accept an offer of consent to
sanction. The provision added in the final regulations is merely
intended to clarify any ambiguity with respect to the authority of the
IRS to accept an offer of consent to sanction in lieu of instituting or
continuing a proceeding.
Incompetence and Disreputable Conduct
Section 10.51 of Circular 230 defines disreputable conduct for
which a practitioner may be sanctioned. Section 6011(e)(3) of the Code,
enacted by section 17 of the Worker, Homeownership, and Business
Assistance Act of 2009, Public Law 111-92 (123 Stat. 2984, 2996) (Nov.
6, 2009), requires certain specified tax return preparers to file
individual income tax returns electronically. Because the Treasury
Department and the IRS believe that the failure to comply with this
requirement is disreputable conduct, these regulations are amended to
add a new paragraph in Sec. 10.51 to address practitioners who fail to
comply with this requirement. Under Sec. 10.51(a)(16), disreputable
conduct includes willfully failing to file on magnetic or other
electronic media a tax return prepared by the practitioner when the
practitioner is required to do so by Federal tax laws (unless the
failure is due to reasonable cause and not due to willful neglect).
Some commentators stated that a failure to electronically file is only
a procedural failure and suggested that it could only constitute
disreputable conduct when coupled with an attempt to defraud the
government. Commentators also suggested that a failure to
electronically file should not constitute disreputable conduct because
there are many valid reasons why a practitioner would not choose to
electronically file tax returns.
The Treasury Department and the IRS, however, conclude that it is
appropriate to include as disreputable conduct a tax return preparer's
willful failure to electronically file tax returns subject to the
mandatory electronic filing requirement. The IRS cannot permit tax
return preparers to intentionally disregard the internal revenue laws
and continue to practice before the IRS. Section 6011(e)(3) only
applies to certain tax return preparers who file a specified number of
returns per year and these tax return preparers need to be aware of the
new electronic filing requirement. The Treasury Department and the IRS
have issued final regulations (TD 9518) published in the Federal
Register (76 FR 17521) on March 30, 2011, that provide exclusions from
the electronic filing requirement. The exclusions in the final
regulations include undue hardship waivers and administrative
exemptions. See Rev. Proc. 2011-25 for additional information on
hardship waivers and Notice 2011-16 for additional information on
administrative exemptions. Moreover, tax return preparers are only
subject to sanction under Sec. 10.51(a)(16) of the final regulations
for not electronically filing if such a failure is willful.
Accordingly, Sec. 10.51(a)(16) is sufficiently narrowly tailored to
only apply to these tax return preparers who willfully fail to comply
with the electronic filing requirement.
Under Sec. 10.51(a)(17) of the final regulations, disreputable
conduct also includes willfully preparing all or substantially all of,
or signing as a compensated tax return preparer, a tax return or claim
for refund when the practitioner does not possess a current or
otherwise valid PTIN or other prescribed identifying number. Section
10.51(a)(18) of these regulations states that it is disreputable
conduct for a practitioner to willfully represent a taxpayer before an
officer or employee of the IRS unless the practitioner is authorized to
do so pursuant to Circular 230. These changes are consistent with the
other revisions in these regulations and under section 6109.
Proceedings Against Appraisers
The regulations also contain amendments to Sec. 10.60(b) relating
to institution of proceedings against appraisers to better reflect the
modifications made by section 1219 of the Pension Protection Act of
2006, Public Law 109-280 (120 Stat. 780), and the enactment of the
section 6695A penalty. The IRS may reprimand or institute a proceeding
for disqualification against an appraiser assessed a penalty under
sections 6694, 6695A, or 6701, among any other relevant penalty
provisions, as long as it is determined that the appraiser acted
willfully, recklessly, or through gross incompetence with respect to
the proscribed conduct.
Appeal of Decision of Administrative Law Judge
These regulations amend Sec. 10.77 to provide additional,
clarifying information regarding the procedure for filing an appeal of
an Administrative Law Judge's decision with respect to a proceeding
under subpart D of Circular 230.
Records
Section 10.90 of these final regulations clarify that the roster
requirements also pertain to registered tax return preparers and
qualified continuing education programs.
Effective Date
These final regulations generally apply 60 days after the date the
regulations are published in the Federal Register.
Special Analyses
Executive Order 12866, as supplemented by Executive Order 13563,
provides that regulations must promote predictability and reduce
uncertainty, and in developing regulations, agencies must take into
account benefits and costs, both quantitative and qualitative.
Specifically, agencies are directed, to the extent permitted by law, to
propose or adopt regulations only upon a reasoned determination that
its benefits justify its costs (recognizing that some benefits and
costs are difficult to quantify); tailor its regulations to impose the
least burden on society, consistent with obtaining regulatory
objectives; and in choosing among alternative regulatory approaches,
select those approaches that maximize net benefits. This rule has been
designated a ``significant regulatory action'' under section 3(f) of
Executive Order 12866, inasmuch as it may adversely affect in a
material way the economy, a sector of the economy, productivity,
competition, or jobs. Accordingly, the rule has been reviewed by the
Office of Management and Budget. The Regulatory Assessment prepared for
this regulation is provided in this preamble under the heading
``Regulatory Assessment Under E.O. 12866, as Supplemented by E.O.
13563.''
It has been determined that a final regulatory flexibility analysis
is required for this final regulation under 5 U.S.C. 604. This analysis
is set forth later in this preamble under the heading ``Final
Regulatory Flexibility Analysis.''
Section 202 of the Unfunded Mandates Reform Act of 1995 (``Unfunded
Mandates Act''), Public Law 104-4 (March 22, 1995), requires that an
agency prepare a budgetary impact statement before promulgating a rule
that may result in expenditure by State, local, and Tribal governments,
in the aggregate, or by the private sector, of $100 million or more in
any one year. If a budgetary impact statement is required, section 205
of the Unfunded Mandates Act also requires an agency to
[[Page 32294]]
identify and consider a reasonable number of regulatory alternatives
before promulgating a rule. Please see the Regulatory Assessment for a
discussion of the budgetary impact of this final rule.
Pursuant to section 7805(f) of the Internal Revenue Code, the
notice of proposed rulemaking was submitted to Chief Counsel for
Advocacy of the Small Business Administration for comment on its impact
on small business and no comments were received.
A. Regulatory Assessment Under E.O. 12866, as Supplemented by E.O 13563
1. Statement of the Need for the Regulatory Action
Although the IRS has exercised its authority to regulate for
attorneys, certified public accountants, and other specified tax
professionals, regulations under Circular 230 currently do not apply to
a critical group of tax professionals: Tax return preparers. As
discussed in the Report, taxpayers' reliance on tax return preparers
has grown steadily in recent decades. The number of taxpayers who
prepared their own tax returns without assistance fell by more than
two-thirds between 1993 and 2005. In fact, today, tax return preparers
assist a majority of U.S. taxpayers in meeting their Federal tax filing
obligations. In 2008 and 2009, for example, paid tax return preparers,
including attorneys, certified public accountants, enrolled agents, and
unenrolled tax return preparers, prepared almost 60 percent of all
federal tax returns filed, including approximately 87 million Federal
individual income tax returns. The IRS expects these numbers to
increase in 2010 and the coming years.
Tax return preparers are not only responsible for assisting
taxpayers in filing complete, timely, and accurate returns, but also
help educate taxpayers about the tax laws, and facilitate electronic
filing. Tax return preparers provide advice to taxpayers, identify
items or issues for which the law or guidance is unclear, and inform
taxpayers of the benefits and risks of positions taken on a tax return,
and the tax treatment or reporting of items and transactions. The IRS
and the Treasury Department recognize that the majority of tax return
preparers serve the interests of their clients and the tax system by
preparing complete and accurate returns.
The tax system is best served by tax return preparers who are
ethical, provide good service, and are qualified. Recent government
studies, including studies from the Government Accountability Office
and the Treasury Inspector General for Tax Administration, see, for
example, Government Accountability Office, Paid Tax Return Preparers:
In a Limited Study, Chain Preparers Made Serious Errors, GAO-06-563T
(Apr. 4, 2006); Treasury Inspector General for Tax Administration, Most
Tax Returns Prepared by a Limited Sample of Unenrolled Preparers
Contained Significant Errors, Rept. 2008-40-171 (Sept. 3,
2008), illustrate the losses incurred by both taxpayers and the system
of Federal tax administration when tax return preparers fail to
properly prepare tax returns. Additionally, many of the more than 500
public comments received by the IRS during the agency's review of the
return preparer industry expressed concern for taxpayers, tax
administration and the return preparer industry, all of whom are hurt
when tax returns are not accurately prepared.
An overwhelming number of commentators (98 percent of the persons
who offered comments on oversight and enforcement) supported increased
government oversight of tax return preparers, particularly for
individuals who are not attorneys, certified public accountants or
others currently authorized to practice before the IRS. These
commentators argued that taxpayers, the IRS and tax administration
generally would benefit from the registration of tax return preparers.
Eighty-eight percent of the persons who expressed an opinion on
registering paid tax return preparers favor registration. Ninety
percent of the persons who commented on testing and education favor
minimum education or testing requirements for paid tax return
preparers. And 98 percent of the persons who commented on quality and
ethics favor establishment of quality and ethics standards for paid tax
return preparers.
Because the IRS has not adopted a uniform set of regulations for
tax return preparers, the amount of oversight of tax return
professionals varies greatly depending on professional affiliations and
the geographic area in which they practice. Most tax return preparers
do not have to pass any government or professionally mandated
competency requirement. Most tax return preparers are not required to
participate in a specified program of continuing professional
education. And the ethical rules found in Circular 230 currently are
not applicable to all tax return preparers.
As such, the IRS recognizes the need to apply a uniform set of
rules to offer taxpayers some assurance that their tax returns are
prepared completely and accurately. Increasing the completeness and
accuracy of returns would necessarily lead to increased compliance with
tax obligations by taxpayers.
2. Potentially Affected Tax Returns
These regulations generally extend pre-existing regulations that
apply to attorneys, certified public accountants and other specified
tax professionals to tax return preparers, including currently
unenrolled tax return preparers, who prepare all or substantially all
of a tax return or claim for refund for compensation. The rules
potentially apply to all returns prepared by tax return preparers
regardless of the taxpayer. For example, the rules apply to self-
employed tax return preparers who prepare individual tax returns for
persons who have only wage and interest income. The IRS is authorized
to extend the application of the rule to corporate and large
partnership returns, which are prepared predominately by tax return
preparers employed by large accounting firms. These examples are
nonexclusive and the application or potential application of these
rules is not limited to only those tax return preparers covered by the
examples.
The current expansion of these regulations to currently unenrolled
tax return preparers will impact individual taxpayers more than large
corporate taxpayers.
3. An Assessment of Benefits Anticipated From the Regulatory Action
The primary benefit anticipated from these regulations is that they
will improve the accuracy, completeness, and timeliness of tax returns
prepared by tax return preparers. As illustrated in the recent
government studies, including the IRS' recent review of the tax return
preparer industry, inaccurate tax returns are costly both to taxpayers
and the government. Inaccurate returns may affect the finances of
taxpayers, who might overpay their respective share of taxes or fail to
take advantage of available tax benefits. Inaccurate tax returns may
also affect the U.S. government because of overpayments, underpayments
and increased costs of enforcement and collection.
The regulations are expected to improve the accuracy, completeness,
and timeliness of tax returns in a number of ways. First, requiring
registered tax return preparers to demonstrate the necessary
qualifications to provide a valuable service by successfully completing
a government or professionally mandated competency examination and
continued competence
[[Page 32295]]
by completing the specified continuing education credits annually will
result in more competent and ethical tax return preparers who are well
educated in the rules and subject matter. A more competent and ethical
tax return preparer community will prevent costly errors, potentially
saving taxpayers from unwanted problems and relieving the IRS from
expending valuable examination and collection resources. Thus,
regulations are critical to assisting the IRS curtail the activities of
noncompliant and unethical tax return preparers.
Second, these regulations, in association with new and separate
regulations under section 6109 requiring all individuals who prepare
all or substantially all of a tax return for compensation to obtain a
PTIN, are expected to improve the accuracy, completeness and timeliness
of tax returns because they will help the IRS identify tax return
preparers and the tax returns and claims for refund that they prepare,
which will aid the IRS' oversight of tax return preparers, and to
administer requirements intended to ensure that tax return preparers
are competent, trained, and conform to rules of practice. Individuals
who prepare all or substantially all of a tax return or claim for
refund will be required to obtain a PTIN prescribed by the IRS and
furnish the PTIN when the tax return preparer signs (as the tax return
preparer) a tax return or claim for refund. Given the important role
that tax return preparers play in Federal tax administration, the IRS
has a significant interest in being able to accurately identify tax
return preparers and monitor the tax return preparation activities of
these individuals. These regulations, in conjunction with the final
PTIN regulations, will enable the IRS to more accurately identify tax
return preparers and improve the IRS' ability to associate filed tax
returns and refund claims with the responsible tax return preparer.
Third, the regulations are expected to improve the accuracy of tax
returns by providing that all registered tax return preparers are
practicing before the IRS and, therefore, are practitioners subject to
the ethical standards of conduct in Circular 230. This change will
authorize the IRS to inquire into possible misconduct and institute
disciplinary proceedings relating to registered tax return preparer
misconduct under the provisions of Circular 230. A registered tax
return preparer who is shown to be incompetent or disreputable, fails
to comply with the provisions in Circular 230, or with intent to
defraud, willfully and knowingly misleads or threatens a client or
prospective client, is subject to censure, suspension, or disbarment
from practice before the IRS, as well as a monetary penalty.
The availability of these sanctions will act as a deterrent to
registered tax return preparers engaging in misconduct because
disreputable or incompetent registered tax return preparers who are
suspended or disbarred from practice will no longer be able to prepare
tax returns, claims for refund, and other documents submitted to the
IRS. Competent and ethical tax return preparers who are well educated
in the rules and subject matter of their field can prevent costly
errors, potentially saving a taxpayer from unwanted problems later on
and relieving the IRS from expending valuable examination and
collection resources.
The IRS and the Treasury Department expect that the largest
marginal improvements in accuracy will be with regard to tax returns
prepared by tax return preparers who previously were unregulated
through the Circular 230 requirements. Unlike certified public
accountants, attorneys, and enrolled agents, unenrolled tax return
preparers generally are not subject to any form of testing, continuing
professional education, or uniform ethical standards. The tax returns
prepared by unenrolled tax return preparers may involve tax issues that
are less complicated and smaller in amount than issues in tax returns
prepared by other types of tax professionals. In addition, individual
taxpayers may face a variety of complex tax issues, for which the
advice of a qualified tax advisor will improve the accuracy on the
return.
4. An Assessment of Costs Anticipated From the Regulatory Action
There are various costs anticipated from this regulatory action.
------------------------------------------------------------------------
Cost category Preliminary cost estimate
------------------------------------------------------------------------
COMPETENCY EXAMINATION:
Costs to Registered Tax Return
Preparers:
Costs to registered tax The costs associated with
preparers: Costs associated with competency examinations for
taking a minimum competency registered tax preparers
examination (including costs of are currently unknown. The
examination, amount of time competency examination has
required to study for the exam, not been developed and an
and any associated travel). examination vendor has not
been selected. The cost of
the examination and amount
of time required to study
for it, therefore, are
unknown. The costs for any
associated travel will
depend on what locations
the test is offered in and
how close the applicant
lives to those locations.
While there is currently no
vendor for the examination,
it is expected that the
vendor will offer the test
in many locations across
the United States and
multiple locations outside
the United States.
Costs to Vendors:
Costs to vendors: User fee The vendor for the
costs IRS will charge to recover examination has not been
the costs to third-party vendors selected so these fees
who administer the registered tax cannot yet be determined.
return preparer competency
examination.
Costs to Government:
Costs to government: Costs These costs are currently
associated with creating, unknown. The costs to the
administrating, and reviewing government will depend, in
competency exams. part, on which functions
will be performed by a
vendor. Also, the vendor
may recover the vendor's
associated costs through a
separate fee charged by the
vendor.
------------------------------------------------------------------------
PTIN:
Costs to Registered Tax Return
Preparers and Certain Other
Individuals Eligible to
Receive a PTIN Under Notice
2011-6:
[[Page 32296]]
Costs to registered tax The fees registered tax
preparers: User fees for applying preparers and certain other
for a PTIN and renewing a PTIN. individuals under Notice
2011-6 will face for
applying for a PTIN and
renewing a PTIN is $64.25
annually. Given that there
are an estimated 800,000 to
1,200,000 individuals who
will apply for or renew a
PTIN annually, we estimate
that the aggregate annual
PTIN registration costs
will be from $51 million to
$77 million.
Costs to Vendors:
Costs to vendors: User fee The fee charged by the
assessed by third-party vendor to vendor is $14.25. The
administer the PTIN application $14.25 fee reflects costs
and renewal process. incurred by the vendor in
processing a PTIN
application or renewal.
Given that there are an
estimated 800,000 to
1,200,000 individuals who
will apply for or renew a
PTIN annually, we estimate
that the aggregate annual
PTIN registration costs
will be from $11 million to
$17 million.
Costs to Government:
Costs to government: The $50 annual fee is
Administration of PTIN expected to recover the
registration program. $59,427,633 annual costs
the government will face in
its administration of the
PTIN registration program.
This fee includes: (1) The
costs the government faces
in administering
registration cards or
certificates for each
registered tax preparer,
(2) costs associated with
prescribing by forms,
instructions, or other
guidance which forms and
schedules registered tax
preparers can sign for, and
(3) tax compliance and
suitability checks
conducted by the
government.
------------------------------------------------------------------------
RECORDKEEPING:
Costs to Continuing Education
Providers:
Costs to continuing $38,632,500 annual costs.
education providers: Recordkeeping
requirements on continuing
education providers to maintain
records and educational material
concerning these programs and the
individuals who attend them.
Costs to Registered Tax Return
Preparers:
Costs to registered tax $9,880,000 annual costs.
preparers: Recordkeeping
requirements on registered tax
preparers to maintain records and
educational materials regarding
the completion of the required
qualifying continuing education
credits.
------------------------------------------------------------------------
CONTINUING EDUCATION:
Costs to Registered Tax Return
Preparers:
Costs to registered tax We do not have a cost
preparers: Completing continuing estimate available for
education coursework requirement. continuing education costs
borne by the tax preparers.
The cost of continuing
education courses generally
range from $20 to $300 per
course.
Costs to Continuing Education
Providers:
Costs to continuing Continuing education
education providers: Obtaining providers are not currently
required numbers from the IRS. charged a fee for obtaining
a provider number or
program number.
------------------------------------------------------------------------
FINGERPRINTING:
Costs to Registered Tax Return
Preparers and Certain Other
Individuals Eligible to
Receive a PTIN Under Notice
2011-6:
Costs to registered tax The fees that will be
return preparers: Fingerprinting imposed on registered tax
return preparers and
certain other individuals
eligible to receive a PTIN
under Notice 2011-6 for
fingerprinting are not
available because the
vendor processing the
fingerprinting check has
not been selected.
------------------------------------------------------------------------
Tax return preparers will incur costs associated with taking a
minimum competency examination, including the cost of the examination,
the amount of time required to study for the examination, and any
associated travel depending on the proximity of tax return preparer to
the test site location. Although it is anticipated that the vendor will
offer the test at multiple locations in the United States and outside
the United States, the vendor and the test locations have not been
selected at this time. Future regulations will be proposed that address
the costs to the government for creating, administering, and reviewing
the examination and the user fee the IRS will charge to recover these
costs. The third-party vendor who helps administer the registered tax
return preparer competency examination also will charge a reasonable
fee to take the registered tax return preparer examination and a
reasonable fee to be fingerprinted.
Additionally, preparers are subject to user fees for applying for a
PTIN and renewing the PTIN. Final regulations establish a $50 fee to
apply for a PTIN. A third party vendor administers the PTIN application
and renewal process and charges a $14.25 fee that is independent of the
user fee charged by the government.
The PTIN user fee recovers the full cost to the government to
administer the PTIN application and renewal program. The administration
of the PTIN application and renewal program requires the use of IRS
services, goods, and resources. For the PTIN application and renewal
program to be self-sustaining, the IRS must charge a user fee to
recover the costs of providing the special benefits associated with
PTIN. A PTIN confers a special benefit because without a PTIN, a tax
return preparer could not receive compensation for preparing all or
substantially all of a
[[Page 32297]]
Federal tax return or claim for refund. This analysis is consistent
with the current practice of charging a user fee on individuals seeking
to become enrolled agents. Being an enrolled agent confers special
benefits; and, therefore, the IRS currently charges a user fee on
applicants seeking those special benefits.
Tax return preparers will incur recordkeeping and other costs
associated with taking continuing education classes and any associated
travel. Section 10.6 of these final regulations requires a registered
tax return preparer to maintain records and educational materials
regarding the completion of the required qualifying continuing
education credits. The IRS and the Treasury Department estimate that
there are 650,000 practitioners who will be affected by these
recordkeeping requirements and the estimated annual burden per
practitioner will vary from 30 minutes to one hour, depending on
individual circumstances, with an estimated average of 54 minutes. The
total annual costs resulting from these recordkeeping requirements will
be $9,880,000 for all affected practitioners.
Continuing education providers will be subject to recordkeeping
costs. Section 10.9 of these final regulations requires providers of
qualifying continuing education programs to maintain records and
educational material concerning these programs and the individuals who
attend them. Approximately 500 continuing education providers are
currently approved to provide continuing education programs for the
approximately 50,000 enrolled agents, enrolled actuaries and enrolled
retirement plan agents who must complete continuing education
currently, but the IRS and the Treasury Department estimate that there
are 2,250 continuing education providers who will be affected by these
recordkeeping requirements and the estimated annual burden per
continuing education provider will vary from 5 hours to 5,000 hours,
depending on individual circumstances, with an estimated average of 500
hours. The estimated total annual costs resulting from these
requirements will be $38,632,500 for all affected continuing education
providers.
Currently, the cost to the tax return preparer of any particular
continuing education course can vary greatly from free to hundreds of
dollars. Many tax return preparation firms either provide continuing
education courses at the firm to their employees for no charge or
sponsor the cost of external courses for their employees. Other tax
return preparers, however, will have to personally pay the cost of each
continuing education course, which generally ranges anywhere from $20
to $300 per course depending on whether the continuing education
provider offers the course in person, online, or over the phone. Tax
return preparers also may incur additional costs if they travel to
attend continuing education programs. These costs may include the time
to travel to the program, transportation, lodging and incidentals.
Entities may be directly affected by the competency examination,
PTIN and continuing education costs if they choose to pay any or all of
the user fees or expenses for their employees. Some individuals and
entities also may lose sales and profits while preparers are studying
and sitting for the examination or taking the continuing education
courses. Finally, individual tax return preparers and entities that
employ individuals who prepare tax returns may need to close or change
their business model if all, or a majority, of their employees cannot
satisfy the necessary qualifications and competency requirements. The
IRS and the Treasury Department believe that only a small percentage of
tax return preparers will need to close or change their business model
based upon these rules.
5. An Assessment of Costs and Benefits of Potential Alternatives
The IRS and the Treasury Department considered various alternatives
in determining the best ways to implement proposed changes to the
regulation of tax return preparers. In order to place the costs and
benefits of the final rule in context, E.O. 12866 requires a comparison
between the final rule, a baseline of what the world would look like
without the final rule, and reasonable alternatives to the proposed
rule.
i. Baseline Scenario
Under a baseline scenario, the current ethical standards in
Circular 230 would continue to apply only to attorneys, certified
public accountants, enrolled agents, and other practitioners who
prepare tax returns and claims for refund, but not to unenrolled tax
return preparers. Also, any unenrolled tax return preparer under this
baseline scenario would be able to prepare and sign tax returns and
claims for refund without passing an examination to establish
competence or satisfying continuing education requirements.
Remaining under the current rules regarding tax return preparers
would eliminate the benefits of the rule described in section A3 of
this preamble. For example, under the baseline, OPR would not be
authorized to institute disciplinary proceedings seeking sanctions
against unenrolled tax return preparers.
Continuing to authorize any individual to prepare tax returns and
claims for refund for compensation without passing an examination or
taking continuing education courses also would eliminate any costs
associated with the rule described in section A4 of this preamble. Tax
return preparers, however, would still potentially be subject to user
fees for obtaining a PTIN and renewing the PTIN if other Treasury
Department and IRS regulations specifically prescribed those fees.
ii. Alternative One
The first alternative that was considered is to require all tax
return preparers to comply with the ethical standards in Circular 230,
but not to require any tax return preparer to pass an examination and
complete continuing education courses. Under this alternative, the
provisions of the rule clarifying that tax return preparers are subject
to the ethical rules in Circular 230 would remain intact, but all of
the other changes would not be adopted.
The benefits resulting from this alternative would likely be less
than the benefits resulting from these regulations because tax return
preparers would not need to meet a minimum competency level and keep
educated and up-to-date on Federal tax issues. The most significant
drawback to this alternative is the potential loss of these benefits
and the benefits that result from monitoring the return preparation
activities of tax return preparers generally. Under this alternative,
however, tax return preparers would not incur the majority of costs
that exist under the regulations.
iii. Alternative Two
A second alternative is to require tax return preparers who are not
currently authorized to practice before the IRS to apply for such
authorization with the IRS, satisfy annual continuing education
requirements, and meet certain ethical standards, but not to pass a
minimum competency examination. This alternative is identical to the
regulations other than requiring certain preparers to successfully pass
an examination administered by, or under the oversight of, the IRS.
The benefits resulting from this alternative are more comparable to
the benefits in the regulations than under alternative one.
Nevertheless, the lack of an examination would not be as
[[Page 32298]]
effective in ensuring that tax return preparers are qualified to obtain
professional credentials and practice before the IRS. Tax return
preparers under this alternative would incur all of the same costs that
are in the regulations other than the costs associated with taking the
examination.
iv. Alternative Three
A third alternative is to ``grandfather in'' unenrolled tax return
preparers who have accurately and competently prepared tax returns for
a certain amount of years. This alternative is the same as the rules in
the regulations other than authorizing some unenrolled return preparers
who have a specified amount of prior experience preparing tax returns
and claims for refund to continue to prepare and sign returns without
passing a minimum competency examination.
The benefits resulting from this alternative would likely be less
than the benefits resulting from these regulations because the IRS and
the Treasury Department believe a minimum level of competency needs to
be assured through examination. Additionally, this alternative is not
as likely to promote the same taxpayer confidence in the tax return
preparation community as the regulations, which may, in turn, influence
taxpayers when choosing a tax return preparer. Tax return preparers
under this alternative would incur all of the same costs that are in
the regulations except certain unenrolled preparers would avoid the
costs associated with taking the examination.
v. Alternative Four
A fourth alternative is to require all tax return preparers,
regardless of whether the tax return preparer is supervised, to
complete the competency examination and continuing education
requirements. This alternative is identical to the proposed
regulations, which proposed requiring all unenrolled tax return
preparers to meet the examination and education requirements.
Numerous commentators suggested that the costs of requiring testing
and continuing education for tax return preparers who are supervised by
attorneys, certified public accountants and enrolled agents outweighed
the attendant benefits. After fully considering these comments, the IRS
decided that the best alternative was not requiring testing and
continuing education for tax return preparers who are employed by law
firms, certified public accounting firms and certain other recognized
firms and are supervised by attorneys, certified public accountants,
enrolled agents, enrolled retirement plan agents and enrolled actuaries
who sign the returns that these individuals prepare.
B. Final Regulatory Flexibility Analysis
When an agency promulgates a final regulation that follows a
required notice of proposed rulemaking, the Regulatory Flexibility Act
(5 U.S.C. chapter 6) (RFA) requires the agency ``to prepare a final
regulatory flexibility analysis.'' A final regulatory flexibility
analysis must, pursuant to 5 U.S.C. 604(a), contain the five elements
listed in this final regulatory flexibility analysis. Section 605 of
the RFA provides an exception to this requirement if the agency
certifies that the rulemaking will not have a significant economic
impact on a substantial number of small entities. A small entity is
defined as a small business, small nonprofit organization, or small
governmental jurisdiction. See 5 U.S.C. 601(3) through (6). The IRS and
the Treasury Department conclude that the final regulations will impact
a substantial number of small entities and the economic impact will be
significant. As a result, a regulatory flexibility analysis is
required.
1. Statement of the Need for and Objectives of The Proposed Rule
Tax return preparers are critical to ensuring compliance with the
Federal tax laws and are an important component in the IRS'
administration of those laws. More than eighty percent of U.S.
taxpayers use a tax return preparer or consumer tax return preparation
software to help prepare and file tax returns. Most tax return
preparers are currently not subject to the ethical rules governing
practice before the IRS and do not have to pass any competency
requirement established by the government or a professional
organization. After completing a comprehensive six-month review of tax
return preparers, which included receiving input through public forums,
solicitation of written comments, and meetings with advisory groups,
the IRS concluded that there is a need for increased oversight of the
tax return preparer industry.
The principal objective of the regulations is to increase oversight
of tax return preparers and to provide guidance to tax return preparers
about the new requirements imposed on them under Circular 230. These
regulations implement higher standards for the tax return preparer
community with the goal of significantly enhancing protections and
service for taxpayers, increasing confidence in the tax system, and
resulting in greater long-term compliance with the tax laws.
Specifically, the regulations clarify that a registered tax return
preparer is a practitioner practicing before the IRS and thereby is
subject to the ethical rules in Circular 230. The regulations require a
registered tax return preparer to demonstrate the necessary
qualifications and competency to advise and assist other persons in the
preparation of all or substantially all of a tax return or claim for
refund.
2. Summaries of the Significant Issues Raised in the Public Comments
Responding to the Initial Regulatory Flexibility Analysis and of the
Agency's Assessment of the Issues, and a Statement of Any Changes to
the Rule as a Result of the Comments
The IRS did not receive specific comments from the public
responding to the initial regulatory flexibility analysis in these
final regulations. The IRS did receive comments from the public on the
proposed amendments to 31 CFR part 10. A summary of the comments is set
forth elsewhere in this preamble, along with the Treasury Department's
and the IRS' assessment of the issues raised in the comments and
descriptions of any revisions resulting from the comments.
3. Description and Estimate of the Number of Small Entities Subject to
the Rule
The regulations affect individuals currently working as paid tax
return preparers, individuals who want to become designated as a
registered tax return preparer under the new oversight rules in
Circular 230, and those small entities that are owned by or employ paid
preparers. Only individuals, not businesses, can practice before the
IRS or become a registered tax return preparer. Thus, the economic
impact of these regulations on any small entity generally will be a
result of an unenrolled individual owning a small business or on a
small business that otherwise employs unenrolled paid return preparers.
The appropriate North American Industry Classification System
(NAICS) codes for tax return preparers relate to tax preparation
services (NAICS code 541213) and other accounting services (NAICS code
541219). Entities identified under these codes are considered small
under the Small Business Administration size standards (13 CFR 121.201)
if their annual revenue is less than $7 million or $8.5 million,
respectively. The IRS estimates that approximately seventy to eighty
percent of the individuals subject to these
[[Page 32299]]
regulations are paid preparers operating as or employed by small
entities.
4. Description of the Projected Reporting, Recordkeeping and Related
Requirements of the Rule, Including an Estimate of the Classes of Small
Entities That Will Be Subject to the Requirements and the Type of
Professional Skills Necessary for Preparation of the Report or Record
The IRS estimates that there are approximately 600,000 to 700,000
unenrolled tax return preparers who are currently not attorneys,
certified public accountants, or enrolled agents and who will seek
status as a registered tax return preparer. Under the regulations, tax
return preparers who become registered tax return preparers are subject
to a recordkeeping requirement within the meaning of the Paperwork
Reduction Act because they are required to maintain records and
educational materials regarding their satisfaction of the qualifying
continuing education requirements. These recordkeeping requirements do
not require any specific professional skills other than general
recordkeeping skills already needed to own and operate a small business
or to competently act as a tax return preparer. It is estimated that
practitioners will annually spend approximately 30 minutes to one hour
in maintaining the required records, depending on individual
circumstances.
The estimated 2,250 providers of qualifying continuing education
programs will be required to maintain records and educational material
concerning these programs and the persons who attended them. These
continuing education providers will annually spend approximately five
minutes per attendee per program maintaining the required records.
As previously discussed in section A4 of this preamble, the rule
contains a number of other compliance requirements not subject to the
Paperwork Reduction Act. These include the costs tax return preparers
incur to take a competency examination, costs for continuing education
classes, and other incidental costs and user fees. Small entities may
be directly affected by these costs if they choose to pay any or all of
these fees for their employees. In some cases, small entities may lose
sales and profits while their employees prepare for and take the
examination or participate in continuing education courses. Finally,
some small entities that employ individuals who prepare tax returns may
need to alter their business model if a significant number of their
employees cannot satisfy the necessary qualifications and competency
requirements. The IRS and the Treasury Department believe that only a
small percentage of small entities, if any, may need to cease doing
business or radically change their business model due to these rules.
5. A Description of the Steps the Agency Has Taken To Minimize the
Significant Economic Impact on Small Entities Consistent With the
Stated Objectives of Applicable Statutes, Including a Statement of the
Factual, Policy, and Legal Reasons for Selecting Any Alternative
Adopted in the Final Rule and Why Other Significant Alternatives
Affecting the Impact on Small Entities That the Agency Considered Were
Rejected
The Treasury Department and the IRS have considered alternatives to
the final regulations at multiple points. These final regulations are,
in large measure, an outgrowth of, and in part carry out, the Report,
which extensively reviewed different approaches to improving how the
IRS oversees and interacts with tax return preparers. As part of the
Report, the IRS received a large volume of comments on the oversight
and enforcement of tax return preparers from all interested parties,
including tax professional groups representing large and small
entities, Federal and state organizations, IRS advisory groups,
software vendors, individual return preparers, and the public. The
input received from this large and diverse community overwhelmingly
expressed support for the requirements proposed in the Report.
In concert with this tremendous public support for increased IRS
oversight of tax return preparers, the IRS and the Treasury Department
considered various alternatives in determining the best ways to
implement proposed changes to the regulation of paid preparers. These
alternatives included:
(1) Requiring all tax return preparers to comply with the ethical
standards in Circular 230 or a code of ethics similar to Circular 230,
but not requiring any tax return preparers to demonstrate their
qualifications and competency;
(2) Requiring tax return preparers who are not currently authorized
to practice before the IRS to apply for authorization with the IRS,
satisfy annual continuing education requirements, and meet certain
ethical standards, but not to pass a minimum competency examination;
(3) Requiring all tax return preparers who are not currently
authorized to practice before the IRS to pass a minimum competency
examination and meet other requirements, but ``grandfather in'' tax
return preparers who have accurately and competently prepared tax
returns for a certain number of years; and
(4) Requiring all unenrolled tax return preparers to complete
testing and continuing education requirements.
The proposed regulations proposed that all unenrolled tax return
preparers must complete testing and continuing education requirements.
Many commentators on the proposed regulations expressed support for
efforts to increase the oversight of tax return preparers, particularly
for those who are not attorneys, certified public accountants, or other
individuals previously authorized to practice before the IRS. As
discussed in this preamble, many commentators requested, however, that
the IRS exempt individuals who prepare tax returns under the
supervision of Circular 230 practitioners from the requirements of
these regulations. These commentators were concerned that unnecessary
time and cost would be incurred with respect to the testing and
continuing education requirements for individuals who do not sign tax
returns but prepare them under the supervision of a practitioner
ultimately responsible for the tax return. In response to these
comments, the IRS published Notice 2011-6, generally allowing
individuals to obtain PTINs if the individuals are employed by law
firms, certified public accounting firms and certain other recognized
firms and who are supervised by attorneys, certified public
accountants, enrolled agents, enrolled retirement plan agents and
enrolled actuaries who sign the returns that these individuals prepare.
This step taken by the IRS will minimize the economic impact of these
regulations on many small entities in which attorneys, certified public
accountants, enrolled agents, enrolled retirement plan agents, or
enrolled actuaries supervise and sign tax returns prepared individuals
who are not attorneys, certified public accountants, or enrolled
agents.
The IRS also received comments objecting to the rule in the
proposed regulations requiring continuing education providers to obtain
continuing education program approval from the IRS for each continuing
education program offered. In response to these comments the IRS, the
IRS eliminated such a requirement. This step taken by the IRS will
minimize the economic impact of these regulations on some small
entities that offer continuing education programs. These regulations do
require continuing education providers to obtain a continuing education
provider number and a continuing education provider program
[[Page 32300]]
number. Although the IRS is not currently proposing charging providers
a fee to obtain a continuing education provider number or a continuing
education provider program number, these regulations provide that the
payment of any applicable user fee established in future regulations is
required to obtain either number.
The Treasury Department and the IRS are not aware of any additional
steps that the IRS could take to minimize the economic impact on small
entities that would be consistent with the objectives of these final
regulations. These regulations do not impose any more requirements on
small entities than are necessary to effectively administer the
internal revenue laws. Further, the regulations do not subject small
entities to requirements that are not also applicable to larger
entities covered by the regulations. After considering the alternatives
and the input provided through the public comment process, the IRS and
the Treasury Department concluded that the provisions of the final
regulations are necessary for sound tax administration and are the best
way to increase oversight of all paid preparers. The testing
requirements in the rules will ensure that tax return preparers pass a
minimum competency examination to obtain their professional
credentials, while the continuing education requirements will help
ensure that tax return preparers remain current on Federal tax law and
continue to expand their tax knowledge. The extension of the rules in
Circular 230 to registered tax return preparers will require all
practitioners to meet certain ethical standards and allow the IRS to
suspend or otherwise discipline tax return preparers who engage in
unethical or disreputable conduct. Accordingly, the implementation of
the qualification and competency standards in these rules is expected
to increase taxpayer compliance, ensure uniformity, and allow taxpayers
to be confident that the tax return preparers to whom they turn for
assistance are knowledgeable, skilled and ethical.
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 to read as follows:
PART 10--PRACTICE BEFORE THE INTERNAL REVENUE SERVICE
0
Paragraph 1. The authority citation for 31 CFR part 10 is revised 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 10.0 is revised to read as follows:
Sec. 10.0 Scope of part.
(a) This part contains rules governing the recognition of
attorneys, certified public accountants, enrolled agents, enrolled
retirement plan agents, registered tax return preparers, 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 relating to the availability of official records.
(b) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 3. Section 10.1 is revised to read as follows:
Sec. 10.1 Offices.
(a) Establishment of office(s). The Commissioner shall establish
the Office of Professional Responsibility and any other office(s)
within the Internal Revenue Service necessary to administer and enforce
this part. The Commissioner shall appoint the Director of the Office of
Professional Responsibility and any other Internal Revenue official(s)
to manage and direct any office(s) established to administer or enforce
this part. Offices established under this part include, but are not
limited to:
(1) The Office of Professional Responsibility, which shall
generally have responsibility for matters related to practitioner
conduct and discipline, including disciplinary proceedings and
sanctions; and
(2) An office with responsibility for matters related to authority
to practice before the Internal Revenue Service, including acting on
applications for enrollment to practice before the Internal Revenue
Service and administering competency testing and continuing education.
(b) Officers and employees within any office established under this
part may perform acts necessary or appropriate to carry out the
responsibilities of their office(s) under this part or as otherwise
prescribed by the Commissioner.
(c) Acting. The Commissioner will designate an officer or employee
of the Internal Revenue Service to perform the duties of an individual
appointed under paragraph (a) of this section in the absence of that
officer or employee or during a vacancy in that office.
(d) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 4. Section 10.2 is amended by revising paragraphs (a)(4) and
(a)(5), adding paragraph (a)(8), and revising paragraph (b) to read as
follows:
Sec. 10.2 Definitions.
(a) * * *
(4) 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 documents; filing documents; corresponding and
communicating with the Internal Revenue Service; rendering written
advice with respect to any entity, transaction, plan or arrangement, or
other plan or arrangement having a potential for tax avoidance or
evasion; and representing a client at conferences, hearings, and
meetings.
(5) Practitioner means any individual described in paragraphs (a),
(b), (c), (d), (e), or (f) of Sec. 10.3.
* * * * *
(8) Tax return preparer means any individual within the meaning of
section 7701(a)(36) and 26 CFR 301.7701-15.
(b) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 5. Section 10.3 is amended by:
0
1. Revising paragraphs (d)(3) and (e)(3);
0
2. Redesignating paragraphs (f), (g), (h), and (i) as paragraphs (g),
(h), (i), and (j) respectively;
0
3. Adding new paragraph (f); and
0
4. Revising newly designated paragraph (j).
[[Page 32301]]
The revisions and additions read as follows:
Sec. 10.3 Who may practice.
* * * * *
(d) * * *
(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, enrolled agents, enrolled retirement plan agents,
and registered tax return preparers.
(e) * * *
(3) An individual who practices before the Internal Revenue Service
pursuant to paragraph (e)(1) of this section is subject to the
provisions of this part in the same manner as attorneys, certified
public accountants, enrolled agents, enrolled actuaries, and registered
tax return preparers.
(f) Registered tax return preparers. (1) Any individual who is
designated as a registered tax return preparer pursuant to Sec.
10.4(c) of this part who is not currently under suspension or
disbarment from practice before the Internal Revenue Service may
practice before the Internal Revenue Service.
(2) Practice as a registered tax return preparer is limited to
preparing and signing tax returns and claims for refund, and other
documents for submission to the Internal Revenue Service. A registered
tax return preparer may prepare all or substantially all of a tax
return or claim for refund of tax. The Internal Revenue Service will
prescribe by forms, instructions, or other appropriate guidance the tax
returns and claims for refund that a registered tax return preparer may
prepare and sign.
(3) A registered tax return preparer may represent taxpayers before
revenue agents, customer service representatives, or similar officers
and employees of the Internal Revenue Service (including the Taxpayer
Advocate Service) during an examination if the registered tax return
preparer signed the tax return or claim for refund for the taxable year
or period under examination. 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 Treasury
Department. A registered tax return preparer's authorization to
practice under this part also does not include the authority to provide
tax advice to a client or another person except as necessary to prepare
a tax return, claim for refund, or other document intended to be
submitted to the Internal Revenue Service.
(4) An individual who practices before the Internal Revenue Service
pursuant to paragraph (f)(1) of this section is subject to the
provisions of this part in the same manner as attorneys, certified
public accountants, enrolled agents, enrolled retirement plan agents,
and enrolled actuaries.
* * * * *
(j) Effective/applicability date. This section is generally
applicable beginning August 2, 2011.
0
Par. 6. Section 10.4 is revised to read as follows:
Sec. 10.4 Eligibility to become an enrolled agent, enrolled
retirement plan agent, or registered tax return preparer.
(a) Enrollment as an enrolled agent upon examination. The
Commissioner, or delegate, will grant enrollment as an enrolled agent
to an applicant eighteen years of age or older who demonstrates special
competence in tax matters by written examination administered by, or
administered under the oversight of, the Internal Revenue Service, who
possesses a current or otherwise valid preparer tax identification
number or other prescribed identifying number, and who has not engaged
in any conduct that would justify the suspension or disbarment of any
practitioner under the provisions of this part.
(b) Enrollment as a retirement plan agent upon examination. The
Commissioner, or delegate, will grant enrollment as an enrolled
retirement plan agent to an applicant eighteen years of age or older
who demonstrates special competence in qualified retirement plan
matters by written examination administered by, or administered under
the oversight of, the Internal Revenue Service, who possesses a current
or otherwise valid preparer tax identification number or other
prescribed identifying number, and who has not engaged in any conduct
that would justify the suspension or disbarment of any practitioner
under the provisions of this part.
(c) Designation as a registered tax return preparer. The
Commissioner, or delegate, may designate an individual eighteen years
of age or older as a registered tax return preparer provided an
applicant demonstrates competence in Federal tax return preparation
matters by written examination administered by, or administered under
the oversight of, the Internal Revenue Service, or otherwise meets the
requisite standards prescribed by the Internal Revenue Service,
possesses a current or otherwise valid preparer tax identification
number or other prescribed identifying number, and has not engaged in
any conduct that would justify the suspension or disbarment of any
practitioner under the provisions of this part.
(d) Enrollment of former Internal Revenue Service employees. The
Commissioner, or delegate, may grant enrollment as an enrolled agent or
enrolled retirement plan agent to an applicant who, by virtue of 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 suspension or disbarment of any practitioner
under the provisions of this part, under the following circumstances:
(1) The former employee applies for enrollment on an Internal
Revenue Service form 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) The appropriate office of the Internal Revenue Service provides
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 as an enrolled agent 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 specialty or only before the particular unit or division of
the Internal Revenue Service for which the applicant's former
employment has qualified the applicant. Enrollment as an enrolled
retirement plan agent based on an applicant's former employment with
the Internal Revenue Service will be limited to permit the presentation
of matters only with respect to qualified retirement plan matters.
(4) Application for enrollment as an enrolled agent or enrolled
retirement plan agent based on an applicant's former employment with
the Internal Revenue Service must be made within three years from the
date of separation from such employment.
(5) An applicant for enrollment as an enrolled agent who is
requesting such enrollment based on former employment with the Internal
Revenue Service must have had a minimum of five years continuous
employment with the Internal Revenue Service during which the applicant
must have been
[[Page 32302]]
regularly engaged in applying and interpreting the provisions of the
Internal Revenue Code and the regulations relating to income, estate,
gift, employment, or excise taxes.
(6) An applicant for enrollment as an enrolled retirement plan
agent who is requesting such enrollment based on former employment with
the Internal Revenue Service must have had a minimum of five years
continuous employment with the Internal Revenue Service during which
the applicant must have been regularly engaged in applying and
interpreting the provisions of the Internal Revenue Code and the
regulations relating to qualified retirement plan matters.
(7) For the purposes of paragraphs (d)(5) and (6) 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 three of which occurred within the five years
preceding the date of application, is the equivalent of five years
continuous employment.
(e) Natural persons. Enrollment or authorization to practice may be
granted only to natural persons.
(f) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 7. Section 10.5 is revised to read as follows:
Sec. 10.5 Application to become an enrolled agent, enrolled
retirement plan agent, or registered tax return preparer.
(a) Form; address. An applicant to become an enrolled agent,
enrolled retirement plan agent, or registered tax return preparer must
apply as required by forms or procedures established and published by
the Internal Revenue Service, including proper execution of required
forms under oath or affirmation. The address on the application will be
the address under which a successful applicant is enrolled or
registered and is the address to which all correspondence concerning
enrollment or registration will be sent.
(b) Fee. A reasonable nonrefundable fee may be charged for each
application to become an enrolled agent, enrolled retirement plan
agent, or registered tax return preparer. See 26 CFR part 300.
(c) Additional information; examination. The Internal Revenue
Service may require the applicant, as a condition to consideration of
an application, to file additional information and to submit to any
written or oral examination under oath or otherwise. Upon the
applicant's written request, the Internal Revenue Service will afford
the applicant the opportunity to be heard with respect to the
application.
(d) Compliance and suitability checks. (1) As a condition to
consideration of an application, the Internal Revenue Service may
conduct a Federal tax compliance check and suitability check. The tax
compliance check will be limited to an inquiry regarding whether an
applicant has filed all required individual or business tax returns and
whether the applicant has failed to pay, or make proper arrangements
with the Internal Revenue Service for payment of, any Federal tax
debts. The suitability check will be limited to an inquiry regarding
whether an applicant has engaged in any conduct that would justify
suspension or disbarment of any practitioner under the provisions of
this part on the date the application is submitted, including whether
the applicant has engaged in disreputable conduct as defined in Sec.
10.51. The application will be denied only if the results of the
compliance or suitability check are sufficient to establish that the
practitioner engaged in conduct subject to sanctions under Sec. Sec.
10.51 and 10.52.
(2) If the applicant does not pass the tax compliance or
suitability check, the applicant will not be issued an enrollment or
registration card or certificate pursuant to Sec. 10.6(b) of this
part. An applicant who is initially denied enrollment or registration
for failure to pass a tax compliance check may reapply after the
initial denial if the applicant becomes current with respect to the
applicant's tax liabilities.
(e) Temporary recognition. On receipt of a properly executed
application, the Commissioner, or delegate, may grant the applicant
temporary recognition to practice pending a determination as to whether
status as an enrolled agent, enrolled retirement plan agent, or
registered tax return preparer 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 granting the application to practice, or the
Commissioner, or delegate, has information indicating that the
statements in the application are untrue or that the applicant would
not otherwise qualify to become an enrolled agent, enrolled retirement
plan agent, or registered tax return preparer. Issuance of temporary
recognition does not constitute either a designation or a finding of
eligibility as an enrolled agent, enrolled retirement plan agent, or
registered tax return preparer, and the temporary recognition may be
withdrawn at any time.
(f) Protest of application denial. The applicant will be informed
in writing as to the reason(s) for any denial of an application. The
applicant may, within 30 days after receipt of the notice of denial of
the application, file a written protest of the denial as prescribed by
the Internal Revenue Service in forms, guidance, or other appropriate
guidance. A protest under this section is not governed by subpart D of
this part.
(g) Effective/applicability date. This section is applicable to
applications received August 2, 2011.
0
Par. 8. Section 10.6 is revised to read as follows:
Sec. 10.6 Term and renewal of status as an enrolled agent, enrolled
retirement plan agent, or registered tax return preparer.
(a) Term. Each individual authorized to practice before the
Internal Revenue Service as an enrolled agent, enrolled retirement plan
agent, or registered tax return preparer will be accorded active
enrollment or registration status subject to renewal of enrollment or
registration as provided in this part.
(b) Enrollment or registration card or certificate. The Internal
Revenue Service will issue an enrollment or registration card or
certificate to each individual whose application to practice before the
Internal Revenue Service is approved. Each card or certificate will be
valid for the period stated on the card or certificate. An enrolled
agent, enrolled retirement plan agent, or registered tax return
preparer may not practice before the Internal Revenue Service if the
card or certificate is not current or otherwise valid. The card or
certificate is in addition to any notification that may be provided to
each individual who obtains a preparer tax identification number.
(c) Change of address. An enrolled agent, enrolled retirement plan
agent, or registered tax return preparer must send notification of any
change of address to the address specified by the Internal Revenue
Service within 60 days of the change of address. This notification must
include the enrolled agent's, enrolled retirement plan agent's, or
registered tax return preparer's name, prior address, new address, tax
identification number(s) (including preparer tax identification
number), and the date the change of address is effective. Unless this
notification is sent, the address for purposes of any correspondence
from the appropriate Internal Revenue Service office responsible for
administering this part shall be the address reflected on the
practitioner's most recent application
[[Page 32303]]
for enrollment or registration, or application for renewal of
enrollment or registration. A practitioner's change of address
notification under this part will not constitute a change of the
practitioner's last known address for purposes of section 6212 of the
Internal Revenue Code and regulations thereunder.
(d) Renewal--(1) In general. Enrolled agents, enrolled retirement
plan agents, and registered tax return preparers must renew their
status with the Internal Revenue Service to maintain eligibility to
practice before the Internal Revenue Service. Failure to receive
notification from the Internal Revenue Service of the renewal
requirement will not be justification for the individual's failure to
satisfy this requirement.
(2) Renewal period for enrolled agents. (i) All enrolled agents
must renew their preparer tax identification number as prescribed by
forms, instructions, or other appropriate guidance.
(ii) Enrolled agents 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.
(iii) Enrolled agents 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.
(iv) Enrolled agents 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.
(v) Thereafter, applications for renewal as an enrolled agent will
be required between November 1 and January 31 of every subsequent third
year as specified in paragraph (d)(2)(i), (d)(2)(ii), or (d)(2)(iii) 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 as an enrolled agent 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.
(3) Renewal period for enrolled retirement plan agents. (i) All
enrolled retirement plan agents must renew their preparer tax
identification number as prescribed by the Internal Revenue Service in
forms, instructions, or other appropriate guidance.
(ii) Enrolled retirement plan agents will be required to renew
their status as enrolled retirement plan agents between April 1 and
June 30 of every third year subsequent to their initial enrollment.
(4) Renewal period for registered tax return preparers. Registered
tax return preparers must renew their preparer tax identification
number and their status as a registered tax return preparer as
prescribed by the Internal Revenue Service in forms, instructions, or
other appropriate guidance.
(5) Notification of renewal. After review and approval, the
Internal Revenue Service will notify the individual of the renewal and
will issue the individual a card or certificate evidencing current
status as an enrolled agent, enrolled retirement plan agent, or
registered tax return preparer.
(6) Fee. A reasonable nonrefundable fee may be charged for each
application for renewal filed. See 26 CFR part 300.
(7) Forms. Forms required for renewal may be obtained by sending a
written request to the address specified by the Internal Revenue
Service or from such other source as the Internal Revenue Service will
publish in the Internal Revenue Bulletin (see 26 CFR
601.601(d)(2)(ii)(b)) and on the Internal Revenue Service webpage
(http://www.irs.gov).
(e) Condition for renewal: continuing education. In order to
qualify for renewal as an enrolled agent, enrolled retirement plan
agent, or registered tax return preparer, an individual must certify,
in the manner prescribed by the Internal Revenue Service, that the
individual has satisfied the requisite number of continuing education
hours.
(1) Definitions. For purposes of this section--
(i) Enrollment year means January 1 to December 31 of each year of
an enrollment cycle.
(ii) Enrollment cycle means the three successive enrollment years
preceding the effective date of renewal.
(iii) Registration year means each 12-month period the registered
tax return preparer is authorized to practice before the Internal
Revenue Service.
(iv) The effective date of renewal is the first day of the fourth
month following the close of the period for renewal described in
paragraph (d) of this section.
(2) For renewed enrollment as an enrolled agent or enrolled
retirement plan agent--(i) Requirements for enrollment cycle. A minimum
of 72 hours of continuing education credit, including six hours of
ethics or professional conduct, must be completed during each
enrollment cycle.
(ii) Requirements for enrollment year. A minimum of 16 hours of
continuing education credit, including two hours of ethics or
professional conduct, must be completed during each enrollment year of
an enrollment cycle.
(iii) Enrollment during enrollment cycle--(A) In general. Subject
to paragraph (e)(2)(iii)(B) of this section, an individual who receives
initial enrollment during an enrollment cycle must complete two 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.
(B) Ethics. An individual who receives initial enrollment during an
enrollment cycle must complete two hours of ethics or professional
conduct for each enrollment year during the enrollment cycle.
Enrollment for any part of an enrollment year is considered enrollment
for the entire year.
(3) Requirements for renewal as a registered tax return preparer. A
minimum of 15 hours of continuing education credit, including two hours
of ethics or professional conduct, three hours of Federal tax law
updates, and 10 hours of Federal tax law topics, must be completed
during each registration year.
(f) Qualifying continuing education--(1) General--(i) Enrolled
agents. To qualify for continuing education credit for an enrolled
agent, a course of learning must--
(A) Be a qualifying continuing education program designed to
enhance professional knowledge in Federal taxation or Federal tax
related matters (programs comprised of current subject matter in
Federal taxation or Federal tax related matters, including accounting,
tax return preparation software, taxation, or ethics); and
(B) Be a qualifying continuing education program consistent with
the Internal Revenue Code and effective tax administration.
(ii) Enrolled retirement plan agents. To qualify for continuing
education credit for an enrolled retirement plan agent, a course of
learning must--
(A) Be a qualifying continuing education program designed to
enhance professional knowledge in qualified retirement plan matters;
and
[[Page 32304]]
(B) Be a qualifying continuing education program consistent with
the Internal Revenue Code and effective tax administration.
(iii) Registered tax return preparers. To qualify for continuing
education credit for a registered tax return preparer, a course of
learning must--
(A) Be a qualifying continuing education program designed to
enhance professional knowledge in Federal taxation or Federal tax
related matters (programs comprised of current subject matter in
Federal taxation or Federal tax related matters, including accounting,
tax return preparation software, taxation, or ethics); and
(B) Be a qualifying continuing education program consistent with
the Internal Revenue Code and effective tax administration.
(2) Qualifying programs--(i) Formal programs. A formal program
qualifies as a continuing education program if it--
(A) Requires attendance and provides each attendee with a
certificate of attendance;
(B) Is conducted by a qualified instructor, discussion leader, or
speaker (in other words, a person whose background, training,
education, and experience is appropriate for instructing or leading a
discussion on the subject matter of the particular program);
(C) Provides or requires a written outline, textbook, or suitable
electronic educational materials; and
(D) Satisfies the requirements established for a qualified
continuing education program pursuant to Sec. 10.9.
(ii) Correspondence or individual study programs (including taped
programs). Qualifying continuing education programs include
correspondence or individual study programs that are conducted by
continuing education providers 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 only if they--
(A) Require registration of the participants by the continuing
education provider;
(B) Provide a means for measuring successful completion by the
participants (for example, a written examination), including the
issuance of a certificate of completion by the continuing education
provider;
(C) Provide a written outline, textbook, or suitable electronic
educational materials; and
(D) Satisfy the requirements established for a qualified continuing
education program pursuant to Sec. 10.9.
(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) A maximum of 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 continuing education credit for instruction and
preparation may not exceed four hours annually for registered tax
return preparers and six hours annually for enrolled agents and
enrolled retirement plan agents.
(D) An instructor, discussion leader, or speaker who makes more
than one presentation on the same subject matter during an enrollment
cycle or registration year will receive continuing education credit for
only one such presentation for the enrollment cycle or registration
year.
(3) Periodic examination. Enrolled Agents and Enrolled Retirement
Plan Agents may establish eligibility for renewal of enrollment for any
enrollment cycle by--
(i) 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
(ii) Completing a minimum of 16 hours of qualifying continuing
education during the last year of an enrollment cycle.
(g) 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, which is 50
minutes or multiples thereof. For example, a program lasting more than
50 minutes but less than 100 minutes will count as only 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.
(h) Recordkeeping requirements. (1) Each individual applying for
renewal must retain for a period of four years following the date of
renewal the information required with regard to qualifying continuing
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, qualified program number, 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 continuing education provider.
(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 four years following the date of
renewal--
(i) The name of the sponsoring organization;
(ii) The location of the program;
(iii) The title of the program and copy of its content;
(iv) The dates of the program; and
(v) The credit hours claimed.
(i) Waivers. (1) Waiver from the continuing education requirements
for a given period may be granted 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. Examples of appropriate
documentation could be a medical certificate or military orders.
[[Page 32305]]
(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. The individual will be notified that the
waiver was not approved and that the individual has been placed on a
roster of inactive enrolled agents, enrolled retirement plan agents, or
registered tax return preparers.
(5) If the request for waiver is not approved, the individual may
file a protest as prescribed by the Internal Revenue Service in forms,
instructions, or other appropriate guidance. A protest filed under this
section is not governed by subpart D of this part.
(6) If a request for waiver is approved, the individual will be
notified and issued a card or certificate evidencing renewal.
(7) Those who are granted waivers are required to file timely
applications for renewal of enrollment or registration.
(j) Failure to comply. (1) Compliance by an individual with the
requirements of this part is determined by the Internal Revenue
Service. The Internal Revenue Service will provide notice to any
individual who fails to meet the continuing education and fee
requirements of eligibility for renewal. The notice will state the
basis for the determination of noncompliance and will provide the
individual an opportunity to furnish the requested information in
writing relating to the matter within 60 days of the date of the
notice. Such information will be considered in making a final
determination as to eligibility for renewal. The individual must be
informed of the reason(s) for any denial of a renewal. The individual
may, within 30 days after receipt of the notice of denial of renewal,
file a written protest of the denial as prescribed by the Internal
Revenue Service in forms, instructions, or other appropriate guidance.
A protest under this section is not governed by subpart D of this part.
(2) The continuing education records of an enrolled agent, enrolled
retirement plan agent, or registered tax return preparer may be
reviewed to determine compliance with the requirements and standards
for renewal as provided in paragraph (f) of this section. As part of
this review, the enrolled agent, enrolled retirement plan agent or
registered tax return preparer may be required to provide the Internal
Revenue Service with copies of any continuing education records
required to be maintained under this part. If the enrolled agent,
enrolled retirement plan agent or registered tax return preparer fails
to comply with this requirement, any continuing education hours claimed
may be disallowed.
(3) An individual who has not filed a timely application for
renewal, 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 or inactive registered individuals.
During this time, the individual will be ineligible to practice before
the Internal Revenue Service.
(4) Individuals placed in inactive status and individuals
ineligible to practice before the Internal Revenue Service may not
state or imply that they are eligible to practice before the Internal
Revenue Service, or use the terms enrolled agent, enrolled retirement
plan agent, or registered tax return preparer, the designations ``EA''
or ``ERPA'' or other form of reference to eligibility to practice
before the Internal Revenue Service.
(5) An individual placed in inactive status may be reinstated to an
active status by filing an application for renewal and providing
evidence of the completion of all required continuing education hours
for the enrollment cycle or registration year. Continuing education
credit under this paragraph (j)(5) may not be used to satisfy the
requirements of the enrollment cycle or registration year in which the
individual has been placed back on the active roster.
(6) An individual placed in inactive status must file an
application for renewal and satisfy the requirements for renewal as set
forth in this section within three years of being placed in inactive
status. Otherwise, the name of such individual will be removed from the
inactive status roster and the individual's status as an enrolled
agent, enrolled retirement plan agent, or registered tax return
preparer will terminate. Future eligibility for active status must then
be reestablished by the individual as provided in this section.
(7) Inactive status is not available to an individual who is the
subject of a pending disciplinary matter before the Internal Revenue
Service.
(k) Inactive retirement status. An individual who no longer
practices before the Internal Revenue Service may request to be placed
in an inactive retirement 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. An
individual who is placed in an inactive retirement status may be
reinstated to an active status by filing an application for renewal and
providing evidence of the completion of the required continuing
education hours for the enrollment cycle or registration year. Inactive
retirement status is not available to an individual who is ineligible
to practice before the Internal Revenue Service or an individual who is
the subject of a pending disciplinary matter under this part.
(l) Renewal while under suspension or disbarment. An individual who
is ineligible to practice before the Internal Revenue Service by virtue
of disciplinary action under this part is required to conform to the
requirements for renewal of enrollment or registration before the
individual's eligibility is restored.
(m) Enrolled actuaries. The enrollment and 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 901.72.
(n) Effective/applicability date. This section is applicable to
enrollment or registration effective beginning August 2, 2011.
0
Par. 9. Section 10.7 is amended by:
0
1. Revising the section heading.
0
2. Removing paragraph (c)(1)(viii).
0
3. Revising paragraph (c)(2), and (d).
0
4. Removing paragraph (e).
0
5. Redesignating paragraphs (f) and (g) as paragraphs (e) and (f) and
revising them.
The revisions read as follows:
Sec. 10.7 Representing oneself; participating in rulemaking; limited
practice; and special appearances.
* * * * *
(c) * * *
(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.
(ii) The Commissioner, or delegate, may, after notice and
opportunity for a conference, 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 a sanction under Sec. 10.50.
(iii) An individual who represents a taxpayer under the authority
ofparagraph (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 prescribed by the Internal
Revenue Service.
(d) Special appearances. The Commissioner, or delegate, may,
subject
[[Page 32306]]
to conditions deemed 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) Fiduciaries. For purposes of this part, a fiduciary (for
example, a trustee, receiver, guardian, personal representative,
administrator, or executor) is considered to be the taxpayer and not a
representative of the taxpayer.
(f) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 10. Section 10.8 is revised to read as follows:
Sec. 10.8 Return preparation and application of rules to other
individuals.
(a) Preparing all or substantially all of a tax return. Any
individual who for compensation prepares or assists with the
preparation of all or substantially all of a tax return or claim for
refund must have a preparer tax identification number. Except as
otherwise prescribed in forms, instructions, or other appropriate
guidance, an individual must be an attorney, certified public
accountant, enrolled agent, or registered tax return preparer to obtain
a preparer tax identification number. Any individual who for
compensation prepares or assists with the preparation of all or
substantially all of a tax return or claim for refund is subject to the
duties and restrictions relating to practice in subpart B, as well as
subject to the sanctions for violation of the regulations in subpart C.
(b) Preparing a tax return and furnishing information. Any
individual may for compensation prepare or assist with the preparation
of a tax return or claim for refund (provided the individual prepares
less than substantially all of the tax return or claim for refund),
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.
(c) Application of rules to other individuals. Any individual who
for compensation prepares, or assists in the preparation of, all or a
substantial portion of a document pertaining to any taxpayer's tax
liability for submission to the Internal Revenue Service is subject to
the duties and restrictions relating to practice in subpart B, as well
as subject to the sanctions for violation of the regulations in subpart
C. Unless otherwise a practitioner, however, an individual may not for
compensation prepare, or assist in the preparation of, all or
substantially all of a tax return or claim for refund, or sign tax
returns and claims for refund. For purposes of this paragraph, an
individual described in 26 CFR 301.7701-15(f) is not treated as having
prepared all or a substantial portion of the document by reason of such
assistance.
(d) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 11. Section 10.9 is added to subpart A to read as follows:
Sec. 10.9 Continuing education providers and continuing education
programs.
(a) Continuing education providers--(1) In general. Continuing
education providers are those responsible for presenting continuing
education programs. A continuing education provider 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 and approved by a qualifying organization as a
provider of continuing education on subject matters within Sec.
10.6(f) of this part. The Internal Revenue Service may, at its
discretion, identify a professional organization, society or business
entity that maintains minimum education standards comparable to those
set forth in this part as a qualifying organization for purposes of
this part in appropriate forms, instructions, and other appropriate
guidance; or
(iv) Be recognized by the Internal Revenue Service as a
professional organization, society, or business whose programs include
offering continuing professional education opportunities in subject
matters within Sec. 10.6(f) of this part. The Internal Revenue
Service, at its discretion, may require such professional
organizations, societies, or businesses to file an agreement and/or
obtain Internal Revenue Service approval of each program as a qualified
continuing education program in appropriate forms, instructions or
other appropriate guidance.
(2) Continuing education provider numbers--(i) In general. A
continuing education provider is required to obtain a continuing
education provider number and pay any applicable user fee.
(ii) Renewal. A continuing education provider maintains its status
as a continuing education provider during the continuing education
provider cycle by renewing its continuing education provider number as
prescribed by forms, instructions or other appropriate guidance and
paying any applicable user fee.
(3) Requirements for qualified continuing education programs. A
continuing education provider must ensure the qualified continuing
education program complies with all 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 the
technical content and presentation to be evaluated;
(v) Certificates of completion bearing a current qualified
continuing education program number issued by the Internal Revenue
Service must be provided to the participants who successfully complete
the program; and
(vi) Records must be maintained by the continuing education
provider to verify the participants who attended and completed the
program for a period of four 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) Program numbers--(i) In general. Every continuing education
provider is required to obtain a continuing education provider program
number and pay any applicable user fee for each program offered.
Program numbers shall be obtained as prescribed by forms, instructions
or other appropriate guidance. Although, at the discretion of the
Internal Revenue Service, a continuing education provider may be
required to demonstrate that the program is designed to enhance
professional knowledge in Federal taxation or Federal tax related
matters (programs comprised of current subject matter in Federal
taxation or Federal tax related matters, including accounting, tax
return preparation software, taxation, or ethics) and complies with the
requirements in paragraph (a)(2)of this section before a program number
is issued.
(ii) Update programs. Update programs may use the same number as
the program subject to update. An update program is a program that
instructs on a change of existing law occurring within one year of the
update program offering. The qualifying education program subject to
update must have been offered within the two
[[Page 32307]]
year time period prior to the change in existing law.
(iii) Change in existing law. A change in existing law means the
effective date of the statute or regulation, or date of entry of
judicial decision, that is the subject of the update.
(b) Failure to comply. Compliance by a continuing education
provider with the requirements of this part is determined by the
Internal Revenue Service. A continuing education provider who fails to
meet the requirements of this part will be notified by the Internal
Revenue Service. The notice will state the basis for the determination
of noncompliance and will provide the continuing education provider an
opportunity to furnish the requested information in writing relating to
the matter within 60 days of the date of the notice. The continuing
education provider may, within 30 days after receipt of the notice of
denial, file a written protest as prescribed by the Internal Revenue
Service in forms, instructions, or other appropriate guidance. A
protest under this section is not governed by subpart D of this part.
(c) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 12. Section 10.20 is amended by
0
1. Redesignating paragraphs (b) and (c) as (a)(3) and (b).
0
2. Revising newly designated paragraphs (a)(3) and (b).
0
3. Adding paragraph (c).
The revisions and additions read as follows:
Sec. 10.20 Information to be furnished.
(a) * * *
(3) When a proper and lawful request is made by a duly authorized
officer or employee of the Internal Revenue Service, concerning an
inquiry into an alleged violation of the regulations in this part, a
practitioner must provide any information the practitioner has
concerning the alleged violation and 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.
(b) 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, to obtain any record or information unless the
practitioner believes in good faith and on reasonable grounds that the
record or information is privileged.
(c) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 13. Section 10.25 is amended by revising paragraphs (c)(2) and (e)
to read as follows:
Sec. 10.25 Practice by former government employees, their partners
and their associates.
* * * * *
(c) * * *
(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 particular matter(s) requiring isolation.
The statement must be retained by the firm and, upon request, provided
to the office(s) of the Internal Revenue Service administering or
enforcing this part.
* * * * *
(e) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 14. Section 10.30 is amended by revising paragraphs (a)(1) and (e)
to read as follows:
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, enrolled retirement plan agents, or registered tax
return preparers, in describing their professional designation, may not
utilize the term ``certified'' or imply an employer/employee
relationship with the Internal Revenue Service. Examples of acceptable
descriptions for enrolled agents 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.'' Similarly, examples of acceptable
descriptions for enrolled retirement plan agents are ``enrolled to
represent taxpayers before the Internal Revenue Service as a retirement
plan agent'' and ``enrolled to practice before the Internal Revenue
Service as a retirement plan agent.'' An example of an acceptable
description for registered tax return preparers is ``designated as a
registered tax return preparer by the Internal Revenue Service.''
* * * * *
(e) Effective/applicability date. This section is applicable
beginning August 2, 2011.
* * * * *
0
Par. 15. Section 10.34 is amended by:
0
1. Adding paragraph (a).
0
2. Redesignating paragraph (f) as paragraph (e).
0
3. Revising newly designated paragraph (e).
The revision and addition read as follows:
Sec. 10.34 Standards with respect to tax returns and documents,
affidavits and other papers.
(a) Tax returns. (1) A practitioner may not willfully, recklessly,
or through gross incompetence--
(i) Sign a tax return or claim for refund that the practitioner
knows or reasonably should know contains a position that--
(A) Lacks a reasonable basis;
(B) Is an unreasonable position as described in section 6694(a)(2)
of the Internal Revenue code (Code) (including the related regulations
and other published guidance); or
(C) Is a willful attempted by the practitioner to understate the
liability for tax or a reckless or intentional disregard of rules or
regulations by the practitioner as described in section 6694(b)(2) of
the Code (including the related regulations and other published
guidance).
(ii) Advise a client to take a position on a tax return or claim
for refund, or prepare a portion off a tax return or claim for refund
containing a position, that--
(A) Lacks a reasonable basis;
(B) Is an unreasonable position as described in section 6694(a)(2)
of theCode (including the related regulations and other published
guidance); or
(C) Is a willful attempt by the practitioner to understate the
liability for tax or a reckless or intentional disregard of rules or
regulations by the practitioner as described in section 6694(b)(2) of
the Code (including the related regulations and other published
guidance).
(2) A pattern of conduct is a factor that will be taken into
account in determining whether a practitioner acted willfully,
recklessly, or through gross incompetence.
* * * * *
(e) Effective/applicability date. Paragraph (a) of this section is
[[Page 32308]]
applicable for returns or claims for refund filed, or advice provided,
beginning August 2, 2011. Paragraphs (b) through (d) of this section
are applicable to tax returns, documents, affidavits, and other papers
filed on or after September 26, 2007.
0
Par. 16. Section 10.36 is amended by:
0
1. Redesignating paragraph (b) as paragraph (c).
0
2. Adding new paragraph (b).
0
3. Revising newly designated paragraph (c).
The addition and revisions read as follows:
Sec. 10.36 Procedures to ensure compliance.
* * * * *
(b) Requirements for tax returns and other documents. Any
practitioner who has (or practitioners who have or share) principal
authority and responsibility for overseeing a firm's practice of
preparing tax returns, claims for refunds, 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
Circular 230. Any practitioner who has (or practitioners who have or
share) this principal authority will be subject to discipline for
failing to comply with the requirements of this paragraph if--
(1) The practitioner through willfulness, recklessness, or gross
incompetence does not take reasonable steps to ensure that the firm has
adequate procedures to comply with Circular 230, 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 Circular 230;
or
(2) The practitioner 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 Circular 230,
and the practitioner, through willfulness, recklessness, or gross
incompetence fails to take prompt action to correct the noncompliance.
(c) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 17. Section 10.38 is revised to read as follows:
Sec. 10.38 Establishment of advisory committees.
(a) Advisory committees. To promote and maintain the public's
confidence in tax advisors, the Internal Revenue Service is authorized
to establish one or more advisory committees composed of at least six
individuals authorized to practice before the Internal Revenue Service.
Membership of an advisory committee must be balanced among those who
practice as attorneys, accountants, enrolled agents, enrolled
actuaries, enrolled retirement plan agents, and registered tax return
preparers. Under procedures prescribed by the Internal Revenue Service,
an advisory committee may review and make general recommendations
regarding the practices, procedures, and policies of the offices
described in Sec. 10.1.
(b) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 18. Section 10.50 is amended by
0
1. Revising paragraph (b)(1).
0
2. Removing paragraphs (d) and (e) as paragraphs (e) and (f).
0
3. Adding new paragraph (d).
0
4. Revising newly redesignated paragraph (f).
The revisions and addition read as follows:
Sec. 10.50 Sanctions.
* * * * *
(b) * * *
(1) If any appraiser is disqualified pursuant to this subpart C,
the 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
Internal Revenue Service pursuant to Sec. 10.81, regardless of whether
the evidence or testimony would pertain to an appraisal made prior to
or after the effective date of disqualification.
* * * * *
(d) Authority to accept a practitioner's consent to sanction. The
Internal Revenue Service may accept a practitioner's offer of consent
to be sanctioned under Sec. 10.50 in lieu of instituting or continuing
a proceeding under Sec. 10.60(a).
* * * * *
(f) Effective/applicability date. This section is applicable to
conduct occurring on or after August 2, 2011, except that paragraphs
(a), (b)(2), and (e) apply to conduct occurring on or after September
26, 2007, and paragraph (c) applies to prohibited conduct that occurs
after October 22, 2004.
0
Par. 19. Section 10.51 is amended by adding paragraphs (a)(16), (17),
and (18) and revising paragraph (b) to read as follows:
Sec. 10.51 Incompetence and disreputable conduct.
(a) * * *
(16) Willfully failing to file on magnetic or other electronic
media a tax return prepared by the practitioner when the practitioner
is required to do so by the Federal tax laws unless the failure is due
to reasonable cause and not due to willful neglect.
(17) Willfully preparing all or substantially all of, or signing, a
tax return or claim for refund when the practitioner does not possess a
current or otherwise valid preparer tax identification number or other
prescribed identifying number.
(18) Willfully representing a taxpayer before an officer or
employee of the Internal Revenue Service unless the practitioner is
authorized to do so pursuant to this part.
(b) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 20. Section 10.53 is revised to read as follows:
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 a practitioner has violated any provision of this part, the
officer or employee will promptly make a written report of the
suspected violation. The report will explain the facts and reasons upon
which the officer's or employee's belief rests and must be submitted to
the office(s) of the Internal Revenue Service responsible for
administering or enforcing this part.
(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 office(s) of the Internal Revenue Service
responsible for administering or enforcing this part 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 and
submit the report to the office(s) of the Internal Revenue Service
responsible for administering or enforcing this part.
(c) Destruction of report. No report made under paragraph (a) or
(b) of this section shall be maintained unless retention of the report
is permissible under the applicable records control schedule as
approved by the National Archives and Records Administration
[[Page 32309]]
and designated in the Internal Revenue Manual. Reports must be
destroyed 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
will preclude the use of a copy of the report in a proceeding under
subpart D of this part.
(e) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 21. Section 10.60 is amended by revising paragraphs (a), (b), and
(d) to read as follows:
Sec. 10.60 Institution of proceeding.
(a) Whenever it is determined that a practitioner (or employer,
firm or other entity, if applicable) violated any provision of the laws
governing practice before the Internal Revenue Service or the
regulations in this part, the practitioner may be reprimanded in
accordance with Sec. 10.62, or subject to a proceeding for sanctions
described in Sec. 10.50.
(b) Whenever a penalty has been assessed against an appraiser under
the Internal Revenue Code and an appropriate officer or employee in an
office established to enforce this part determines that the appraiser
acted willfully, recklessly, or through gross incompetence with respect
to the proscribed conduct, the appraiser may be reprimanded in
accordance with Sec. 10.62 or subject to a proceeding for
disqualification. 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.
* * * * *
(d) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 22. Section 10.61 is amended by revising paragraphs (a), (b)(2),
and (c) to read as follows:
Sec. 10.61 Conferences.
(a) In general. The Commissioner, or delegate, may confer with a
practitioner, employer, firm or other entity, or an appraiser
concerning allegations of misconduct irrespective of whether a
proceeding has been instituted. If the conference results in a
stipulation in connection with an ongoing proceeding in which the
practitioner, employer, firm or other entity, or appraiser is the
respondent, the stipulation may be entered in the record by either
party to the proceeding.
(b) * * *
(2) Discretion; acceptance or declination. The Commissioner, or
delegate, may accept or decline the offer described in paragraph (b)(1)
of this section. When the decision is to decline the offer, the written
notice of declination may state that the offer described in paragraph
(b)(1) of this section would be accepted if it contained different
terms. The Commissioner, or delegate, has the discretion to accept or
reject a revised offer submitted in response to the declination or may
counteroffer and act upon any accepted counteroffer.
(c) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 23. Section 10.62 is revised to read as follows:
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 an authorized representative of
the Internal Revenue Service under Sec. 10.69(a)(1). A complaint is
sufficient if it fairly informs the respondent of the charges brought
so that the respondent is able to prepare a defense.
(b) Specification of sanction. The complaint must specify the
sanction sought 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 respondent must be notified in the
complaint or in a separate paper attached to the complaint of the time
for answering the complaint, which may not be less than 30 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 Internal Revenue Service 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.
(d) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 24. Section 10.63 is amended by revising paragraphs (c) and (f) to
read as follows:
Sec. 10.63 Service of complaint; service of other papers; service of
evidence in support of complaint; filing of papers.
* * * * *
(c) Service of papers on the Internal Revenue Service. Whenever a
paper is required or permitted to be served on the Internal Revenue
Service in connection with a proceeding under this part, the paper will
be served on the Internal Revenue Service'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 office(s) established to enforce this part
under the authority of Sec. 10.1, Internal Revenue Service, 1111
Constitution Avenue, NW., Washington, DC 20224.
* * * * *
(f) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 25. Section 10.64 is amended by revising paragraph (a) and adding
paragraph (f) to read as follows:
Sec. 10.64 Answer; default.
(a) Filing. The respondent's answer must be filed with the
Administrative Law Judge, and served on the Internal Revenue Service,
within the time specified in the complaint unless, on request or
application of the respondent, the time is extended by the
Administrative Law Judge.
* * * * *
(f) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 26. Section 10.65 is amended by revising paragraphs (a) and (c) to
read:
Sec. 10.65 Supplemental charges.
(a) In general. Supplemental charges may be filed against the
respondent by amending the complaint with the permission of the
Administrative Law Judge if, for example--
(1) It appears that the respondent, in the 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 possesses such information; or
(2) It appears that the respondent has knowingly introduced false
testimony during the proceedings against the respondent.
* * * * *
(c) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 27. Section 10.66 is revised to read as follows:
Sec. 10.66 Reply to answer.
(a) The Internal Revenue Service 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.
[[Page 32310]]
(b) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 28. Section 10.69 is revised to read as follows:
Sec. 10.69 Representation; ex parte communication.
(a) Representation. The Internal Revenue Service 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 Internal Revenue Service in a
proceeding under this part may sign the complaint or any document
required to be filed in the proceeding on behalf of the Internal
Revenue Service.
(b) Ex parte communication. The Internal Revenue Service, 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.
(c) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 29. Section 10.72 is amended by revising paragraphs (a)(3)(iv)(A),
(d)(1), and (g) to read as follows:
Sec. 10.72 Hearings.
(a) * * *
(3) * * *
(iv) * * *
(A) The Internal Revenue Service withdraws the complaint;
* * * * *
(d) Publicity--(1) In general. All reports and decisions of the
Secretary of the Treasury, or delegate, including any reports and
decisions of the Administrative Law Judge, under this subpart D are,
subject to the protective measures in paragraph (d)(4) of this section,
public and open to inspection within 30 days after the agency's
decision becomes final.
* * * * *
(g) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 30. Section 10.76 is amended by revising paragraphs (c), and (e)
to read as follows:
Sec. 10.76 Decision of Administrative Law Judge.
* * * * *
(c) Copy of decision. The Administrative Law Judge will provide the
decision to the Internal Revenue Service's authorized representative,
and a copy of the decision to the respondent or the respondent's
authorized representative.
* * * * *
(e) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 31. Section 10.77 is revised to read as follows:
Sec. 10.77 Appeal of decision of Administrative Law Judge.
(a) Appeal. Any party to the proceeding under this subpart D may
appeal the decision of the Administrative Law Judge by filing a notice
of appeal with the Secretary of the Treasury, or delegate deciding
appeals. The notice of appeal must include a brief that states
exceptions to the decision of Administrative Law Judge and supporting
reasons for such exceptions.
(b) Time and place for filing of appeal. The notice of appeal and
brief must be filed, in duplicate, with the Secretary of the Treasury,
or delegate deciding appeals, at an address for appeals that is
identified to the parties with the decision of the Administrative Law
Judge. The notice of appeal and brief must be filed within 30 days of
the date that the decision of the Administrative Law Judge is served on
the parties. The appealing party must serve a copy of the notice of
appeal and the brief to any non-appealing party or, if the party is
represented, the non-appealing party's representative.
(c) Response. Within 30 days of receiving the copy of the
appellant's brief, the other party may file a response brief with the
Secretary of the Treasury, or delegate deciding appeals, using the
address identified for appeals. A copy of the response brief must be
served at the same time on the opposing party or, if the party is
represented, the opposing party's representative.
(d) No other briefs, responses or motions as of right. Other than
the appeal brief and response brief, the parties are not permitted to
file any other briefs, responses or motions, except on a grant of leave
to do so after a motion demonstrating sufficient cause, or unless
otherwise ordered by the Secretary of the Treasury, or delegate
deciding appeals.
(e) Additional time for briefs and responses. Notwithstanding the
time for filing briefs and responses provided in paragraphs (b) and (c)
of this section, the Secretary of the Treasury, or delegate deciding
appeals, may, for good cause, authorize additional time for filing
briefs and responses upon a motion of a party or upon the initiative of
the Secretary of the Treasury, or delegate deciding appeals.
(f) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 32. Section 10.78 is amended by revising paragraphs (c) and (d) to
read as follows:
Sec. 10.78 Decision on review.
* * * * *
(c) Copy of decision on review. The Secretary of the Treasury, or
delegate, will provide copies of the agency decision to the authorized
representative of the Internal Revenue Service and the respondent or
the respondent's authorized representative.
(d) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 33. Section 10.79 is revised to read as follows:
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 Internal Revenue Service) 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 Internal Revenue Service 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 Internal Revenue Service) 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 Internal Revenue Service has accepted the
respondent's offer to consent, if such offer was made) 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
[[Page 32311]]
authorized by paragraph (d) of this section.
(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 specified conditions 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 the
practitioner failed to advise the practitioner's clients about a
potential conflict of interest or failed to obtain the clients' written
consents, the practitioner may be required to provide the Internal
Revenue Service with a copy of all consents obtained by the
practitioner for an appropriate period following censure, whether or
not such consents are specifically requested.
(e) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 34. Section 10.80 is revised to read as follows:
Sec. 10.80 Notice of disbarment, suspension, censure, or
disqualification.
(a) In general. On the issuance of a final order censuring,
suspending, or disbarring a practitioner or a final order disqualifying
an appraiser, notification of the censure, suspension, disbarment or
disqualification will be given to appropriate officers and employees of
the Internal Revenue Service and interested departments and agencies of
the Federal government. The Internal Revenue Service 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.
(b) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 35. Section 10.81 is revised to read as follows:
Sec. 10.81 Petition for reinstatement.
(a) In general. A disbarred practitioner or a disqualified
appraiser may petition for reinstatement before the Internal Revenue
Service after the expiration of 5 years following such disbarment or
disqualification. Reinstatement will not be granted unless the Internal
Revenue Service is satisfied that the petitioner is not likely to
conduct himself, thereafter, 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 August 2, 2011.
0
Par. 36. Section 10.82 is amended by revising paragraphs (a), (c)
introductory text, (c)(3), (d), (e), (f), (g), and (h) to 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, proceedings may be instituted under this section to suspend
the practitioner from practice before the Internal Revenue Service.
* * * * *
(c) Instituting a proceeding. A proceeding under this section will
be instituted by a complaint that names the respondent, is signed by an
authorized representative of the Internal Revenue Service under Sec.
10.69(a)(1), and is filed and 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--
* * * * *
(3) That the respondent may request a conference to address the
merits of the complaint and that any such request must be made in the
answer; and
* * * * *
(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 time for filing is extended. 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 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 the right to a conference and may be suspended at any time
following the date on which the answer was due.
(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 answer 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.
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 respondent may be immediately suspended
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.
The suspension will remain effective until the earlier of the
following:
(1) 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
(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 Internal
Revenue Service suspended a practitioner under this section, the
practitioner may ask the Internal Revenue Service 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
Internal Revenue Service must issue a complaint requested under this
paragraph within 30 calendar days of receiving the request.
(h) Effective/applicability date. This section is applicable
beginning August 2, 2011.
0
Par. 37. Section 10.90 is amended by:
0
1. Revising paragraph (a).
0
2. Redesignating the second paragraph (b) as paragraph (c).
0
3. Revising newly designated paragraph (c).
The revisions read as follows:
Sec. 10.90 Records.
(a) Roster. The Internal Revenue Service will maintain and make
available for public inspection in the time and manner prescribed by
the Secretary, or delegate, the following rosters--
(1) Individuals (and employers, firms, or other entities, if
applicable) censured, suspended, or disbarred from practice before the
Internal Revenue Service or upon whom a monetary penalty was imposed.
(2) Enrolled agents, including individuals--
(i) Granted active enrollment to practice;
(ii) Whose enrollment has been placed in inactive status for
failure to meet the requirements for renewal of enrollment;
(iii) Whose enrollment has been placed in inactive retirement
status; and
(iv) Whose offer of consent to resign from enrollment has been
accepted by
[[Page 32312]]
the Internal Revenue Service under Sec. 10.61.
(3) Enrolled retirement plan agents, including individuals--
(i) Granted active enrollment to practice;
(ii) Whose enrollment has been placed in inactive status for
failure to meet the requirements for renewal of enrollment;
(iii) Whose enrollment has been placed in inactive retirement
status; and
(iv) Whose offer of consent to resign from enrollment has been
accepted under Sec. 10.61.
(4) Registered tax return preparers, including individuals--
(i) Authorized to prepare all or substantially all of a tax return
or claim for refund;
(ii) Who have been placed in inactive status for failure to meet
the requirements for renewal;
(iii) Who have been placed in inactive retirement status; and
(iv) Whose offer of consent to resign from their status as a
registered tax return preparer has been accepted by the Internal
Revenue Service under Sec. 10.61.
(5) Disqualified appraisers.
(6) Qualified continuing education providers, including providers--
(i) Who have obtain a qualifying continuing education provider
number
(ii) Whose qualifying continuing education number has been revoked
for failure to comply with the requirements of this part.
* * * * *
(c) Effective/applicability date. This section is applicable
beginning August 2, 2011.
Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
Approved: May 20, 2011.
George Madison,
General Counsel, Office of the Secretary.
[FR Doc. 2011-13666 Filed 5-31-11; 11:15 am]
BILLING CODE 4830-01-P