Treasury Department
Circular No. 230 (Revised 7-94)
31 Code of Federal Regulations Subtitle A, Part 10
Regulations Governing the
Practice of Attorneys, Certified Public Accountants, Enrolled
Agents,
Enrolled Actuaries and Appraisers before the Internal Revenue
Service
NOTE: The entire table
of contents is listed below. However, only excerpts of Circular
230 that are relevant to material covered in the textbook are
included below.
CONTENTS
Section
10.0 Scope of part.
Subpart A - Rules Governing Authority to Practice
10.1 Director of Practice.
10.2 Definitions.
10.3 Who may practice.
10.4 Eligibility for enrollment.
10.5 Application for enrollment.
10.6 Enrollment.
10.7 Representing oneself; participating in
rulemaking; limited practice; special appearances; and return
preparation.
10.8 Customhouse brokers.
Subpart B - Duties and Restrictions Relating to Practice Before
the Internal Revenue Service
10.20 Information to be furnished.
10.21 Knowledge of client's omission.
10.22 Diligence as to accuracy.
10.23 Prompt disposition of pending matters.
10.24 Assistance from disbarred or suspended
persons and former Internal Revenue Service employees.
10.25 Practice by partners of Government
employees.
10.26 Practice by former Government employees,
their partners and their associates.
10.27 Notaries.
10.28 Fees.
10.29 Conflicting interests.
10.30 Solicitation.
10.31 Negotiation of taxpayer refund checks.
10.32 Practice of law.
10.33 Tax shelter opinions.
10.34 Standards for advising with respect to tax return
positions and for preparing or signing returns.
Subpart C - Rules Applicable to Disciplinary
Proceedings
10.50 Authority to disbar or suspend.
10.51 Disreputable conduct.
10.52 Violation of regulations.
10.53 Receipt of information concerning
attorneys, certified public accountants, enrolled agents, or
enrolled actuaries.
10.54 Institution of proceeding.
10.55 Conferences.
10.56 Contents of complaint.
10.57 Service of complaint and other papers.
10.58 Answer.
10.59 Supplemental charges.
10.60 Reply to answer.
10.61 Proof; variance; amendment of pleadings.
10.62 Motions and requests.
10.63 Representation.
10.64 Administrative Law Judge.
10.65 Hearings.
10.66 Evidence.
10.67 Depositions.
10.68 Transcript.
10.69 Proposed findings and conclusions.
10.70 Decision of the Administrative Law Judge.
10.71 Appeal to the Secretary.
10.72 Decision of the Secretary.
10.73 Effect of disbarment or suspension;
surrender of card.
10.74 Notice of disbarment or suspension.
10.75 Petition for reinstatement.
10.76 Expedited suspension upon criminal
conviction or loss of license for cause.
Subpart D - Rules Applicable to
Disqualification of Appraisers
10.77 Authority to disqualify; effect of
disqualification.
10.78 Institution of proceeding.
10.79 Contents of complaint.
10.80 Service of complaint and other papers.
10.81 Answer.
10.82 Supplemental charges.
10.83 Reply to answer.
10.84 Proof, variance, amendment of pleadings.
10.85 Motions and requests.
10.86 Representation.
10.87 Administrative Law Judge.
10.88 Hearings.
10.89 Evidence.
10.90 Depositions.
10.91 Transcript.
10.92 Proposed findings and conclusions.
10.93 Decision of the Administrative Law Judge.
10.94 Appeal to the Secretary.
10.95 Decision of the Secretary.
10.96 Final order.
10.97 Petition for reinstatement.
Subpart E - General Provisions
10.98 Records.
10.100 Saving clause.
10.101 Special orders.
Sec. 10.0 Scope of part.
This part contains rules governing the
recognition of attorneys, certified public accountants, enrolled
agents, and other persons representing clients before the
Internal Revenue Service. Subpart A of this part sets forth rules
relating to authority to practice before the Internal Revenue
Service; subpart B of this part prescribes the duties and
restrictions relating to such practice; subpart C of this part
contains rules relating to disciplinary proceedings; subpart D of
this part contains rules applicable to disqualification of
appraisers; and Subpart E of this part contains general
provisions, including provisions relating to the availability of
official records.
Subpart A - Rules Governing Authority to Practice
Sec. 10.1 Director of practice.
(a) Establishment of office. There is
established in the Office of the Secretary of the Treasury the
Office of Director of Practice. The Director of Practice shall be
appointed by the Secretary of the Treasury.
(b) Duties. The Director of Practice
shall act upon applications for enrollment to practice before the
Internal Revenue Service; institute and provide for the conduct
of disciplinary proceedings relating to attorneys, certified
public accountants, enrolled agents, enrolled actuaries and
appraisers; make inquiries with respect to matters under his
jurisdiction; and perform such other duties as are necessary or
appropriate to carry out his functions under this part or as are
prescribed by the Secretary of the Treasury.
(c) Acting director. The Secretary of
the Treasury will designate an officer or employee of the
Treasury Department to act as Director of Practice in the event
of the absence of the director or of a vacancy in that office.
Sec. 10.2 Definitions.
As used in this part, except where the context
clearly indicates otherwise:
(a) "Attorney" means any
person who is a member in good standing of the bar of the highest
court of any State, possession, territory, Commonwealth, or the
District of Columbia.
(b) "Certified public accountant"
means any person who is duly qualified to practice as a certified
public accountant in any State, possession, territory,
Commonwealth, or the District of Columbia.
(c) "Commissioner" refers to
the Commissioner of Internal Revenue.
(d) "Director" refers to the
Director of Practice.
(e) "Practice before the Internal
Revenue Service" comprehends all matters connected with
a presentation to the Internal Revenue Service or any of its
officers or employees relating to a client's rights, privileges,
or liabilities under laws or regulations administered by the
Internal Revenue Service. Such presentations include preparing
and filing necessary documents, corresponding and communicating
with the Internal Revenue Service, and representing a client at
conferences, hearings, and meetings.
(f) "Practitioner" means any
individual described in section 10.3(a), (b), (c), or (d) of this
part.
(g) A "return" includes an
amended return and a claim for refund.
(h) "Service" means the
Internal Revenue Service.
Sec. 10.3 Who may practice.
(a) Attorneys. Any attorney who is not
currently under suspension or disbarment from practice before the
Internal Revenue Service may practice before the Service upon
filing with the Service a written declaration that he or she is
currently qualified as an attorney and is authorized to represent
the particular party on whose behalf he or she acts.
(b) Certified public accountants. Any
certified public accountant who is not currently under suspension
or disbarment from practice before the Internal Revenue Service
may practice before the Service upon filing with the Service a
written declaration that he or she is currently qualified as a
certified public accountant and is authorized to represent the
particular party on whose behalf he or she acts.
(c) Enrolled agents. Any person enrolled
as an agent pursuant to this part may practice before the
Internal Revenue Service.
(d) Enrolled actuaries.
(1) Any individual who is enrolled as an
actuary by the Joint Board for the Enrollment of Actuaries
pursuant to 29 U.S.C. 1242 may practice before the Internal
Revenue Service upon filing with the Service a written
declaration that he/she is currently qualified as an enrolled
actuary and is authorized to represent the particular party
on whose behalf he/she acts. Practice as an enrolled actuary
is limited to representation with respect to issues involving
the following statutory provisions.
Internal Revenue Code (Title 26 U.S.C.)
sections: 401 (qualification of employee plans), 403(a)
(relating to whether an annuity plan meets the requirements
of section 404(a)(2)), 404 (deductibility of employer
contributions), 405 (qualification of bond purchase plans),
412 (funding requirements for certain employee plans), 413
(application of qualification requirements to collectively
bargained plans and to plans maintained by more than one
employer), 414 (containing definitions and special rules
relating to employee plan area), 4971 (relating to excise
taxes payable as a result of an accumulated funding
deficiency under section 412), 6057 (annual registration of
plans), 6058 (information required in connection with certain
plans of deferred compensation), 6059 (periodic report of
actuary), 6652(e) (failure to file annual registration and
other notifications by pension plan), 6652(f) (failure to
file information required in connection with certain plans of
deferred compensation), 6692 (failure to file actuarial
report), 7805(b) (relating to the extent, if any, to which an
Internal Revenue Service ruling or determination letter
coming under the herein listed statutory provisions shall be
applied without retroactive effect), and 29 U.S.C. 1083
(relating to waiver of funding for nonqualified plans).
(2) An individual who practices before the
Internal Revenue Service pursuant to this subsection shall be
subject to the provisions of this part in the same manner as
attorneys, certified public accountants and enrolled agents.
(e) Others. Any individual qualifying
under section 10.5(c) or section 10.7 is eligible to practice
before the Internal Revenue Service to the extent provided in
those sections.
(f) Government officers and employees, and
others. An individual, including an officer or employee of
the executive, legislative, or judicial branch of the United
States Government; officer or employee of the District of
Columbia; Member of Congress; or Resident Commissioner, may not
practice before the Service if such practice would violate 18
U.S.C. 203 or 205.
(g) State officers and employees. No
officer or employee of any State, or subdivision thereof, whose
duties require him to pass upon, investigate, or deal with tax
matters of such State or subdivision, may practice before the
Service, if such State employment may disclose facts or
information applicable to Federal tax matters.
Sec. 10.4 Eligibility for enrollment.
(a) Enrollment upon examination. The
Director of Practice may grant enrollment to an applicant who
demonstrates special competence in tax matters by written
examination administered by the Internal Revenue Service and who
has not engaged in any conduct which would justify the suspension
or disbarment of any attorney, certified public accountant, or
enrolled agent under the provisions of this part.
(b) Enrollment of former Internal Revenue
Service Employees. The Director of Practice may grant
enrollment to an applicant who has not engaged in any conduct
which would justify the suspension or disbarment of any attorney,
certified public accountant, or enrolled agent under the
provisions of this part and who, by virtue of his past service
and technical experience in the Internal Revenue Service has
qualified for such enrollment, as follows:
(1) Application for enrollment on account
of former employment in the Internal Revenue Service shall be
made to the Director of Practice. Each applicant will be
supplied a form by the Director of Practice, which shall
indicate the information required respecting the applicant's
qualifications. In addition to the applicant's name, address,
educational experience, etc., such information shall
specifically include a detailed account of the applicant's
employment in the Internal Revenue Service, which account
shall show (i) positions held, (ii) date of each appointment
and termination thereof, (iii) nature of services rendered in
each position, with particular reference to the degree of
technical experience involved, and (iv) name of supervisor in
such positions, together with such other information
regarding the experience and training of the applicant as may
be relevant.
(2) Upon receipt of each such application,
it shall be transmitted to the appropriate officer of the
Internal Revenue Service with the request that a detailed
report of the nature and rating of the applicant's services
in the Internal Revenue Service, accompanied by the
recommendation of the superior officer in the particular unit
or division of the Internal Revenue Service that such
employment does or does not qualify the applicant technically
or otherwise for the desired authorization, be furnished to
the Director of Practice.
(3) In examining the qualification of an
applicant for enrollment on account of employment in the
Internal Revenue Service, the Director of Practice will be
governed by the following policies:
(i) Enrollment on account of such
employment may be of unlimited scope or may be limited to
permit the presentation of matters only of the particular
class or only before the particular unit or division of
the Internal Revenue Service for which his former
employment in the Internal Revenue Service has qualified
the applicant.
(ii) Application for enrollment on
account of employment in the Internal Revenue Service
must be made within 3 years from the date of separation
from such employment.
(iii) It shall be requisite for
enrollment on account of such employment that the
applicant shall have had a minimum of 5 years continuous
employment in the Service during which he shall have been
regularly engaged in applying and interpreting the
provisions of the Internal Revenue Code and the
regulations thereunder relating to income, estate, gift,
employment, or excise taxes.
(iv) For the purposes of paragraph
(b)(3)(iii) of this section an aggregate of 10 or more
years of employment, at least 3 of which occurred within
the 5 years preceding the date of application, shall be
deemed the equivalent of 5 years continuous employment.
(c) Natural persons. Enrollment to
practice may be granted only to natural persons.
Sec. 10.5 Application for enrollment.
(a) Form; fee. An applicant for
enrollment shall file with the Director of Practice an
application on Form 23, properly executed under oath or
affirmation. Such application shall be accompanied by a check or
money order in the amount set forth on Form 23, payable to the
Internal Revenue Service, which amount shall constitute a fee
which shall be charged to each applicant for enrollment. The fee
shall be retained by the United States whether or not the
applicant is granted enrollment.
(b) Additional information; examination.
The Director of Practice, as a condition to consideration of an
application for enrollment, may require the applicant to file
additional information and to submit to any written or oral
examination under oath or otherwise. The Director of Practice
shall, upon written request, afford an applicant the opportunity
to be heard with respect to his application for enrollment.
(c) Temporary recognition. Upon receipt
of a properly executed application, the Director of Practice may
grant the applicant temporary recognition to practice pending a
determination as to whether enrollment to practice should be
granted. Such temporary recognition shall not be granted if the
application is not regular on its face; if the information stated
therein, if true, is not sufficient to warrant enrollment to
practice; if there is any information before the Director of
Practice which indicates that the statements in the application
are untrue; or which indicates that the applicant would not
otherwise qualify for enrollment. Issuance of temporary
recognition shall not constitute enrollment to practice or a
finding of eligibility for enrollment, and the temporary
recognition may be withdrawn at any time by the Director of
Practice.
(d) Appeal from denial of application.
The Director of Practice, in denying an application for
enrollment, shall inform the applicant as to the reason(s)
therefor. The applicant may, within 30 days after receipt of the
notice of denial, file a written appeal therefrom, together with
his/her reasons in support thereof, to the Secretary of the
Treasury. A decision on the appeal will be rendered by the
Secretary of the Treasury as soon as practicable.
Sec. 10.6 Enrollment.
(a) Roster. The Director of Practice
shall maintain rosters of all individuals:
(1) Who have been granted active enrollment
to practice before the Internal Revenue Service;
(2) Whose enrollment has been placed in an
inactive status for failure to meet the requirements for
renewal of enrollment:
(3) Whose enrollment has been placed in an
inactive retirement status;
(4) Who have been disbarred or suspended
from practice before the Internal Revenue Service;
(5) Whose offer of consent to resignation
from enrollment to practice before the Internal Revenue
Service has been accepted by the Director of Practice under
section 10.55 of this part; and
(6) Whose application for enrollment has
been denied.
(b) Enrollment card. The Director of
Practice will issue an enrollment card to each individual whose
application for enrollment to practice before the Internal
Revenue Service is approved after the effective date of this
regulation. Each such enrollment card will be valid for the
period stated thereon. Enrollment cards issued individuals before
February 1, 1987 shall become invalid after March 31, 1987. An
individual having an invalid enrollment card is not eligible to
practice before the Internal Revenue Service.
(c) Term of enrollment. Active
enrollment to practice before the Internal Revenue Service is
accorded each individual enrolled, so long as renewal of
enrollment is effected as provided in this part.
(d) Renewal of enrollment. To maintain
active enrollment to practice before the Internal Revenue
Service, each individual enrolled is required to have his/her
enrollment renewed as set forth herein. Failure by an individual
to receive notification from the Director of Practice of the
renewal requirement will not be justification for circumvention
of such requirement.
(1) All individuals enrolled to practice
before the Internal Revenue Service before November 1, 1986
shall apply for renewal of enrollment during the period
between November 1, 1986 and January 31, 1987. Those who
receive initial enrollment between November 1, 1986 and
January 31, 1987 shall apply for renewal of enrollment by
March 1, 1987. The first effective date of renewal will be
April 1, 1987.
(2) Thereafter, applications for renewal
will be required between November 1, 1989 and January 31,
1990, and between November 1 and January 31 of every third
year subsequent thereto. Those who receive initial enrollment
during the renewal application period shall apply for renewal
of enrollment by March 1 of the renewal year. The effective
date of renewed enrollment will be April 1, 1990, and April 1
of every third year subsequent thereto.
(3) The Director of Practice will notify
the individual of renewal of enrollment and will issue a card
evidencing such renewal.
(4) A reasonable nonrefundable fee may be
charged for each application for renewal of enrollment filed
with the Director of Practice.
(5) Forms required for renewal may be
obtained from the Director of Practice, Internal Revenue
Service, Washington, DC 20224.
(e) Condition for renewal: Continuing
Professional Education. In order to qualify for renewal of
enrollment, an individual enrolled to practice before the
Internal Revenue Service must certify, on the application for
renewal form prescribed by the Director of Practice, that he/she
has satisfied the following continuing professional education
requirements.
(1) For renewed enrollment effective April
1, 1987.
(i) A minimum of 24 hours of continuing
education credit must be completed between January 1,
1986 and January 31, 1987.
(ii) An individual who receives initial
enrollment between January 1, 1986 and January 31, 1987
is exempt from the continuing education requirement for
the renewal of enrollment effective April 1, 1987, but is
required to file a timely application for renewal of
enrollment.
(2) For renewed enrollment effective
April 1, 1990 and every third year thereafter.
(i) A minimum of 72 hours of continuing
education credit must be completed between February 1,
1987 and January 31, 1990, and during each three year
period subsequent thereto. Each such three year period is
known as an enrollment cycle.
(ii) A minimum of 16 hours of
continuing education credit must be completed in each
year of an enrollment cycle.
(iii) An individual who receives
initial enrollment during an enrollment cycle must
complete two (2) hours of qualifying continuing education
credit for each month enrolled during such enrollment
cycle. Enrollment for any part of a month is considered
enrollment for the entire month.
(f) Qualifying continuing education.
(1) In general. To qualify for
continuing education credit, a course of learning must:
(i) Be a qualifying program designed to
enhance the professional knowledge of an individual in
Federal taxation or Federal tax related matters, i.e.
programs comprised of current subject matter in Federal
taxation or Federal tax related matters to include
accounting, financial management, business computer
science and taxation; and
(ii) Be conducted by a qualifying
sponsor.
(2) Qualifying programs.
(i) Formal programs. Formal
programs qualify as continuing education programs if
they:
(A) Require attendance;
(B) Require that the program be
conducted by a qualified instructor, discussion
leader or speaker, i.e. a person whose background,
training, education and/or experience is appropriate
for instructing or leading a discussion on the
subject matter of the particular program; and
(C) Require a written outline
and/or textbook and certificate of attendance
provided by the sponsor, all of which must be
retained by the attendee for a three year period
following renewal of enrollment.
(ii) Correspondence or individual
study programs (including taped programs).Qualifying
continuing education programs include correspondence or
individual study programs completed on an individual
basis by the enrolled individual and conducted by
qualifying sponsors. The allowable credit hours for such
programs will be measured on a basis comparable to the
measurement of a seminar or course for credit in an
accredited educational institution. Such programs qualify
as continuing education programs if they:
(A) Require registration of the
participants by the sponsor;
(B) Provide a means for measuring
completion by the participants (e.g., written
examination); and
(C) Require a written outline
and/or textbook and certificate of completion
provided by the sponsor which must be retained by the
participant for a three year period following renewal
of enrollment.
(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 which meets the
continuing education requirements of this part.
(B) Two hours of continuing
education credit will be awarded for actual subject
preparation time for each contact hour completed as
an instructor, discussion leader or speaker at such
programs. It will be the responsibility of the
individual claiming such credit to maintain records
to verify preparation time.
(C) The maximum credit for
instruction and preparation may not exceed 50% of the
continuing education requirement for an enrollment
cycle.
(D) Presentation of the same
subject matter in an instructor, discussion leader or
speaker capacity more than one time during an
enrollment cycle will not qualify for continuing
education credit.
(iv) Credit for published articles,
books, etc.
(A) Continuing education credit
will be awarded for publications on Federal taxation
or Federal tax related matters to include accounting,
financial management, business computer science, and
taxation, provided the content of such publications
is current and designed for the enhancement of the
professional knowledge of an individual enrolled to
practice before the Internal Revenue Service.
(B) The credit allowed will be on
the basis of one hour credit for each hour of
preparation time for the material. It will be the
responsibility of the person claiming the credit to
maintain records to verify preparation time.
(C) The maximum credit for
publications may not exceed 25% of the continuing
education requirement of any enrollment cycle.
(3) Periodic examination.
Individuals 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) Sponsors.
(1) Sponsors are those responsible for
presenting programs.
(2) To qualify as a sponsor, a program
presenter must:
(i) Be an accredited educational
institution;
(ii) Be recognized for continuing
education purposes by the licensing body of any State,
possession, territory, Commonwealth, or the District of
Columbia responsible for the issuance of a license in the
field of accounting or law;
(iii) Be recognized by the Director of
Practice as a professional organization or society whose
programs include offering continuing professional
education opportunities in subject matter within the
scope of this part; or
(iv) File a sponsor agreement with the
Director of Practice to obtain approval of the program as
a qualified continuing education program.
(3) A qualifying sponsor must ensure the
program complies with the following requirements:
(i) Programs must be developed by
individual(s) qualified in the subject matter;
(ii) Program subject matter must be
current;
(iii) Instructors, discussion leaders,
and speakers must be qualified with respect to program
content;
(iv) Programs must include some means
for evaluation of technical content and presentation;
(v) Certificates of completion must be
provided those who have successfully completed the
program; and
(vi) Records must be maintained by the
sponsor to verify completion of the program and
attendance by each participant. Such records must be
retained for a period of three years following completion
of the program. In the case of continuous conferences,
conventions, and the like, records must be maintained to
verify completion of the program and attendance by each
participant at each segment of the program.
(4) Professional organizations or societies
wishing to be considered as qualified sponsors shall request
such status of the Director of Practice and furnish
information in support of the request together with any
further information deemed necessary by the Director of
Practice.
(5) Sponsor agreements and qualified
professional organization or society sponsors approved by the
Director of Practice shall remain in effect for one
enrollment cycle. The names of such sponsors will be
published on a periodic basis.
(h) Measurement of continuing education
coursework.
(1) All continuing education programs will
be measured in terms of contact hours. The shortest
recognized program will be one contact hour.
(2) A contact hour is 50 minutes of
continuous participation in a program. Credit is granted only
for a full contact hour, i.e. 50 minutes or multiples
thereof. For example, a program lasting more than 50 minutes
but less than 100 minutes will count as one contact hour.
(3) Individual segments at continuous
conferences, conventions and the like will be considered one
total program. For example, two 90-minute segments (180
minutes) at a continuous conference will count as three
contact hours.
(4) For university or college courses, each
semester hour credit will equal 15 contact hours and a
quarter hour credit will equal 10 contact hours.
(i) Recordkeeping requirements.
(1) Each individual applying for renewal
shall retain for a period of three years following the date
of renewal of enrollment the information required with regard
to qualifying continuing professional education credit hours.
Such information shall include:
(i) The name of the sponsoring
organization:
(ii) The location of the program;
(iii) The title of the program and
description of its content, e.g., course syllabi and/or
textbook;
(iv) The dates attended;
(v) The credit hours claimed;
(vi) The name(s) of the instructor(s),
discussion leader(s), or speaker(s), if appropriate; and
(vii) The certificate of completion
and/or signed statement of the hours of attendance
obtained from the sponsor.
(2) To receive continuing education credit
for service completed as an instructor, discussion leader, or
speaker, the following information must be maintained for a
period of three years following the date of renewal of
enrollment:
(i) The name of the sponsoring
organization;
(ii) The location of the program;
(iii) The title of the program and
description of its content;
(iv) The dates of the program; and
(v) The credit hours claimed.
(3) To receive continuing education credit
for publications, the following information must be
maintained for a period of three years following the date of
renewal of enrollment:
(i) The publisher;
(ii) The title of the publication;
(iii) A copy of the publication; and
(iv) The date of publication.
(j) Waivers.
(1) Waiver from the continuing education
requirements for a given period may be granted by the
Director of Practice for the following reasons:
(i) Health, which prevented compliance
with the continuing education requirements;
(ii) Extended active military duty;
(iii) Absence from the United States
for an extended period of time due to employment or other
reasons, provided the individual does not practice before
the Internal Revenue Service during such absence; and
(iv) Other compelling reasons, which
will be considered on a case-by-case basis.
(2) A request for waiver must be
accompanied by appropriate documentation. The individual will
be required to furnish any additional documentation or
explanation deemed necessary by the Director of Practice.
Examples of appropriate documentation could be a medical
certificate, military orders, etc.
(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 so notified by the Director
of Practice and placed on a roster of inactive enrolled
individuals.
(5) If a request for waiver is approved,
the individual will be so notified and issued a card
evidencing such renewal.
(6) Those who are granted waivers are
required to file timely applications for renewal of
enrollment.
(k) Failure to comply.
(1) Compliance by an individual with the
requirements of this part shall be determined by the Director
of Practice. An individual who fails to meet the requirements
of eligibility for renewal of enrollment will be notified by
the Director of Practice at his/her last known address by
first class mail. The notice will state the basis for the
non-compliance and will provide the individual an opportunity
to furnish in writing information relating to the matter
within 60 days of the date of the notice. Such information
will be considered by the Director of Practice in making a
final determination as to eligibility for renewal of
enrollment.
(2) The Director of Practice may require
any individual, by first class mail to his/her last known
mailing address, to provide copies of any records required to
be maintained under this part. The Director of Practice may
disallow any continuing professional education hours claimed
if the individual concerned fails to comply with such
requirement.
(3) An individual who has not filed a
timely application for renewal of enrollment, who has not
made a timely response to the notice of non-compliance 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 for a period of three
years. During this time, the individual will be ineligible to
practice before the Internal Revenue Service.
(4) During inactive enrollment status or at
any other time an individual is ineligible to practice before
the Internal Revenue Service, such individual shall not in
any manner, directly or indirectly, indicate he or she is
enrolled to practice before the Internal Revenue Service, or
use the term "enrolled agent," the designation
"E.A.," or other form of reference to eligibility
to practice before the Internal Revenue Service.
(5) An individual placed in an inactive
status may satisfy the requirements for renewal of enrollment
during his/her period of inactive enrollment. If such
satisfaction includes completing the continuing education
requirement, a minimum of 16 hours of qualifying continuing
education hours must be completed in the 12 month period
preceding the date on which the renewal application is filed.
Continuing education credit under this subsection may not be
used to satisfy the requirements of the enrollment cycle in
which the individual has been placed back on the active
roster.
(6) An individual placed in an inactive
status must file an application for renewal of enrollment and
satisfy the requirements for renewal as set forth in this
section within three years of being placed in an inactive
status. The name of such individual otherwise will be removed
from the inactive enrollment roster and his/her enrollment
will terminate. Eligibility for enrollment must then be
reestablished by the individual as provided in this part.
(7) Inactive enrollment status is not
available to an individual who is the subject of a discipline
matter in the Office of Director of Practice.
(l) Inactive retirement status. An
individual who no longer practices before the Internal Revenue
Service may request being placed in an inactive status at any
time and such individual will be placed in an inactive retirement
status. The individual will be ineligible to practice before the
Internal Revenue Service. Such individual must file a timely
application for renewal of enrollment at each applicable renewal
of enrollment as provided in this part. An individual who is
placed in an inactive retirement status may be reinstated to an
active enrollment status upon filing an application for renewal
of enrollment and providing evidence of the completion of the
required continuing professional education hours for the
enrollment cycle. Inactive retirement status is not available to
an individual who is the subject of a discipline matter in the
Office of Director of Practice.
(m) Renewal while under suspension or
disbarment. An individual who is ineligible to practice
before the Internal Revenue Service by virtue of disciplinary
action is required to meet the requirements for renewal of
enrollment during the period of ineligibility.
(n) Verification. The Director of
Practice may review the continuing education records of an
enrolled individual and/or qualified sponsor in a manner deemed
appropriate to determine compliance with the requirements and
standards for renewal of enrollment as provided in this part.
(Approved by the Office of Management and Budget under control
no. 1545-0946)
(31 U.S.C. 483a)
Sec. 10.7 Representing oneself;
participating in rulemaking; limited practice; special
appearances; and return preparation.
(a) Representing oneself. Individuals
may appear on their own behalf before the Internal Revenue
Service provided they present satisfactory identification.
(b) Participating in rulemaking.
Individuals may participate in rulemaking as provided by the
Administrative Procedure Act. See 5 U.S.C. 553.
(c) Limited practice.
(1) In general. Subject to the
limitations in paragraph (c)(2) of this section, an
individual who is not a practitioner may represent a taxpayer
before the Internal Revenue Service in the circumstances
described in this paragraph (c)(1), even if the taxpayer is
not present, provided the individual presents satisfactory
identification and proof of his or her authority to represent
the taxpayer. The circumstances described in this paragraph
(c)(1) are as follows:
(i) An individual may represent a
member of his or her immediate family.
(ii) A regular full-time employee of an
individual employer may represent the employer.
(iii) A general partner or a regular
full-time employee of a partnership may represent the
partnership.
(iv) A bona fide officer or a regular
full-time employee of a corporation (including a parent,
subsidiary, or other affiliated corporation),
association, or organized group may represent the
corporation, association, or organized group.
(v) A trustee, receiver, guardian,
personal representative, administrator, executor, or
regular full-time employee of a trust, receivership,
guardianship, or estate may represent the trust,
receivership, guardianship, or estate.
(vi) An officer or a regular employee
of a governmental unit, agency, or authority may
represent the governmental unit, agency, or authority in
the course of his or her official duties.
(vii) An individual may represent any
individual or entity before personnel of the Internal
Revenue Service who are outside of the United States.
(viii) An individual who prepares and
signs a taxpayer's return as the preparer, or who
prepares a return but is not required (by the
instructions to the return or regulations) to sign the
return, may represent the taxpayer before officers and
employees of the Examination Division of the Internal
Revenue Service with respect to the tax liability of the
taxpayer for the taxable year or period covered by that
return.
(2) Limitations.
(i) An individual who is under
suspension or disbarment from practice before the
Internal Revenue Service may not engage in limited
practice before the Service under section 10.7(c)(1).
(ii) The Director, after notice and
opportunity for a conference, may deny eligibility to
engage in limited practice before the Internal Revenue
Service under section 10.7(c)(1) to any individual who
has engaged in conduct that would justify suspending or
disbarring a practitioner from practice before the
Service.
(iii) An individual who represents a
taxpayer under the authority of section 10.7(c)(1)(viii)
is subject to such rules of general applicability
regarding standards of conduct, the extent of his or her
authority, and other matters as the Director prescribes.
(d) Special appearances. The
Director, subject to such conditions as he or she deems
appropriate, may authorize an individual who is not
otherwise eligible to practice before the Service to
represent another person in a particular matter.
(e) Preparing tax returns and
furnishing information. Any individual may prepare a
tax return, appear as a witness for the taxpayer before
the Internal Revenue Service, or furnish information at
the request of the Service or any of its officers or
employees.
Sec. 10.8 Customhouse brokers.
Nothing contained in the regulations in this
part shall be deemed to affect or limit the right of a
customhouse broker, licensed as such by the Commissioner of
Customs in accordance with the regulations prescribed therefor,
in any customs district in which he is so licensed, at the office
of the District Director of Internal Revenue or before the
National Office of the Internal Revenue Service, to act as a
representative in respect to any matters relating specifically to
the importation or exportation of merchandise under the customs
or internal revenue laws, for any person for whom he has acted as
a customhouse broker.
Subpart B - Duties and Restrictions Relating to
Practice Before the Internal Revenue Service
Sec. 10.20 Information to be
furnished.
(a) To the Internal Revenue Service. No
attorney, certified public accountant, enrolled agent, or
enrolled actuary shall neglect or refuse promptly to submit
records or information in any matter before the Internal Revenue
Service, upon proper and lawful request by a duly authorized
officer or employee of the Internal Revenue Service, or shall
interfere, or attempt to interfere, with any proper and lawful
effort by the Internal Revenue Service or its officers or
employees to obtain any such record or information, unless he
believes in good faith and on reasonable grounds that such record
or information is privileged or that the request for, or effort
to obtain, such record or information is of doubtful legality.
(b) To the director of practice. It
shall be the duty of an attorney or certified public accountant,
who practices before the Internal Revenue Service, or enrolled
agent, when requested by the Director of Practice, to provide the
Director with any information he may have concerning violation of
the regulations in this part by any person, and to testify
thereto in any proceeding instituted under this part for the
disbarment or suspension of an attorney, certified public
accountant, enrolled agent, or enrolled actuary, unless he
believes in good faith and on reasonable grounds that such
information is privileged or that the request therefor is of
doubtful legality.
Sec. 10.21 Knowledge of client's
omission.
Each attorney, certified public accountant,
enrolled agent, or enrolled actuary who, having been retained by
a client with respect to a matter administered by the Internal
Revenue Service, knows that the client has not complied with the
revenue laws of the United States or has made an error in or
omission from any return, document, affidavit, or other paper
which the client is required by the revenue laws of the United
States to execute, shall advise the client promptly of the fact
of such noncompliance, error, or omission.
Sec. 10.22 Diligence as to accuracy.
Each attorney, certified public accountant,
enrolled agent, or enrolled actuary shall exercise due diligence:
(a) In preparing or assisting in the
preparation of, approving, and filing returns, documents,
affidavits, and other papers relating to Internal Revenue Service
matters;
(b) In determining the correctness of oral or
written representations made by him to the Department of the
Treasury; and
(c) In determining the correctness of oral or
written representations made by him to clients with reference to
any matter administered by the Internal Revenue Service.
Sec. 10.23 Prompt disposition of
pending matters.
No attorney, certified public accountant,
enrolled agent, or enrolled actuary shall unreasonably delay the
prompt disposition of any matter before the Internal Revenue
Service.
Sec. 10.24 Assistance from disbarred
or suspended persons and former Internal Revenue Service
employees.
No attorney, certified public accountant,
enrolled agent, or enrolled actuary shall, in practice before the
Internal Revenue Service, knowingly and directly or indirectly:
(a) Employ or accept assistance from any person
who is under disbarment or suspension from practice before the
Internal Revenue Service.
(b) Accept employment as associate,
correspondent, or subagent from, or share fees with, any such
person.
(c) Accept assistance from any former
government employee where the provisions of section 10.26 of
these regulations or any Federal law would be violated.
Sec. 10.25 Practice by partners of
government employees.
No partner of an officer or employee of the
executive branch of the U.S. Government, of any independent
agency of the United States, or of the District of Columbia,
shall represent anyone in any matter administered by the Internal
Revenue Service in which such officer or employee of the
Government participates or has participated personally and
substantially as a Government employee or which is the subject of
his official responsibility.
Sec. 10.26 Practice by former
government employees, their partners and their associates.
(a) Definitions. For purposes of section
10.26:
(1) "Assist" means to act in such
a way as to advise, furnish information to or otherwise aid
another person, directly or indirectly.
(2) "Government employee" is an
officer or employee of the United States or any agency of the
United States, including a "special government
employee" as defined in 18 U.S.C. 202(a), or the
District of Columbia, or of any State, or a member of
Congress or of any State legislature.
(3) "Member of a firm" is a sole
practitioner or an employee or associate thereof, or a
partner, stockholder, associate, affiliate or employee of a
partnership, joint venture, corporation, professional
association or other affiliation of two or more practitioners
who represent non-Government parties.
(4) "Practitioner" includes any
individual described in section 10.3(e).
(5) "Official responsibility"
means the direct administrative or operating authority,
whether intermediate or final, and either exercisable alone
or with others, and either personally or through
subordinates, to approve, disapprove, or otherwise direct
Government action, with or without knowledge of the action.
(6) "Participate" or
"participation" means substantial involvement as a
Government employee by making decisions, or preparing or
reviewing documents with or without the right to exercise a
judgment of approval or disapproval, or participating in
conferences or investigations, or rendering advice of a
substantial nature.
(7) "Rule" includes Treasury
Regulations, whether issued or under preparation for issuance
as Notices of Proposed Rule Making or as Treasury Decisions,
and revenue rulings and revenue procedures published in the
Internal Revenue bulletin. "Rule" shall not include
a "transaction" as defined in paragraph (a)(9) of
this section.
(8) "Transaction" means any
decision, determination, finding, letter ruling, technical
advice, contract or approval or disapproval thereof, relating
to a particular factual situation or situations involving a
specific party or parties whose rights, privileges, or
liabilities under laws or regulations administered by the
Internal Revenue Service, or other legal rights, are
determined or immediately affected therein and to which the
United States is a party or in which it has a direct and
substantial interest, whether or not the same taxable periods
are involved. "Transaction" does not include
"rule" as defined in paragraph (a)(7) of this
section.
(b) General rules.
(1) No former Government employee shall,
subsequent to his Government employment, represent anyone in
any matter administered by the Internal Revenue Service if
the representation would violate 18 U.S.C. 207(a) or (b) or
any other laws of the United States.
(2) No former Government employee who
participated in a transaction shall, subsequent to his
Government employment, represent or knowingly assist, in that
transaction, any person who is or was a specific party to
that transaction.
(3) No former Government employee who
within a period of one year prior to the termination of his
Government employment had official responsibility for a
transaction shall, within one year after his Government
employment is ended, represent or knowingly assist in that
transaction any person who is or was a specific party to that
transaction.
(4) No former Government employee shall,
within one year after his Government employment is ended,
appear before any employee of the Treasury Department in
connection with the publication, withdrawal, amendment,
modification, or interpretation of a rule in the development
of which the former Government employee participated or for
which, within a period of one year prior to the termination
of his Government employment, he had official responsibility.
However, this subparagraph does not preclude such former
employee from appearing on his own behalf or from
representing a taxpayer before the Internal Revenue Service
in connection with a transaction involving the application or
interpretation of such a rule with respect to that
transaction: Provided, That such former employee shall
not utilize or disclose any confidential information acquired
by the former employee in the development of the rule, and
shall not contend that the rule is invalid or illegal. In
addition, this subparagraph does not preclude such former
employee from otherwise advising or acting for any person.
(c) Firm representation.
(1) No member of a firm of which a former
Government employee is a member may represent or knowingly
assist a person who was or is a specific party in any
transaction with respect to which the restrictions of
paragraph (b)(1)(other than 18 U.S.C. 207(b)) or (b)(2) of
this section apply to the former Government employee, in that
transaction, unless:
(i) No member of the firm who had
knowledge of the participation by the Government employee
in the transaction initiated discussions with the
Government employee concerning his becoming a member of
the firm until his Government employment is ended or six
months after the termination of his participation in the
transaction, whichever is earlier;
(ii) The former Government employee did
not initiate any discussions concerning becoming a member
of the firm while participating in the transaction or, if
such discussions were initiated, they conformed with the
requirement of 18 U.S.C. 208(b);
(iii) The firm isolates the former
Government employee in such a way that he does not assist
in the representation.
(2) No member of a firm of which a former
Government employee is a member may represent or knowingly
assist a person who was or is a specific party in any
transaction with respect to which the restrictions of
paragraph (b)(3) of this section apply to the former
employee, in that transaction, unless the firm isolates the
former Government employee in such a way that he does not
assist in the representation.
(3) When isolation of the former Government
employee is required under paragraphs (c)(1) or (c)(2) of
this section, a statement affirming the fact of such
isolation shall be executed under oath by the former
Government employee and by a member of the firm acting on
behalf of the firm, and shall be filed with the Director of
Practice and in such other place and in the manner prescribed
by regulation. This statement shall clearly identify the
firm, the former Government employee, and transaction or
transactions requiring such isolation.
(d) Pending representation. Practice by
former Government employees, their partners and associates with
respect to representation in specific matters where actual
representation commenced before publication of this regulation is
governed by the regulations set forth in the June 1972 amendments
to the regulations of this part (published at 37 F.R. 11676): Provided,
That the burden of showing that representation commenced before
publication is with the former Government employees, their
partners and associates.
Sec. 10.27 Notaries.
No attorney, certified public accountant,
enrolled agent, or enrolled actuary as notary public shall with
respect to any matter administered by the Internal Revenue
Service take acknowledgments, administer oaths, certify papers,
or perform any official act in connection with matters in which
he is employed as counsel, attorney, or agent, or in which he may
be in any way interested before the Internal Revenue Service (26
Op. Atty. Gen. 236).
Sec. 10.28 Fees.
(a) Generally. A practitioner may not
charge an unconscionable fee for representing a client in a
matter before the Internal Revenue Service.
(b) Contingent fees for return preparation.
A practitioner may not charge a contingent fee for preparing an
original return. A practitioner may charge a contingent fee for
preparing an amended return or a claim for refund (other than a
claim for refund made on an original return) if the practitioner
reasonably anticipates at the time the fee arrangement is entered
into that the amended return or claim will receive substantive
review by the Service. A contingent fee includes a fee that is
based on a percentage of the refund shown on a return or a
percentage of the taxes saved, or that otherwise depends on the
specific result attained.
Sec. 10.29 Conflicting interests.
No attorney, certified public accountant,
enrolled agent, or enrolled actuary shall represent conflicting
interests in his practice before the Internal Revenue Service,
except by express consent of all directly interested parties
after full disclosure has been made.
Sec. 10.30 Solicitation.
(a) Advertising and solicitation
restrictions.
(1) No attorney, certified public
accountant, enrolled agent, enrolled actuary, or other
individual eligible to practice before the Internal Revenue
Service shall, with respect to any Internal Revenue Service
matter, in any way use or participate in the use of any form
of public communication containing (i) A false, fraudulent,
unduly influencing, coercive, or unfair statement or claim;
or (ii) a misleading or deceptive statement or claim.
Enrolled agents, in describing their
professional designation, may not utilize the term of art
"certified" or indicate an employer/employee
relationship with the Internal Revenue Service. Examples of
acceptable descriptions are "enrolled to represent
taxpayers before the Internal Revenue Service,"
"enrolled to practice before the Internal Revenue
Service," and "admitted to practice before the
Internal Revenue Service." Enrolled agents and enrolled
actuaries may abbreviate such designation to either EA or
E.A.
(2) No attorney, certified public
accountant, enrolled agent, enrolled actuary, or other
individual eligible to practice before the Internal Revenue
Service shall make, directly or indirectly, an uninvited
solicitation of employment in matters related to the Internal
Revenue Service. Solicitation includes, but is not limited
to, in-person contacts and telephone communications. This
restriction does not apply to (i) Seeking new business from
an existing or former client in a related matter; (ii)
communications with family members; (iii) making the
availability of professional services known to other
practitioners, so long as the person or firm contacted is not
a potential client; (iv) solicitation by mailings; or (v)
non-coercive in-person solicitation by those eligible to
practice before the Internal Revenue Service while acting as
an employee, member, or officer of an exempt organization
listed in sections 501(c)(3) or (4) of the Internal Revenue
Code of 1954 (26 U.S.C.).
Any targeted direct mail solicitation, i.e.
a mailing to those whose unique circumstances are the basis
for the solicitation, distributed by or on behalf of an
attorney, certified public accountant, enrolled agent,
enrolled actuary, or other individual eligible to practice
before the Internal Revenue Service shall be clearly marked
as such in capital letters on the envelope and at the top of
the first page of such mailing. In addition, all such
solicitations must clearly identify the source of the
information used in choosing the recipient.
(b) Fee information.
(1) Attorneys, certified public
accountants, enrolled agents, or enrolled actuaries and other
individuals eligible to practice before the Internal Revenue
Service may disseminate the following fee information:
(i) Fixed fees for specific routine
services.
(ii) Hourly rates.
(iii) Range of fees for particular
services.
(iv) Fee charged for an initial
consultation.
Any statement of fee information
concerning matters in which costs may be incurred shall
include a statement disclosing whether clients will be
responsible for such costs.
(2) Attorneys, certified public
accountants, enrolled agents, or enrolled actuaries and other
individuals eligible to practice before the Internal Revenue
Service may also publish the availability of a written
schedule of fees.
(3) Attorneys, certified public
accountants, enrolled agents, or enrolled actuaries and other
individuals eligible to practice before the Internal Revenue
Service shall be bound to charge the hourly rate, the fixed
fee for specific routine services, the range of fees for
particular services, or the fee for an initial consultation
published for a reasonable period of time, but no less than
thirty days from the last publication of such hourly rate or
fees.
(c) Communications. Communication,
including fee information, may include professional lists,
telephone directories, print media, mailings, radio and
television, and any other method: Provided, that the
method chosen does not cause the communication to become
untruthful, deceptive, unduly influencing or otherwise in
violation of these regulations. It shall be construed as a
violation of these regulations for a practitioner to persist in
attempting to contact a prospective client, if such client has
made known to the practitioner a desire not to be solicited. In
the case of radio and television broadcasting, the broadcast
shall be pre-recorded and the practitioner shall retain a
recording of the actual audio transmission. In the case of direct
mail communications, the practitioner shall retain a copy of the
actual mailing, along with a list or other description of persons
to whom the communication was mailed or otherwise distributed.
Such copy shall be retained by the practitioner for a period of
at least 36 months from the date of the last transmission or use.
(d) Improper associations. An attorney,
certified public accountant, enrolled agent, or enrolled actuary
may, in matters related to the Internal Revenue Service, employ
or accept employment or assistance as an associate,
correspondent, or subagent from, or share fees with, any person
or entity who, to the knowledge of the practitioner, obtains
clients or otherwise practices in a manner forbidden under this
section: Provided, That a practitioner does not, directly
or indirectly, act or hold himself out as an Internal Revenue
Service practitioner in connection with that relationship.
Nothing herein shall prohibit an attorney, certified public
accountant, or enrolled agent from practice before the Internal
Revenue Service in a capacity other than that described above.
Sec. 10.31 Negotiation of taxpayer
refund checks.
No attorney, certified public accountant,
enrolled agent, or enrolled actuary who is an income tax return
preparer shall endorse or otherwise negotiate any check made in
respect of income taxes which is issued to a taxpayer other than
the attorney, certified public accountant or enrolled agent.
Sec. 10.32 Practice of law.
Nothing in the regulations in this part shall
be construed as authorizing persons not members of the bar to
practice law.
Sec. 10.33 Tax shelter opinions.
(a) Tax shelter opinions and offering
materials. A practitioner who provides a tax shelter opinion
analyzing the Federal tax effects of a tax shelter investment
shall comply with each of the following requirements:
(1) Factual matters.
(i) The practitioner must make inquiry
as to all relevant facts, be satisfied that the material
facts are accurately and completely described in the
offering materials, and assure that any representations
as to future activities are clearly identified,
reasonable and complete.
(ii) A practitioner may not accept as
true asserted facts pertaining to the tax shelter which
he/she should not, based on his/her background and
knowledge, reasonably believe to be true. However, a
practitioner need not conduct an audit or independent
verification of the asserted facts, or assume that a
client's statement of the facts cannot be relied upon,
unless he/she has reason to believe that any relevant
facts asserted to him/her are untrue.
(iii) If the fair market value of
property or the expected financial performance of an
investment is relevant to the tax shelter, a practitioner
may not accept an appraisal or financial projection as
support for the matters claimed therein unless:
(A) The appraisal or financial
projection makes sense on its face;
(B) The practitioner reasonably
believes that the person making the appraisal or
financial projection is competent to do so and is not
of dubious reputation; and
(C) The appraisal is based on the
definition of fair market value prescribed under the
relevant Federal tax provisions.
(iv) If the fair market value of
purchased property is to be established by reference to
its stated purchase price, the practitioner must examine
the terms and conditions upon which the property was (or
is to be) purchased to determine whether the stated
purchase price reasonably may be considered to be its
fair market value.
(2) Relate law to facts. The
practitioner must relate the law to the actual facts and,
when addressing issues based on future activities, clearly
identify what facts are assumed.
(3) Identification of material issues.
The practitioner must ascertain that all material Federal tax
issues have been considered, and that all of those issues
which involve the reasonable possibility of a challenge by
the Internal Revenue Service have been fully and fairly
addressed in the offering materials.
(4) Opinion on each material issue.
Where possible, the practitioner must provide an opinion
whether it is more likely than not that an investor will
prevail on the merits of each material tax issue presented by
the offering which involves a reasonable possibility of a
challenge by the Internal Revenue Service. Where such an
opinion cannot be given with respect to any material tax
issue, the opinion should fully describe the reasons for the
practitioner's inability to opine as to the likely outcome.
(5) Overall evaluation.
(i) Where possible, the practitioner
must provide an overall evaluation whether the material
tax benefits in the aggregate more likely than not will
be realized. Where such an overall evaluation cannot be
given, the opinion should fully describe the reasons for
the practitioner's inability to make an overall
evaluation. Opinions concluding that an overall
evaluation cannot be provided will be given special
scrutiny to determine if the stated reasons are adequate.
(ii) A favorable overall evaluation may
not be rendered unless it is based on a conclusion that
substantially more than half of the material tax
benefits, in terms of their financial impact on a typical
investor, more likely than not will be realized if
challenged by the Internal Revenue Service.
(iii) If it is not possible to give an
overall evaluation, or if the overall evaluation is that
the material tax benefits in the aggregate will not be
realized, the fact that the practitioner's opinion does
not constitute a favorable overall evaluation, or that it
is an unfavorable overall evaluation, must be clearly and
prominently disclosed in the offering materials.
(iv) The following examples illustrate
the principles of this paragraph:
Example (1). A limited
partnership acquires real property in a sale-leaseback
transaction. The principal tax benefits offered to
investing partners consist of depreciation and interest
deductions. Lesser tax benefits are offered to investors
by reason of several deductions under Internal Revenue
Code section 162 (ordinary and necessary business
expenses). If a practitioner concludes that it is more
likely than not that the partnership will not be treated
as the owner of the property for tax purposes (which is
required to allow the interest and depreciation
deductions), then he/she may not opine to the effect that
it is more likely than not that the material tax benefits
in the aggregate will be realized, regardless of whether
favorable opinions may be given with respect to the
deductions claimed under Code section 162.
Example (2). A corporation
electing under subchapter S of the Internal Revenue Code
is formed to engage in research and development
activities. The offering materials forecast that
deductions for research and experimental expenditures
equal to 75% of the total investment in the corporation
will be available during the first two years of the
corporation's operations, other expenses will account for
another 15% of the total investment, and that little or
no gross income will be received by the corporation
during this period. The practitioner concludes that it is
more likely than not that deductions for research and
experimental expenditures will be allowable. The
practitioner may render an opinion to the effect that
based on this conclusion, it is more likely than not that
the material tax benefits in the aggregate will be
realized, regardless of whether he/she can opine that it
is more likely than not that any of the other tax
benefits will be achieved.
Example (3). An investment
program is established to acquire offsetting positions in
commodities contracts. The objective of the program is to
close the loss positions in year one and to close the
profit positions in year two. The principal tax benefit
offered by the program is a loss in the first year,
coupled with the deferral of offsetting gain until the
following year. The practitioner concludes that the
losses will not be deductible in year one. Accordingly,
he/she may not render an opinion to the effect that it is
more likely than not that the material tax benefits in
the aggregate will be realized, regardless of the fact
that he/she is of the opinion that losses not allowable
in year one will be allowable in year two, because the
principal tax benefit offered is a one-year deferral of
income.
Example (4). A limited
partnership is formed to acquire, own and operate
residential rental real estate. The offering material
forecasts gross income of $2,000,000 and total deductions
of $10,000,000, resulting in net losses of $8,000,000
over the first six taxable years. Of the total
deductions, depreciation and interest are projected to be
$7,000,000, and other deductions $3,000,000. The
practitioner concludes that it is more likely than not
that all of the depreciation and interest deductions will
be allowable, and that it is more likely than not that
the other deductions will not be allowed. The
practitioner may render an opinion to the effect that it
is more likely than not that the material tax benefits in
the aggregate will be realized.
(6) Description of opinion. The
practitioner must assure that the offering materials
correctly and fairly represent the nature and extent of the
tax shelter opinion.
(b) Reliance on other opinions -
(1) In general. A practitioner may
provide an opinion on less than all of the material tax
issues only if:
(i) At least one other competent
practitioner provides an opinion on the likely outcome
with respect to all of the other material tax issues
which involve a reasonable possibility of challenge by
the Internal Revenue Service, and an overall evaluation
whether the material tax benefits in the aggregate more
likely than not will be realized, which is disseminated
in the same manner as the practitioner's opinion; and
(ii) The practitioner, upon reviewing
such other opinions and any offering materials, has no
reason to believe that the standards of paragraph (a) of
this section have not been complied with.
Notwithstanding the foregoing, a
practitioner who has not been retained to provide an
overall evaluation whether the material tax benefits in
the aggregate more likely than not will be realized may
issue an opinion on less than all the material tax issues
only if he/she has no reason to believe, based on his/her
knowledge and experience, that the overall evaluation
given by the practitioner who furnished the overall
evaluation is incorrect on its face.
(2) Forecasts and projections. A
practitioner who is associated with forecasts or projections
relating to or based upon the tax consequences of the tax
shelter offering that are included in the offering materials,
or are disseminated to potential investors other than the
practitioner's clients, may rely on the opinion of another
practitioner as to any or all material tax issues, provided
that the practitioner who desires to rely on the other
opinion has no reason to believe that the standards of
paragraph (a) of this section have not been complied with by
the practitioner rendering such other opinion, and the
requirements of paragraph (b)(1) of this section are
satisfied. The practitioner's report shall disclose any
material tax issue not covered by, or incorrectly opined
upon, by the other opinion, and shall set forth his/her
opinion with respect to each such issue in a manner that
satisfies the requirements of paragraph (a) of this section.
(c) Definitions. For purposes of this
section:
(1) "Practitioner" includes any
individual described in section 10.3(e).
(2) A "tax shelter," as the term
is used in this section, is an investment which has as a
significant and intended feature for Federal income or excise
tax purposes either of the following attributes:
(i) Deductions in excess of income from
the investment being available in any year to reduce
income from other sources in that year, or
(ii) Credits in excess of the tax
attributable to the income from the investment being
available in any year to offset taxes on income from
other sources in that year. Excluded from the term are
municipal bonds; annuities; family trusts (but not
including schemes or arrangements that are marketed to
the public other than in a direct practitioner-client
relationship); qualified retirement plans; individual
retirement accounts; stock option plans; securities
issued in a corporate reorganization; mineral development
ventures, if the only tax benefit would be percentage
depletion; and real estate where it is anticipated that
in no year is it likely that deductions will exceed the
tax attributable to the income from the investment in
that year. Whether an investment is intended to have tax
shelter features depends on the objective facts and
circumstances of each case. Significant weight will be
given to the features described in the offering materials
to determine whether the investment is a tax shelter.
(3) A "tax shelter opinion," as
the term is used in this section, is advice by a practitioner
concerning the Federal tax aspects of a tax shelter either
appearing or referred to in the offering materials, or used
or referred to in connection with sales promotion efforts,
and directed to persons other than the client who engaged the
practitioner to give the advice. The term includes the tax
aspects or tax risks portion of the offering materials
prepared by or at the direction of a practitioner, whether or
not a separate opinion letter is issued or whether or not the
practitioner's name is referred to in the offering materials
or in connection with the sales promotion efforts. In
addition, a financial forecast or projection prepared by a
practitioner is a tax shelter opinion if it is predicated on
assumptions regarding Federal tax aspects of the investment,
and it meets the other requirements of the first sentence of
this subparagraph. The term does not, however, include
rendering advice solely to the offeror or reviewing parts of
the offering materials, so long as neither the name of the
practitioner, nor the fact that a practitioner has rendered
advice concerning the tax aspects, is referred to in the
offering materials or in connection with the sales promotion
efforts.
(4) A "material" tax issue as the
term is used in this section is
(i) Any Federal income or excise tax
issue relating to a tax shelter that would make a
significant contribution toward sheltering from Federal
taxes income from other sources by providing deductions
in excess of the income from the tax shelter investment
in any year, or tax credits available to offset tax
liabilities in excess of the tax attributable to the tax
shelter investment in any year;
(ii) Any other Federal income or excise
tax issue relating to a tax shelter that could have a
significant impact (either beneficial or adverse) on a
tax shelter investor under any reasonably foreseeable
circumstances (e.g., depreciation or investment tax
credit recapture, availability of long-term capital gain
treatment, or realization of taxable income in excess of
cash flow, upon sale or other disposition of the tax
shelter investment); and
(iii) The potential applicability of
penalties, additions to tax, or interest charges that
reasonably could be asserted against a tax shelter
investor by the Internal Revenue Service with respect to
the tax shelter. The determination of what is material is
to be made in good faith by the practitioner, based on
information available at the time the offering materials
are circulated.
(d) For purposes of advising the Director of
Practice whether an individual may have violated section 10.33,
the Director of Practice is authorized to establish an Advisory
Committee, composed of at least five individuals authorized to
practice before the Internal Revenue Service. Under procedures
established by the Director of Practice, such Advisory Committee
shall, at the request of the Director of Practice, review and
make recommendations with regard to alleged violations of section
10.33.
Sec. 10.34 Standards for advising with respect to tax
return positions and for preparing or signing returns.
(a) Standards of conduct -
(1) Realistic possibility standard.
A practitioner may not sign a return as a preparer if the
practitioner determines that the return contains a position
that does not have a realistic possibility of being sustained
on its merits (the realistic possibility standard) unless the
position is not frivolous and is adequately disclosed to the
Service. A practitioner may not advise a client to take a
position on a return, or prepare the portion of a return on
which a position is taken, unless --
(i) The practitioner determines that
the position satisfies the realistic possibility
standard; or
(ii) The position is not frivolous and
the practitioner advises the client of any opportunity to
avoid the accuracy- related penalty in section 6662 of
the Internal Revenue Code of 1986 by adequately
disclosing the position and of the requirements for
adequate disclosure.
(2) Advising clients on potential
penalties. A practitioner advising a client to take a
position on a return, or preparing or signing a return as a
preparer, must inform the client of the penalties reasonably
likely to apply to the client with respect to the position
advised, prepared, or reported. The practitioner also must
inform the client of any opportunity to avoid any such
penalty by disclosure, if relevant, and of the requirements
for adequate disclosure. This paragraph (a)(2) applies even
if the practitioner is not subject to a penalty with respect
to the position.
(3) Relying on information furnished by
clients. A practitioner advising a client to take a
position on a return, or preparing or signing a return as a
preparer, generally may rely in good faith without
verification upon information furnished by the client.
However, the practitioner may not ignore the implications of
information furnished to, or actually known by, the
practitioner, and must make reasonable inquiries if the
information as furnished appears to be incorrect,
inconsistent, or incomplete.
(4) Definitions. For purposes of
this section:
(i) Realistic possibility.
A position is considered to have a
realistic possibility of being sustained on its merits if
a reasonable and well-informed analysis by a person
knowledgeable in the tax law would lead such a person to
conclude that the position has approximately a one in
three, or greater, likelihood of being sustained on its
merits. The authorities described in 26 CFR
1.6662-4(d)(3)(iii), or any successor provision, of the
substantial understatement penalty regulations may be
taken into account for purposes of this analysis. The
possibility that a position will not be challenged by the
Service (e.g., because the taxpayer's return may not be
audited or because the issue may not be raised on audit)
may not be taken into account.
(ii) Frivolous.
A position is frivolous if it is
patently improper.
(b) Standard of discipline. As provided
in section 10.52, only violations of this section that are
willful, reckless, or a result of gross incompetence will subject
a practitioner to suspension or disbarment from practice before
the Service.
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Last updated on October 5,
1998.
Tax Aspects of Business Transactions: A First Course, by
Annette Nellen
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