[Federal Register: September 26, 2007 (Volume 72, Number 186)]
[Proposed Rules]
[Page 54621-54622]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26se07-33]
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DEPARTMENT OF THE TREASURY
Office of the Secretary
31 CFR Part 10
[REG-138637-07]
RIN 1545-BH01
Regulations Governing Practice Before the Internal Revenue
Service
AGENCY: Office of the Secretary, Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains proposed modifications of the
regulations governing practice before the IRS (Circular 230). These
proposed regulations affect individuals who practice before the IRS.
The proposed amendments modify Sec. 10.34 of Circular 230 relating to
standards with respect to tax returns.
DATES: Written or electronic comments and requests for a public hearing
must be received by October 26, 2007.
ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-138637-07), room
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered Monday through
Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-
138637-07), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue, NW., Washington, DC, or sent electronically via the Federal
eRulemaking Portal at http://www.regulations.gov (IRS REG-138637-07).
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Matthew S. Cooper at (202) 622-4940; concerning submissions of comments
and request for a public hearing, Kelly Banks of the Publications and
Regulation Branch at (202) 622-7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of Provisions
This document contains proposed amendments to Sec. 10.34 of
Circular 230. Section 330 of title 31 of the United States Code
authorizes the Secretary of the Treasury to regulate the practice of
representatives before the Treasury Department. Pursuant to section 330
of title 31, the Secretary has published the regulations in Circular
230 (31 CFR part 10).
On May 25, 2007, the President signed into law the Small Business
and Work Opportunity Tax Act of 2007, Public Law 110-28 (121 Stat.
190), which amended several provisions of the Internal Revenue Code to
extend the application of the income tax return preparer penalties to
all tax return preparers, alter the standards of conduct that must be
met to avoid imposition of the penalties for preparing a return that
reflects an understatement of liability, and increase applicable
penalties. On June 11, 2007, the IRS released Notice 2007-54, 2007-27
IRB 1 (see Sec. 601.601(d)(2)(ii)(b)), providing guidance and
transitional relief for the return preparer provisions under section
6694 of the Internal Revenue Code, as recently amended.
Final regulations are, simultaneously to these proposed
regulations, being promulgated on September 26, 2007 modifying the
general standards of practice before the IRS under Circular 230. Those
final regulations finalize the standards with respect to documents,
affidavits and other papers as proposed, with modifications. Those
final regulations, however, do 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 made by the Small Business and Work
Opportunity Tax Act of 2007. Rather, the Treasury Department and the
IRS are reserving Sec. 10.34(a) and (e) in those final regulations and
are simultaneously issuing this notice of proposed rulemaking proposing
to amend this part to reflect these recent amendments to the Code.
The Treasury Department and the IRS have determined that the
professional standards under Sec. 10.34 of Circular 230 should conform
with the civil penalty standards for return preparers. Previously, for
example, on June 20, 1994 (59 FR 31523), the regulations were modified
to reflect more closely the rules under section 6694 and professional
guidelines. The standards with respect to tax returns in Sec. 10.34(a)
of these proposed regulations have been amended to reflect changes to
section 6694(a) of the Internal Revenue Code made by the Small Business
and Work Opportunity Tax Act of 2007.
Under Sec. 10.34(a) of these proposed regulations, a practitioner
may not sign a tax return as a preparer unless the practitioner has a
reasonable belief that the tax treatment of each position on the return
would more likely than not be sustained on its merits, or there is a
reasonable basis for each position and each position is adequately
disclosed to the Internal Revenue Service. A practitioner may not
advise a client to take a position on a tax return, or prepare the
portion of a tax return on which a position is taken, unless: (1) The
practitioner has a reasonable belief that the position satisfies the
more likely than not standard; or (2) the position has a reasonable
basis and is adequately disclosed to the Internal Revenue Service. The
definitions of ``more likely than not'' and ``reasonable basis'' under
Sec. 10.34(e) also are proposed to be amended to reflect these changes
in accordance with the well-established definitions of these terms
under the section 6662 penalty regulations.
On June 11, 2007, the IRS released Notice 2007-54, 2007-27 IRB 1
(see Sec. 601.601(d)(2)(ii)(b)), providing guidance and transitional
relief for the return preparer provisions under section 6694 of the
Code, as recently amended. In order to apply Sec. 10.34 of these
regulations consistently with the transitional relief under Notice
2007-54, Sec. 10.34(a) and (e) are proposed to apply to returns filed
or advice provided on or after the date that final regulations are
published in the Federal Register, but no earlier than January 1, 2008.
Proposed Effective Date
These regulations are proposed to apply to returns filed or advice
provided on or after the date that final regulations are published in
the Federal Register, but no earlier than January 1, 2008.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment is not required.
It is hereby certified, under the provisions of the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.), that these regulations will not
have a significant economic impact on a substantial number of small
entities. Persons authorized to practice have long been required to
comply with certain standards of conduct when practicing before the
Internal Revenue Service. The general requirements of these regulations
are substantially the same as the recent Congressional amendments to
section 6694 of the Code by the Small Business and Work Opportunity Act
of 2007. Practitioners already enroll in educational seminars or
training programs to keep up to date with the
[[Page 54622]]
latest changes to the Internal Revenue Code, the provisions of the Act,
and Circular 230, and the proposed regulations will generally be
covered as part of that training. These regulations will not impose, or
otherwise cause, a significant increase in reporting, recordkeeping, or
other compliance burdens on a substantial number of small entities. A
regulatory flexibility analysis, therefore, is not required.
Pursuant to section 7805(f) of the Internal Revenue Code, this
regulation has been submitted to the Chief Counsel for Advocacy of the
Small Business Administration for comment on the regulations' impact on
small businesses.
Comments and Requests for Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written (a signed original and eight
(8) copies) or electronic comments that are submitted timely to the
IRS. The IRS and Treasury Department request comments on the substance
of the proposed regulations, as well as on the clarity of the proposed
rules and how they can be made easier to understand. All comments will
be available for public inspection and copying. A public hearing will
be scheduled if requested in writing by any person that timely submits
written comments. If a public hearing is scheduled, notice of the date,
time, and place for the public hearing will be published in the Federal
Register.
Drafting Information
The principal author of these regulations is Matthew S. Cooper 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.
Proposed Amendments to the Regulations
Accordingly, 31 CFR part 10 is proposed to be amended to read as
follows:
PART 10--PRACTICE BEFORE THE INTERNAL REVENUE SERVICE
Paragraph 1. The authority citation for 31 CFR part 10 continues to
read as follows:
Authority: Sec. 3, 23 Stat. 258, secs. 2-12, 60 Stat. 237 et
seq.; 5 U.S.C. 301, 500, 551-559; 31 U.S.C. 321; 31 U.S.C. 330;
Reorg. Plan No. 26 of 1950, 15 FR 4935, 64 Stat. 1280, 3 CFR, 1949-
1953 Comp., p. 1017.
Paragraph 2. Section 10.34(a) and (e), and paragraph (f) is revised
to read as follows:
Sec. 10.34 Standards with respect to tax returns and documents,
affidavits and other papers.
(a) Tax returns. A practitioner may not sign a tax return as a
preparer unless the practitioner has a reasonable belief that the tax
treatment of each position on the return would more likely than not be
sustained on its merits (the more likely than not standard), or there
is a reasonable basis for each position and each position is adequately
disclosed to the Internal Revenue Service. A practitioner may not
advise a client to take a position on a tax return, or prepare the
portion of a tax return on which a position is taken, unless--
(1) The practitioner has a reasonable belief that the position
satisfies the more likely than not standard; or
(2) The position has a reasonable basis and is adequately disclosed
to the Internal Revenue Service.
* * * * *
(e) Definitions. For purposes of this section--
(1) More likely than not. A practitioner is considered to have a
reasonable belief that the tax treatment of a position is more likely
than not the proper tax treatment if the practitioner analyzes the
pertinent facts and authorities, and based on that analysis reasonably
concludes, in good faith, that there is a greater than fifty-percent
likelihood that the tax treatment will be upheld if the IRS challenges
it. 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.
(2) Reasonable basis. A position is considered to have a reasonable
basis if it is reasonably based on one or more of the authorities
described in 26 CFR 1.6662-4(d)(3)(iii), or any successor provision, of
the substantial understatement penalty regulations. Reasonable basis is
a relatively high standard of tax reporting, that is, significantly
higher than not frivolous or not patently improper. The reasonable
basis standard is not satisfied by a return position that is merely
arguable or that is merely a colorable claim. The possibility that a
tax return will not be audited, that an issue will not be raised on
audit, or that an issue will be settled may not be taken into account.
(3) Frivolous. A position is frivolous if it is patently improper.
(f) Effective/applicability date. Section 10.34(a) and (e) is
applicable for returns filed or advice provided on or after the date
that final regulations are published in the Federal Register, but no
earlier than January 1, 2008.
Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
Approved: September 19, 2007.
Robert Hoyt,
General Counsel, Office of the Secretary.
[FR Doc. E7-18919 Filed 9-25-07; 8:45 am]
BILLING CODE 4830-01-P