[Federal Register Volume 65, Number 92 (Thursday, May 11, 2000)]
[Proposed Rules]
[Pages 30375-30376]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-11702]


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DEPARTMENT OF THE TREASURY

Office of the Secretary

31 CFR Part 10

[REG-111835-99]
RIN 1545-AY05


Regulations Governing Practice Before the Internal Revenue 
Service

AGENCY: Office of the Secretary, Treasury.

ACTION: Advance notice of proposed rulemaking.

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SUMMARY: This document provides advance notice of proposed rulemaking 
to amend the regulations governing practice before the Internal Revenue 
Service (IRS), which appear in the Code of Federal Regulations and in 
pamphlet form as Treasury Department Circular No. 230, Regulations 
Governing the Practice of Attorneys, Certified Public Accountants, 
Enrolled Agents, Enrolled Actuaries, and Appraisers before the IRS. 
This document also invites individuals and organizations to submit 
comments on revising Circular No. 230 to address general standards of 
practice and standards of practice relating to tax shelters.

DATES: Submit comments on or before July 5, 2000.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-111835-99), room 
5226, Internal Revenue Service, POB 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered Monday through 
Friday between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG-
111835-99), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, DC. Submit comments and data via electronic 
mail (email) to http://www.irs.gov/tax__regs/regslist.html.

FOR FURTHER INFORMATION CONTACT: Concerning issues for comment, Richard 
Goldstein at (202) 622-7880; concerning submissions of comments and 
delivering comments, Guy Traynor, (202) 622-7180; (not toll-free 
numbers).

SUPPLEMENTARY INFORMATION:

I. Background

    Section 330 of title 31 of the United States Code authorizes the 
Secretary of the Treasury to regulate the practice of representatives 
before the Department and, after notice and an opportunity for a 
proceeding, to suspend or disbar from practice before the Department 
those representatives who are incompetent, disreputable, or who violate 
regulations prescribed under section 330. Pursuant to section 330, the 
Secretary has published the regulations in Circular No. 230 (31 CFR 
part 10). These regulations authorize the Director of Practice to act 
upon applications for enrollment to practice before the IRS, to 
institute proceedings for suspension or disbarment from practice before 
the IRS, to make inquiries with respect to matters under the Director's 
jurisdiction, and to perform such other duties as are necessary to 
carry out these functions.
    The regulations have been amended from time to time to address 
various specific issues in need of resolution. For example, on February 
23, 1984, the regulations were amended to provide standards for 
providing opinions used in tax shelter offerings (49 FR 6719). On 
October 17, 1985, the regulations were amended to conform to 
legislative changes requiring the disqualification of an appraiser who 
is assessed a penalty under section 6701 for aiding and abetting the 
understatement of a tax liability (50 FR 42014). The regulations were 
most recently amended on June 20, 1994 (59 FR 31523) to provide 
standards for tax return preparation, to limit the use of contingent 
fees in return or refund claim preparation, to provide expedited rules 
for suspension, and to clarify or amend certain other items.
    On June 15, 1999, the Director of Practice published an advance 
notice of proposed rulemaking (64 FR 31994) requesting comments on 
amendments to the regulations that would take into account legal 
developments, professional integrity and fairness to practitioners, 
taxpayer service, and sound tax administration. The Treasury Department 
received several comments and is currently reviewing them. The 1999 
advance notice of proposed rulemaking contemplated a notice of proposed 
rulemaking that would make general revisions to Circular No. 230.

II. Tax Shelters

    Following the release of the advance notice of proposed rulemaking, 
the Treasury Department issued a report on the proliferation of 
corporate tax shelters. See ``The Problem of Corporate Tax Shelters: 
Discussion, Analysis and Legislative Proposals,'' Department of the 
Treasury, July 1999. In February of this year, the Treasury Department 
and the IRS took steps to deter abusive shelters by publishing 
temporary regulations requiring disclosure of certain transactions by 
corporate taxpayers (TD 8877, 65 FR 11205), registration of 
confidential corporate tax shelters (TD 8876, 65 FR 11215), and 
maintenance of lists of investors in certain tax shelters (TD 8875, 65 
FR 11211).
    In addition, practitioners and organizations, such as the Section 
of Taxation of the ABA, have recommended that the Treasury Department 
revise Circular No. 230 to raise the standards for providing advice 
with respect to corporate tax shelters. The Treasury Department and the 
IRS agree that it is appropriate to review the standards that should be 
followed by practitioners who provide advice with respect to such 
transactions.

III. Request for Comments

    The Treasury Department and the IRS invite comments relating to 
standards of practice governing tax shelters and other general matters. 
The Treasury Department and the IRS are particularly interested in 
receiving comments on the following matters.

A. Opinion Standards of Circular No. 230

    1. Whether the opinion standards in Sec. 10.33 (relating to tax 
opinions provided for the marketing of tax shelters) should be revised.
    2. Whether Circular No. 230 should establish standards for tax 
opinions other than those provided for in Sec. 10.33

[[Page 30376]]

or Sec. 10.51 (relating to false opinions). Particularly, whether 
Circular No. 230 should establish standards for opinions intended to 
provide legal justification for the treatment of an item for purposes 
of Sec. 1.6664-4(e) of the Regulations on Procedure and Administration 
(relating to the reasonable cause exception).
    3. Whether an opinion provided for legal justification for purposes 
of Sec. 1.6664-4(e) of the regulations should specifically state that 
it is provided for this purpose.
    4. For purposes of the foregoing:
    a. Whether the factual due diligence standards set forth in 
Sec. 10.33(a)(1) should be applied to tax shelter opinions other than 
those provided for the marketing of tax shelters.
    b. Whether the factual due diligence standards should be modified 
to further limit the circumstances under which a practitioner may rely 
on factual assertions of other persons and to require a practitioner to 
specify the measures taken to confirm the facts.
    c. Under what circumstances, if any, Circular No. 230 should permit 
a practitioner to base an opinion upon hypothetical facts or factual 
assumptions and conclusions, including assumptions regarding the 
existence of a business purpose and the significance of such purpose 
relative to the intended tax benefits.
    d. Whether Circular No. 230 should require that the opinion state 
that the transaction in question was analyzed under all applicable 
judicial doctrines (including the step transaction, business purpose, 
economic substance, substance over form, and sham transaction 
doctrines).
    e. Whether Circular No. 230 should require that an opinion state 
unambiguously that there is a greater than 50 percent likelihood that 
the taxpayer will prevail with respect to each material tax issue and 
with respect to the material tax benefits in the aggregate.

B. Contingent Fees

    1. Whether Sec. 10.28 should prohibit a practitioner from charging 
a fee for an opinion or advice relating to a position taken or to be 
taken by a taxpayer in an original return where such fee is contingent 
upon whether the tax treatment of the transaction is sustained, and 
whether Sec. 10.28 should prohibit a practitioner from providing an 
indemnity to a taxpayer with respect to a position taken or to be taken 
in an original return.
    2. Whether Sec. 10.28 should continue to permit a practitioner to 
charge a contingent fee for assisting a client in filing an amended 
return or claim for refund when the practitioner reasonably anticipates 
at the time the fee arrangement is entered into that the amended return 
or claim will receive substantive review from the Service.

C. Conditions of Confidentiality

    1. Whether there are circumstances in which Circular No. 230 should 
prohibit a practitioner from agreeing to conditions of confidentiality 
other than conditions of confidentiality imposed by reasons of 
privilege. If so, how should confidentiality be defined?
    2. Whether Circular No. 230 should prohibit a practitioner from 
asking a client to agree to conditions of confidentiality.

D. Sanctions

    1. Whether Sec. 10.24 should be modified to clarify what types of 
relationships with suspended persons are prohibited.
    2. Whether there are circumstances in which a practitioner's 
failure to comply with the rules under Circular No. 230 should be 
attributed to the firm with which the practitioner is associated so 
that the practitioner and the firm (or all practitioners in the firm) 
may be subject to discipline under Circular No. 230.
    3. Whether Circular No. 230 can or should provide a broader array 
of sanctions, such as censure, for violation of its provisions.
    4. Whether the identities of those who are disciplined under 
Circular No. 230 should be exposed to greater publicity. If so, how 
should greater publicity be achieved?

E. General Issues

    1. Whether Sec. 10.7(c)(1) should be modified to permit, under 
limited circumstances, an individual who is not authorized to practice 
before the IRS to represent a taxpayer without obtaining authorization 
for a special appearance from the Director of Practice under 
Sec. 10.7(d).
    2. Whether and to what extent Sec. 10.21 should be modified 
regarding the actions a practitioner must take when he or she discovers 
that there is an error or omission on a return or other document.
    3. Whether Sec. 10.22 should be modified to define what constitutes 
due diligence.
    4. Whether Sec. 10.29 should be expanded to define conflicting 
interests and to delineate what constitutes informed consent permitting 
a practitioner to represent clients with conflicting interests.
    5. How the provisions of Sec. 10.30(a)(2), regarding uninvited 
solicitations, should be modified in light of Edenfield v. Fane, 507 
U.S. 761 (1993).
    6. Whether the definition of communication in Sec. 10.30(c) should 
be expanded specifically to include certain forms of electronic 
communications and whether there are any special considerations that 
should be addressed regarding these forms of communication for purposes 
of Sec. 10.30.
    7. Whether the Sec. 10.51 definition of disreputable conduct should 
be expanded to include conviction of any felony.
    In addition to the foregoing issues, the Treasury Department and 
the IRS invite comments on any other changes that are necessary or 
appropriate to carry out the purposes of Circular No. 230.

    Dated: May 5, 2000.
Neal Wolin,
General Counsel.
[FR Doc. 00-11702 Filed 5-5-00; 3:35 pm]
BILLING CODE 4830-01-P