Daily Rules, Proposed Rules, and Notices of the Federal Government
Section 330 of title 31 of the United States Code authorizes the Secretary of the Treasury to regulate practice before the Treasury Department (Treasury). The Secretary has published regulations governing practice before the IRS in 31 CFR part 10 and reprinted the regulations as Treasury Department Circular No. 230 (Circular 230).
Treasury and the IRS have consistently maintained that tax practitioners must meet minimum standards of conduct with respect to written tax advice, and those who do not should be subject to disciplinary action, including suspension or disbarment. In accordance with these principles, the regulations have been amended from time to time to address issues relating to tax opinions and written tax advice.
In February 1984, the regulations were amended to provide standards for providing opinions used in tax shelter offerings in accordance with American Bar Association Formal Opinion 346 (49 FR 6719). The 1984 amendments required a practitioner who renders a tax shelter opinion to exercise responsibility with respect to the accuracy of the relevant facts; apply the law to the particular facts of the tax shelter offering; ascertain that all material Federal tax issues have been considered; when possible, provide an opinion as to the likely outcome on the merits of each material tax issue; provide an evaluation of the extent to which the material tax benefits in the aggregate will be realized; and assure that the nature and extent of the tax shelter opinion is described correctly in the offering materials.
In January 2001, Treasury and the IRS proposed additional amendments regarding tax shelter opinions. See 66 FR 3276. The 2001 notice of proposed rulemaking addressed both general matters pertaining to practice before the IRS and matters pertaining specifically to tax shelter opinions, but the portion of these regulations regarding tax shelter opinions was not finalized. Rather, on December 30, 2003, Treasury and the IRS published in the
In December 2004, Treasury and the IRS finalized the 2003 proposed regulations by publishing final regulations (TD 9165) in the
As explained later in the Explanation of Provisions section of this preamble, these proposed regulations amend Circular 230 by eliminating the complex rules governing covered opinions in current § 10.35. In addition, these proposed regulations expand the requirements for written advice under § 10.37 and withdraw the proposed amendments to § 10.39 of the regulations governing requirements for State or local bond opinions. These proposed regulations also broaden the scope of the procedures to ensure compliance under § 10.36 by requiring that a practitioner with principal authority for overseeing a firm's Federal tax practice take reasonable steps to ensure the firm has adequate procedures in place for purposes of complying with Circular 230. These proposed regulations clarify that practitioners must exercise competence when engaged in practice before the IRS and that the prohibition on a practitioner endorsing or otherwise negotiating any check issued to a taxpayer in respect of a Federal tax liability applies to government payments made by any means, electronic or otherwise. These proposed regulations expand the categories of violations subject to the expedited proceedings in § 10.82 to include failures to comply with a practitioner's personal tax filing obligations that demonstrate a pattern of willful disreputable conduct. The proposed regulations also clarify the Office of Professional Responsibility's scope of responsibility.
Public awareness of the standards for written tax advice and the accountability of practitioners offering tax advice have increased since Treasury and the IRS published final regulations on covered opinions. This increased awareness and accountability is having a positive effect on our Federal tax system. Years of practical experience, however, have shown that the covered opinion rules in current § 10.35 have produced some unintended consequences and should be reconsidered.
Reconsideration of the covered opinion rules is appropriate in light of continued practitioner dissatisfaction due to the difficulty and cost of compliance with the rules. Practitioners have consistently voiced their concern over the current rules since their promulgation in 2004. See the docket for IRS REG-138367-06 at
Another concern that the government has heard from practitioners relates to the unrestrained use of disclaimers on nearly every practitioner communication regardless of whether the communication contains tax advice. Practitioners have stated that this practice discourages compliance with the ethical requirements because some practitioners have concluded that, if they include a disclaimer, they are free to disregard the standards in current § 10.35 regarding written tax advice. The disclaimers also lead to confusion for clients because clients often do not understand why the disclaimer is present and its consequences. In addition, practitioners have complained that the disclaimer's widespread overuse causes clients to ignore the disclaimers altogether, and may render their use in some circumstances irrelevant.
Although practitioners have informed us that they support sensible regulation of written tax advice, they have expressed little support for the rules in their current form and we have received numerous requests to revise the rules. After years of experience with these rules, the government and practitioners agree that the covered opinion rules are often burdensome and provide only minimal taxpayer protection. Overall, the benefit is insufficient to justify the additional costs associated with practitioner compliance with the covered opinion rules. After careful consideration, including consideration of the public's experience with and comments on these rules, Treasury and the IRS have concluded that the written advice standards should be revised.
The proposed regulations will streamline the existing rules for written tax advice by removing current § 10.35 and applying one standard for all written tax advice under proposed § 10.37. Proposed § 10.37 provides that the practitioner must base all written advice on reasonable factual and legal assumptions, exercise reasonable reliance, and consider all relevant facts that the practitioner knows or should know. The proposed removal of § 10.35 will eliminate the requirement that practitioners fully describe the relevant facts (including the factual and legal assumptions relied upon) and the application of the law to the facts in the written advice itself, and the use of Circular 230 disclaimers in documents and transmissions, including emails.
Other provisions, §§ 10.31, 10.36, and 10.82, are also being updated at this time to reflect the current practice environment. In addition, a general competence standard is being proposed in new § 10.35. The proposed regulations also clarify that the Office of Professional Responsibility has exclusive responsibility for matters related to practitioner discipline, including disciplinary proceedings and sanctions.
The scope of these regulations is limited to practice before the IRS. These regulations do not alter or supplant other ethical standards applicable to practitioners.
Current §§ 10.35 and 10.37 provide comprehensive rules with respect to written tax advice. Specifically, current § 10.35 provides detailed rules for tax opinions that constitute “covered opinions” under Circular 230. Covered opinions include written advice concerning: (1) A listed transaction; (2) a transaction with the principal purpose of tax avoidance or evasion; or (3) a transaction with a significant purpose of tax avoidance or evasion, if the advice is a reliance opinion, marketed opinion, subject to conditions of confidentiality, or subject to a contractual protection.
The definitions of the various types of covered opinions under Circular 230 require considerable effort on behalf of practitioners to determine whether the advice rendered in a particular circumstance is subject to the covered opinion rules in current § 10.35. Because of the effort involved, many practitioners attempt to exempt the advice from the covered opinion rules by making a prominent disclosure or disclaimer stating that the opinion cannot be relied upon for penalty protection, as permitted by Circular 230.
Circular 230 also requires that practitioners comply with the extensive requirements set forth in § 10.35 when providing written advice that constitutes a covered opinion. Many of the standards in current § 10.35 track principles a competent practitioner uses when considering and rendering any advice, although these standards may be more rigid and cumbersome in application than generally applicable ethical standards. For example, current § 10.35 requires the practitioner to include in the written advice the relevant facts (including assumptions and representations), the application of the law to those facts, and the practitioner's conclusion with respect to the law and the facts. This mechanical requirement of automatic inclusion of information will sometimes lead to awkward or unnecessary, highly technical discussions in the opinion that may hinder the practitioner's ability to provide quality tax advice. Further, the inclusion of this particular detail almost always burdens the practitioner and the client with significant increased costs, without necessarily increasing the quality of the tax advice that the client receives.
Significant progress has been made in combating abusive tax shelters and schemes, and preventing unscrupulous individuals from promoting those arrangements. In recent years, heightened awareness of the ethical standards governing tax advice contributed to this improved state and has benefited practitioners, taxpayers, and the government. At the same time, there is no direct evidence to suggest that the overly-technical and detailed requirements of current § 10.35 were responsible for, or particularly effective at, curtailing the behavior of individuals attempting to profit from promoting frivolous transactions or transactions without a reasonable basis.
For these reasons, the proposed regulations eliminate the covered opinion rules in § 10.35 and instead subject all written tax advice to streamlined standards under proposed § 10.37, as described later in this preamble. The proposed regulations also remove references to current § 10.35 in §§ 10.3, 10.22, and 10.52. The burden reduction that should result from the proposed regulations is consistent with the President's directive in Executive Order 13563 to remove or modify regulations that are outmoded, ineffective, insufficient, or too burdensome.
The elimination of the covered opinion rules in this notice of proposed rulemaking would, at a minimum, save tax practitioners $5,333,200. This
This number does not include a number of other significant savings to both tax practitioners and taxpayers relating to the cost of obtaining a covered opinion under the current rules that would occur as a result of the proposed regulations. Practitioners spend many hours each year determining whether they need to prepare a covered opinion for a client or if the advice falls into one of the exceptions. This requires significant time to, among other things, research and review the complicated covered opinion rules and discuss the issue with other practitioners in the firm to determine the right course of action. If the practitioner decides, after undertaking these activities, that a covered opinion is necessary, the practitioner must discuss the covered opinion rules with the client, including how the rules affect the scope of the work that the client has asked the practitioner to perform, because the client will incur significant extra costs to obtain the written advice the client requested. These significant extra costs can, in some cases, tip the scales against obtaining written advice.
Treasury and the IRS continue to be aware of the risk associated with practitioners providing and marketing written tax opinions. Proposed § 10.37, therefore, replaces the covered opinion rules with basic principles to which all practitioners must adhere when rendering written advice. The proposed provisions also complement the best practices of § 10.33 and the due diligence requirements in § 10.22. Specifically, the proposed regulations revise § 10.37 to state affirmatively the standards to which a practitioner must adhere when providing written advice on a Federal tax matter. Proposed § 10.37 requires, among other things, that the practitioner base all written advice on reasonable factual and legal assumptions, exercise reasonable reliance, and consider all relevant facts that the practitioner knows or should know. A practitioner must also use reasonable efforts to identify and ascertain the facts relevant to written advice on a Federal tax matter under the proposed regulations.
Consistent with current § 10.37, the proposed regulations provide that a practitioner must not, in evaluating a Federal tax matter, take into account the possibility that a tax return will not be audited or that an issue will not be raised on audit. Proposed § 10.37 eliminates the provision in the current regulations that prohibits a practitioner from taking into account the possibility that an issue will be resolved through settlement if raised when giving written advice evaluating a Federal tax matter. Treasury and IRS conclude that the current rule may unduly restrict the ability of a practitioner to provide comprehensive written advice because the existence or nonexistence of legitimate hazards that may make settlement more or less likely may be a material issue for which the practitioner has an obligation to inform the client.
Under proposed § 10.37(c)(2), the IRS will continue to apply a heightened standard of review to determine whether a practitioner has satisfied the written advice standards when the practitioner knows or has reason to know that the written advice will be used in promoting, marketing, or recommending an investment plan or arrangement a significant purpose of which is the avoidance or evasion of any tax imposed by the Internal Revenue Code.
Proposed § 10.37(b) also provides that a practitioner may rely on the advice of another practitioner only if the reliance on that advice is reasonable and in good faith considering the facts and circumstances. Specifically, proposed § 10.37(b) provides that reliance is not reasonable when the practitioner knows or should know that the opinion of the other practitioner should not be relied on, the other practitioner is not competent to provide the advice, or the other practitioner has a conflict of interest. These proposed reliance provisions incorporate reliance concepts from current §§ 10.22 and 10.35(d). Proposed § 10.37, unlike current § 10.35, does not require that the practitioner describe in the written advice the relevant facts (including assumptions and representations), the application of the law to those facts, and the practitioner's conclusion with respect to the law and the facts. Rather, the scope of the engagement and the type and specificity of the advice sought by the client, in addition to all other appropriate facts and circumstances, are factors in determining the extent that the relevant facts, application of the law to those facts, and the practitioner's conclusion with respect to the law and the facts must be set forth in the written advice. Also, under proposed § 10.37, unlike current § 10.35, the practitioner may consider these factors in determining the scope of the written advice. Further, the determination of whether a practitioner has failed to comply with the requirements of proposed § 10.37 will be based on all facts and circumstances, not on whether each requirement is addressed in the written advice.
As discussed earlier in this preamble, many practitioners currently use a Circular 230 disclaimer at the conclusion of every email or other writing as a measure to remove the advice from the covered opinion rules in § 10.35. In many instances, these disclaimers are frequently inserted without regard to whether the disclaimer is necessary or appropriate. These types of disclaimers are routinely inserted in any written transmission, including writings that do not contain any tax advice. The proposed removal of current § 10.35 eliminates the detailed provisions concerning covered opinions and disclosures in written opinions. Because proposed § 10.37 does not include the disclosure provisions in the current covered opinion rules, Treasury and the IRS expect that these amendments, if adopted, will eliminate the use of a Circular 230 disclaimer in email and other writings.
Overall, Treasury and the IRS have determined that the proposed regulations regarding written advice strike an appropriate balance between allowing practitioners flexibility in providing written advice and at the same time maintaining standards that require the practitioner to act ethically and competently. Treasury and the IRS are particularly interested in comments responding to whether the proposed rules achieve that appropriate balance.
The proposed regulations withdraw the proposed amendments to § 10.39 governing requirements for State or local bond opinions, and remove the definition of, and exclusion for, State or local bond opinions from the definition of covered opinions in § 10.35. The previously proposed amendments to § 10.39 are no longer necessary because these proposed regulations remove entirely the concept of covered opinions from Circular 230. Under these proposed regulations, practitioners rendering opinions concerning the tax treatment of municipal bonds are subject to the standards in § 10.37, the same professional standards that apply to all written tax advice.
Current § 10.36(a) provides requirements for procedures to ensure compliance with § 10.35. Because these proposed regulations remove current § 10.35, these regulations also remove current § 10.36(a). Treasury and the IRS,
The procedures to ensure compliance have produced great successes in encouraging firms to self-regulate, without the excessive burden often associated with a rigid one-size-fits-all approach. Treasury and the IRS expanded § 10.36 in June 2011 to require firms to have procedures in place to ensure Circular 230 compliance with respect to a firm's tax return preparation practice. Under § 10.36 of these proposed regulations, the requirement for procedures to ensure compliance are expanded to include all provisions of Circular 230.
Firm responsibility is a critical factor in ensuring high quality advice and representation for taxpayers. Accordingly, Treasury and the IRS conclude that firm management with principal authority and responsibility for overseeing a firm's practice governed by Circular 230 should be responsible for establishing procedures to ensure compliance with all provisions of Circular 230, and not merely the provisions regarding tax advice and tax return preparation. For purposes of § 10.36, “principal” management will be interpreted in a manner consistent with its use in § 1.6694-2(a)(2) and Notice 2007-39.
Proposed § 10.35 provides that a practitioner must exercise competence when engaged in practice before the IRS. Although a practitioner can be sanctioned for incompetent conduct under § 10.51, no provision of Circular 230 specifically requires a practitioner to exercise competence when engaged in practice before the IRS. Section 10.35 is revised, therefore, to clarify that a practitioner must possess the necessary competence when engaged in practice before the IRS. Proposed § 10.35 specifies that competent practice requires the knowledge, skill, thoroughness, and preparation necessary for the matter for which the practitioner is engaged.
Proposed § 10.31 provides that a practitioner may not endorse or otherwise negotiate any check (including directing or accepting payment by any means, electronic or otherwise, into an account owned or controlled by the practitioner or any firm or other entity with whom the practitioner is associated) issued to a client by the government in respect of a Federal tax liability.
Treasury and the IRS are proposing to revise § 10.31 to clarify that the prohibition on practitioner negotiation of taxpayer refunds applies in the modern-day electronic environment in which the IRS and practitioners operate today. The proposed regulations also expand § 10.31 to apply to all individuals who practice before the IRS, not just those practitioners who are tax return preparers. Treasury and the IRS continue to encounter a small number of unscrupulous preparers and practitioners who attempt to manipulate the electronic refund process with the intent to defraud their clients and the IRS. The proposed regulations clarify that it constitutes disreputable conduct for a practitioner to direct the payment (or accept payment) of any monies issued to a client by the government in respect of a Federal tax liability to the practitioner or any firm or entity with which the practitioner is associated and that such conduct is subject to sanction.
Section 10.82 of the current regulations authorizes the immediate suspension of a practitioner who has engaged in certain conduct. The proposed regulations extend the expedited disciplinary procedures to disciplinary proceedings against practitioners who have willfully failed to comply with their Federal tax filing obligations. Treasury and the IRS issued a notice of proposed rulemaking in 2006, which included provisions that proposed extension of the availability of the expedited suspension procedures to practitioners not compliant with tax filing and payment obligations. See 71 FR 6421. These provisions were not finalized in the attendant 2007 final regulations due to practitioners' concerns that the proposed rule would erode due process rights. See 72 FR 54540. Treasury and the IRS continue, however, to encounter practitioners who demonstrate they are unfit to practice by repeatedly failing to comply with their own tax obligations.
Accordingly, these proposed regulations permit prompt action against practitioners who have engaged in a pattern of willful disreputable conduct as demonstrated by non-compliance with their Federal tax obligations, but in a manner more narrowly tailored than the 2006 proposal. These proposed regulations only permit the use of expedited procedures in the limited circumstances when a noncompliant practitioner demonstrates a pattern of willful disreputable conduct by (1) failing to make an annual Federal tax return during four of five tax years immediately before the institution of an expedited suspension proceeding; or (2) failing to make a return required more frequently than annually during five of seven tax periods immediately before the institution of an expedited suspension proceeding. For purposes of proposed § 10.82, the phrase “make a return” has the same meaning as used in sections 6011 and 6012 of the Internal Revenue Code and § 10.51(a)(6) of this part. Additionally, the practitioner must be noncompliant with a tax filing obligation at the time the notice of suspension is served on the practitioner for the expedited procedures to apply.
Unlike the previously proposed regulations, these proposed regulations do not permit the use of expedited suspension proceedings against practitioners who have not paid their Federal tax obligations. This modification responds to commentators' concern that a practitioner's failure to pay can be precipitated by circumstances outside of the practitioner's control and that it may be inequitable to suspend a practitioner expeditiously in these situations. Treasury and the IRS conclude, however, that expedited suspension is appropriate for practitioners who have not complied with basic tax filing obligations for the immediately preceding four of five years for annual returns (or five of seven tax periods). Practitioners engaging in this repeated pattern of non-filing demonstrate a high level of disregard for the Federal tax system and a level of willfulness sufficient for practitioner sanction under Circular 230. Treasury and the IRS have determined that the proposed rule is appropriate because practitioners demonstrating this high level of disregard for the Federal tax system are unfit to represent others who are making a good faith attempt to comply with their own Federal tax obligations. Expedited action in these cases will likely prevent harm to these taxpayers and the Federal tax system.
Current § 10.82(f)(2) provides that a suspension under the expedited procedures is effective until the suspension is lifted by the IRS, an Administrative Law Judge, or the Secretary of the Treasury. Circular 230 does not otherwise provide guidance with respect to the length of suspension or the time period in which the practitioner is permitted to apply for reinstatement. Section 10.81, however, currently provides that a disbarred practitioner (or disqualified appraiser) may apply for reinstatement after five years following the practitioner's disbarment or disqualification.
Treasury and IRS are also proposing several non-substantive changes to the terms of § 10.82 that will help practitioners distinguish between the expedited suspension procedures of § 10.82 and otherwise generally applicable procedures for sanctions instituted under § 10.60. For example, to begin an expedited suspension under the proposed regulations, the IRS would issue a “show cause order” instead of a “complaint” and the practitioner would submit a “response” instead of an “answer.” The terms “complaint” and “answer” are currently used to describe the documents used in both expedited suspensions under § 10.82 and regular proceedings under § 10.60. These revisions do not generally change current expedited suspension procedures, or the contents of what must be included in the underlying documents, but are proposed to make § 10.82 easier to understand.
Proposed § 10.82(g) clarifies that practitioners subject to an expedited proceeding may demand a complaint under § 10.60, and that the demand must specifically reference the suspension action under § 10.82. Current § 10.82(g) provides that the IRS has 30 days to issue a complaint after receiving the practitioner's demand for a complaint. In some cases, extra time may be necessary to provide the practitioner and Administrative Law Judge with the most current information regarding the practitioner's fitness to practice before the IRS. Treasury and the IRS have determined that 45 days will provide the IRS with sufficient time to ensure the complaint complies with the requirements in § 10.62. Accordingly, proposed § 10.82(g) provides that the IRS has 45 days to issue a complaint after receiving a demand for a complaint from a practitioner suspended under the expedited procedures.
IRS and Treasury propose revising current § 10.1 to clarify that the Office of Professional Responsibility has exclusive responsibility for matters related to practitioner discipline, including disciplinary proceedings and sanctions.
Notice 2005-47 (2005-1 CB 1373) will be obsolete beginning on the date that final regulations are published in the
IRS notices cited in this preamble are made available by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.
It has been determined that this proposed rule is not a significant regulatory action as defined in Executive Order 12866, as supplemented by Executive Order 13563. Therefore, a regulatory assessment is not required. It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. The proposed rule affects practitioners who practice before the IRS. Persons authorized to practice before the IRS have long been required to comply with certain standards of conduct, and those who provide written tax advice currently must comply with specific rules for this advice. Because these proposed rules replace the rigid rules for written tax advice with more flexible rules and eliminate the necessity to provide disclaimers in certain written tax advice, these rules will reduce the burden imposed on small entities that issue written tax advice. Therefore, the updating amendments and requirements for written advice imposed by these regulations will not have a significant economic impact on a substantial number of small entities. Therefore, a regulatory flexibility analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Internal Revenue Code, this notice of proposed rulemaking has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small businesses.
Before these proposed regulations are adopted as final regulations, consideration will be given to any comments that are timely submitted to the IRS as prescribed in this preamble under the
The public hearing is scheduled for December 7, 2012, from 10 a.m., and will be held in the Auditorium, Internal Revenue Building, 1111 Constitution Avenue NW., Washington, DC. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. All visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see the
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit comments by November 16, 2012 and an outline of the topics to be discussed and the time to be devoted to each topic by November 16, 2012. A period of 10 minutes will be allocated to each person for making comments. An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the hearing.
The principal author of these regulations is Matthew D. Lucey of the Office of the Associate Chief Counsel (Procedure and Administration).
Accountants, Administrative practice and procedure, Lawyers, Reporting and recordkeeping requirements, Taxes.
Accordingly, under the authority of 31 CFR part 330, the notice of proposed rulemaking (REG-159824-04) that was published in the
Accordingly, 31 CFR part 10 is proposed to be amended as follows:
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.
(a) * * *
(1) The Office of Professional Responsibility, which shall generally have responsibility for matters related to practitioner conduct and shall have exclusive responsibility for discipline,
(a) A practitioner may not endorse or otherwise negotiate any check (including directing or accepting payment by any means, electronic or otherwise, in an account owned or controlled by the practitioner or any firm or other entity with whom the practitioner is associated) issued to a client by the government in respect of a Federal tax liability.
(a) A practitioner must possess the necessary competence to engage in practice before the Internal Revenue. Competent practice requires the knowledge, skill, thoroughness, and preparation necessary for the matter for which the practitioner is engaged.
(a) Any practitioner who has (or practitioners who have or share) principal authority and responsibility for overseeing a firm's practice governed by this part, including the provision of advice concerning Federal tax matters and preparation of tax returns, claims for refund, or other documents for submission to the Internal Revenue Service, must take reasonable steps to ensure that the firm has adequate procedures in effect for all members, associates, and employees for purposes of complying with this part, as applicable. 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 (a) 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 this part, as applicable, and one or more individuals who are members of, associated with, or employed by, the firm are, or have, engaged in a pattern or practice, in connection with their practice with the firm, of failing to comply with this part, as applicable; 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 this part, as applicable, and the practitioner, through willfulness, recklessness, or gross incompetence fails to take prompt action to correct the noncompliance.
(2) The practitioner must—
(i) Base the written advice on reasonable factual and legal assumptions (including assumptions as to future events);
(ii) Reasonably consider all relevant facts that the practitioner knows or should know;
(iii) Use reasonable efforts to identify and ascertain the facts relevant to written advice on each Federal tax matter;
(iv) Not rely upon representations, statements, findings, or agreements (including projections, financial forecasts, or appraisals) of the taxpayer or any other person if reliance on them would be unreasonable; and
(v) Not, in evaluating a Federal tax matter, take into account the possibility that a tax return will not be audited or that a matter will not be raised on audit.
(3) Reliance on representations, statements, findings, or agreements is unreasonable if the practitioner knows or should know that one or more representations or assumptions on which any representation is based are incorrect or incomplete.
(1) The practitioner knows or should know that the opinion of the other practitioner should not be relied on;
(2) The practitioner knows or should know that the other practitioner is not competent or lacks the necessary qualifications to provide the advice; or
(3) The practitioner knows or should know that the other practitioner has a conflict of interest as described in this part.
(2) In the case of an opinion the practitioner knows or has reason to know will be used or referred to by a person other than the practitioner (or a person who is a member of, associated with, or employed by the practitioner's firm) in promoting, marketing, or recommending to one or more taxpayers a partnership or other entity, investment plan or arrangement a significant purpose of which is the avoidance or evasion of any tax imposed by the Internal Revenue Code, the determination of whether a practitioner has failed to comply with this section will be made on the basis of a heightened standard of review because of the greater risk caused by the practitioner's lack of knowledge of the taxpayer's particular circumstances.
(a) A practitioner may be sanctioned under § 10.50 if the practitioner—
(1) Willfully violates any of the regulations (other than § 10.33) contained in this part; or
(2) Recklessly or through gross incompetence (within the meaning of § 10.51(a)(13)) violates §§ 10.34, 10.36, or 10.37.
1. Revising paragraph (a) and the introductory text of paragraph (b).
2. Adding paragraph (b)(5).
3. Revising paragraphs (c), (d), (e), (f), (g), and (h).
The revisions and additions read as follows:
(5) Has demonstrated a pattern of willful disreputable conduct by—
(i) Failing to make an annual Federal tax return, in violation of the Federal tax laws, during 4 of the 5 tax years immediately preceding the institution of a proceeding under paragraph (c) of this section and remains noncompliant with any of the practitioner's Federal tax filing obligations at the time the notice of suspension is issued under paragraph (f) of this section; or
(ii) Failing to make a return required more frequently than annually, in violation of the Federal tax laws, during 5 of the 7 tax periods immediately preceding the institution of a proceeding under paragraph (c) of this section and remains noncompliant with any of the practitioner's Federal tax filing obligations at the time the notice of suspension is issued under paragraph (f) of this section.
(1) Of the place and due date for filing a response;
(2) That an expedited suspension decision by default may be rendered if the respondent fails to file a response as required;
(3) That the respondent may request a conference to address the merits of the show cause order and that any such request must be made in the response; and
(4) That the respondent may be suspended either immediately following the expiration of the period within which a response must be filed or, if a conference is requested, immediately following the conference.
(i) The expiration of the period within which a response to a show cause order must be filed if the respondent does not file a response as required by paragraph (d) of this section;
(ii) The conference described in paragraph (e) of this section if the Internal Revenue Service finds that the respondent is described in paragraph (b) of this section;
(iii) The respondent's failure to appear, either personally or through an authorized representative, at a conference scheduled by the Internal Revenue Service under paragraph (e) of this section.
(i) The date the Internal Revenue Service lifts the suspension after determining that the practitioner is no longer described in paragraph (b) of this section or for any other reason; or
(ii) The date the suspension is lifted by an Administrative Law Judge or the Secretary of the Treasury, or delegate deciding appeals, in a proceeding referred to in paragraph (g) of this section and instituted under § 10.60.
Any proceeding instituted under this part prior to the date that final regulations are published in the
Except as otherwise provided in each section and subject to § 10.91, Part 10 is applicable on the date that final regulations are published in the