College of William & Mary Law SchoolWilliam & Mary Law School Scholarship Repository

William & Mary Annual Tax Conference Conferences, Events, and Lectures

1997

Ethical Problems in Tax PracticeL. Paige Marvel

Paula M. Junghans

Copyright c 1997 by the authors. This article is brought to you by the William & Mary Law School Scholarship Repository.https://scholarship.law.wm.edu/tax

Repository CitationMarvel, L. Paige and Junghans, Paula M., "Ethical Problems in Tax Practice" (1997). William & Mary Annual Tax Conference. 334.https://scholarship.law.wm.edu/tax/334

The 43rd Annual William and Mary Tax Conference

Williamsburg, VirginiaDecember 5-6, 1997

ETHICAL PROBLEMS IN TAX PRACTICE

Panelists:

L. Paige Marvel, EsquireVenable, Baetjer and Howard, LLP1800 Mercantile Bank & Trust Building2 Hopkins PlazaBaltimore, Maryland 21201410-244-7845

Paula M. Junghans, EsquireMartin, Junghans, Snyder & Bernstein217 East Redwood StreetBaltimore, Maryland 21202410-547-7163

ETHICAL PROBLEMS IN TAX PRACTICE

by

L. Paige Marvel, EsquireVenable, Baetjer and Howard, LLP

Baltimore, Maryland

INTRODUCTION

A. The Obligations of Tax Practitioners to Practice Ethically.

I1. A tax practitioner who practices before the Internal Revenue Servicemust conduct his or her practice in accordance with a variety ofprofessional rules and standards drawn from several different sources.

2. Both the American Institute of Certified Public Accountants ("AICPA")and the American Bar Association ("ABA") have promulgated modelstandards to assist practitioners in analyzing their obligations to practiceethically and in a professional manner. For example, the AICPA hasadopted the AICPA Statements on Responsibilities in Tax Practice. TheABA originally adopted the Code of Professional Responsibility but thatcode has now been superseded by the Model Rules of ProfessionalConduct. The Model Rules have been interpreted and amplified byFormal Opinions which are issued on occasion by the ABA StandingCommittee on Ethics and Professional Responsibility. 5ee, FormalOpinions 314, 346, and 85-352 which deal with ethical issues andproblems that arise in tax practice.

3. State licensing boards often adopt the model standards and requireprofessionals licensed in that state to adhere to them. Failure to do socan subject the professional to discipline.

4. There is no uniformity in state licensing requirements. Consequently,a professional authorized to practice in more than one jurisdiction canfind himself or herself subject to different rules governing the samesituation.

5. Compounding this professional morass is the fact that federal agenciesand courts promulgate their own rules of conduct.

a. Practice before the Internal Revenue Service isgoverned by regulations establishing standards ofprofessional conduct for those who engage in practicebefore it. These regulations are found in 31 CFR Part

10, affectionately known as "Circular 230," the name ofthe IRS publication containing them.

b. The United States Tax Court has adopted, by rule, theABA Model Rules with regard to professional conductin the Tax Court. See, Tax Court Rule 201 (a).

B. The Obligation of Tax Practioners to Adhere to the Law.

1. In addition to the ethical standards referred to above, tax practitioners,like all citizens, are required to abide by the law. Specific legalrequirements are imposed by statute that relate directly to the mannerin which a tax professional conducts his or her practice.

2. The Internal Revenue Code contains preparer penalties which establishminimum standards for accuracy with respect to return positions takenon a federal tax return. 5=, IRC §§6692-6694, 6701.

3. The Internal Revenue Code also contains criminal provisions whichprohibit, among other acts, engaging in acts of tax evasion,participating in the preparation or submission of false documents to theInternal Revenue Service, and corruptly endeavoring to impede the dueadministration of the tax laws. 5=, g,, IRC §§7201, 7206(2), and7212.

4. Other criminal laws prohibit a panoply of misconduct and have beenused to prosecute practitioners engaged in allegedly unlawful acts.5=, .g., 18 U.S.C. §§2, 371, 1001, 1505 and 1621.

C. Purpose of this Presentation.

1. The purpose of this presentation is to explore the applicableprofessional standards which govern tax practice by exploringhypothetical fact patterns presenting realistic dilemmas faced by taxpractitioners in everyday practice.

2. The discussion will focus on the practitioner's obligation to balancehis or her duties to the client with his or her duties to the tax system.

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II. THE DUTY TO THE CLIENT -- CONFIDENTIALITY OF CLIENTCOMMUNICATIONS

A. General Rule.

1. Most, if not all tax practitioners have an obligation imposed by theirprofessional codes of conduct and/or state law to maintain theconfidentiality of client confidences.

2. In order to demonstrate the scope and intent of the confidentialityrequirement, this outline will refer to the applicable provisions of theABA Model Rules.

B. ABA Model Rule 1.6.

1. Model Rule 1.6 provides, in pertinent part, that a lawyer shall notreveal information relating to the representation of a client without theclient's consent except where disclosure is reasonably necessary "toprevent the client from committing a criminal act that the lawyerbelieves is likely to result in imminent death or substantial bodilyharm" or "to establish a claim or defense on behalf of the lawyer in acontroversy between the lawyer and the client, to establish a defense toa criminal charge or civil claim against the lawyer based upon conductin which the client was involved, or to respond to allegations in anproceeding concerning the lawyer's representation of the client."

2. This rule has been modified in some jurisdictions to permit a lawyer todisclose fraud under certain circumstances.

3. The confidentiality obligation imposed by Model Rule 1.6 is not thesame as the attorney-client privilege, an evidentiary rule whichprotects against the production of confidential communicationsbetween a client and its lawyer in certain circumstances.

C. The Impact of Client Fraud on the Duty of Confidentiality.

1. The duty to maintain the confidentiality of client information oftenflies in the face of a practitioner's concern about a client's fraud. Thisethical dilemma has been addressed in ABA Formal Opinion 314.

2. Opinion 314 provides guidance to tax practitioners who practice beforethe Service. According to Opinion 314,

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a. A lawyer may not mislead the Service deliberately either bymisstatements or by permitting the client to mislead theService.

b. However, a lawyer representing a client before the Service maystress the strong points of a client's case and is not obligated todisclose the weak points in the case.

c. If, during the course of the proceedings before the Service, theclient makes misstatements to the Service, the lawyer mustcounsel the client to correct the misstatements. If the clientrefuses to do so, the lawyer may have a duty to withdraw if"the lawyer believes that the Service relies on him ascorroborating statements of his clients which he knows to befalse... unless it is obvious that the very act of disassociation"effectively would disclose the confidential communications.The lawyer, however, may not disclose the misstatementwithout the client's permission.

d. Other ABA Formal Opinions also provide guidance althoughthey do not deal with tax practice directly. S=, g.,, ABAOpinion 92-366 (dealing with a lawyer's obligations withrespect to the ongoing fraud of a client), and ABA Opinion93-375 (dealing with the obligations of a lawyer representinga client in a regulatory agency examination).

III. THE DUTY TO CLIENT -- AVOIDING CONFLICTS OF INTEREST

A. General Rule.

I1. Under the ABA Model Rules, a client is entitled to a practitioner'sloyalty.

a. Model Rule 1.7(a) provides, in pertinent part, that "a lawyershall not represent a client if the representation will be directlyadverse to another client, unless (1) the lawyer reasonablybelieves the representation will no adversely affect therelationship with the other client; and (2) each client consentsafter consultation.

b. Model Rule 1.7(b) provides that a lawyer shall not represent aclient if the representation of that client may be materiallylimited by the lawyer's responsibilities to another client or to athird person, or by the lawyer's own interests, unless the

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lawyer reasonably believes that the representation will not beadversely affected and the client consents after consultation.

c. Model Rule 1.9(a) prohibits a lawyer from representing anotherclient in a matter that is the same as, or is substantially relatedto, a matter for a former client where the present client'sinterests are materially adverse to the former client's interestsunless the former client consents after consultation.

2. Section 10.29 of Circular 230 also prohibits a practitioner who isauthorized to practice before the Service from representing conflictinginterests except with the express consent of all interested persons afterfull disclosure.

3. The Tax Court has adopted a special rule designed to emphasize a taxpractitioner's obligation of loyalty under the Model Rules and toprevent a possible or actual conflict of interest from adverselyaffecting the Tax Court litigation. 5=, Tax Court Rule 24(f).

IV. CIRCULAR 230 -- PRACTICE BEFORE THE SERVICE

A. Obligations Imposed on Practitioners by Circular 230.

1 . The Treasury Department is authorized to issue regulations governingpractice before the Internal Revenue Service. 31 U.S.C. §330. Theregulations are published in the Code of Federal Regulations. See,31 CFR, Subtitle A, Part 10, attached hereto as Appendix B.

2. The main body of regulations applicable to practitioners is alsopublished in Treasury Department Circular No. 230 ("Circular 230").Circular 230 sets forth rules governing a practitioner's authority topractice before the Internal Revenue Service, a practitioner's dutiesand responsibilities relating to IRS practice, and disciplinaryproceedings and procedures.

a. Practice before the Service refers to matters involving thepresentation to the Service or any of its officers or employeesrelating to a client's rights, privileges or liabilities under thelaws or regulations administered by the Service. It includes thepreparation and filing of documents, correspondence with andcommunications to the Service, and the representation ofclients at conferences, hearings and meetings.

b. Circular 230 governs practitioners who are eligible to practicebefore the Service. They include the following:

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(1) Attorneys - Any person who is a member in goodstanding of the bar of the highest court of any State,possession, territory, Commonwealth, or the District ofColumbia.

(2) CPA's - Any person who is duly qualified to practice asa certified public accountant in any State, possession,territory, Commonwealth or the District of Columbia.

(3) Enrolled Agents - Any person who is enrolled by theTreasury Department to practice before the InternalRevenue Service.

(4) Enrolled Actuaries - Any individual who is enrolled asan actuary pursuant to 29 U.S.C. § 1242.

3. Among the duties imposed by Circular 230 on an attorney, CPA,enrolled agent, or enrolled actuary authorized to practice before theIRS (hereinafter referred to as "practitioner") are the following:

a. No practitioner "shall neglect or refuse promptly to submitrecords or information in any matter before the [IRS], uponproper and lawful request by a duly authorized officer oremployee of the [RS]... unless he believes, in good faith andon reasonable grounds, that the record or information isprivileged or that the request for, or effort to obtain, suchrecord or information is of doubtful legality." Circular 230,§ 10.20.

b. No practitioner "shall interfere, or attempt to interfere, with anyproper and lawful effort by the [IRS] or its officers oremployees to obtain any such record or information, unless hebelieves in good faith and on reasonable grounds that suchrecord or information is privileged or that the request for, oreffort to obtain, such record or information is of doubtfullegality." Id.

c. Each practitioner, retained to represent a client in an IRSmatter, who "knows that the client has not complied with therevenue laws of the United States or has made an error in oromission from any return, document, affidavit, or other paperwhich the client is required by the revenue laws of the UnitedStates to execute, shall advise the client promptly of the fact ofsuch noncompliance, error, or omission." Id. at § 10.21.

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d. Each practitioner is required to exercise "due diligence" inpreparing or assisting in the preparation of returns and otherdocuments in IRS matters, in determining the correctness oforal and written representation made by him to the Departmentof the Treasury and in determining the correctness of oral andwritten representations made by him to clients regarding IRSmatters. Id. at § 10.22.

e. A practitioner "may not sign a return as a preparer if thepractitioner determines that the return contains a position thatdoes not have a realistic possibility of being sustained on itsmerits ... unless the position is not frivolous and is adequatelydisclosed to the Service." Id. at §10.34(a)(1).

f. A practitioner "may not advise a client to take a position on areturn, or prepare the portion of a return on which a position istaken unless --

(i) The practitioner determines that the position satisfiesthe realistic possibility standard; or

(ii) The position is not frivolous and the practitioneradvises the client of any opportunity to avoid theaccuracy-related penalty in section 6662 of the InternalRevenue Code of 1986 by adequately disclosing theposition and of the requirements for adequatedisclosure." Id.

4. Failure to adhere to the duties listed above can subject a practitionerto disciplinary action by the Director of Practice who has authority tosuspend or disbar a practitioner who is shown to be incompetent ordisreputable, who refuses to comply with any regulation governingpractice, or who, with intent to defraud, willfully and knowinglymisleads or threatens a client or prospective client. Id. at § 10.50.

5. "Disreputable conduct" includes, but is not limited to, the following:

a. Conviction of a criminal offense under the federal tax law or ofany offense involving dishonesty or breach of trust;

b. Giving false or misleading information, or participating in anyway in supplying false or misleading information to theTreasury Department or to any tribunal authorized to act on taxmatters, in connection with any matter pending, or likely to be

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pending, before them, knowing such information to be false ormisleading;

c. Disbarment by any state, federal court or federal agency, bodyor board. Id. at §10.51.

V. THE TAXPAYER'S OBLIGATIONS REGARDING RETURN ACCURACY

A. The Accuracy-Related Penalty.

I1. Section 6662 imposes an accuracy related penalty in the amount of20% of an underpayment of tax attributable to one or more of thefollowing:

a. Negligence - If a taxpayer asserts a tax return position whichlacks a reasonable basis or the taxpayer does not make areasonable attempt to comply with the tax law or the taxpayerdoes not keep adequate books and records to substantiate itemson a return, negligence may be found. Reg. § 1.6662-3(b).

b. Disregard of rules and regulations - "Disregard" includes anycareless, reckless or intentional disregard of the Code,regulations, revenue rulings, or notices. Reg. § 1.6662-3(b)(2).However, a taxpayer may take a position contrary to a ruling ornotice if the position have a "realistic possibility of beingsustained on its merits."

c. Substantial understatement of income tax - A substantialunderstatement of income tax occurs when an income taxunderpayment exceeds the greater of 10% of the tax due or$5,000 ($10,000 for corporations) and the position resulting inthe underpayment is not supported by "substantial authority."IRC §6662(d); Reg. §1.6662-4(d)(2).

(1) Substantial authority for a position exists if an analysissupporting the position takes into account the relevantfacts and circumstances and relevant authority andconcludes that the weight of authority supporting theposition is substantial. Reg. § 1.6662-4(d)(3)(i); Notice90-20, 1990-10 IRB at 18.

(2) The substantial authority standard is "an objectivestandard involving an analysis of the law and anapplication of the law to relevant facts."

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(3) It is less stringent than the "more likely than not"standard but more stringent than the "reasonable basis"standard.

(4) A return position that is arguable but not likely toprevail in court does not satisfy the substantial authoritystandard but does satisfy the reasonable basis standard.Reg. §1.6662-4(d)(2).

(5) Reg. § 1.6662-4(d)(3)(ii) provides that "there may besubstantial authority for the tax treatment of an itemdespite the absence of certain types of authority. Thus,a taxpayer may have substantial authority for a positionthat is supported only by a well-reasoned constructionof the applicable statutory provision."

Practice Pointer: Determining the existence of substantial authority isnever easy and becomes even more difficult in factual disputes. EVg, Osteenv. Commissioner, 62 F.3d 356 (1 lth Cir. 1995) in which the Eleventh Circuitreversed the Tax Court's determination that the accuracy penalty appliedholding that substantial authority exists if a lower court decision in favor ofthe taxpayers would have been affirmed as not clearly erroneous.

d. Valuation misstatements - If there is a valuation misstatementwithin the meaning of Section 6662, the accuracy relatedpenalty will apply. IRC §6662(e), (f) and (g).

2. In some instances, the taxpayer may avoid some parts of the accuracy-related penalty by adequate disclosure. However, disclosure is noteffective unless there exists a reasonable basis for the position.Reg. §1.6662-1.

a. IRC §6662(d)(2)(B) provides that the amount of theunderstatement (for purposes of the substantial understatementprong of the accuracy related penalty) must be reduced by thatportion of the understatement that is attributable to any item asto which the relevant facts affect the item's tax treatment areadequately disclosed in the return or in the statement attachedto the return. So als, Reg. §1.6662-4(e)(1).

NOTE: Disclosure does not avoid the penalty if the item or position isfrivolous, attributable to a tax shelter or is not properly substantiated or thetaxpayer failed to keep adequate books and records with respect to the item orposition. Reg. § 1.6662-4(e)(2).

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b. Adequate disclosure does not avoid the negligence prong ofthe accuracy-related penalty for returns due afterDecember 31, 1993. Reg. §§1.6662-1 and 1.6662-7(b).

c. Adequate disclosure does not avoid the valuation misstatementprong of the accuracy-related penalty. Reg. § 1.6662-5(a).

d. Adequate disclosure continues to avoid the "disregard of rulesand regulations" prong of the accuracy-related penalty evenafter the 1993 Act as long as the reasonable basis requirementis met. Reg. §1.6662-3(c)(1).

e. Disclosure is adequate for purposes of the substantialunderstatement prong of the accuracy-related penalty (and forthe negligence penalty prior to amendment by the 1993 Act) ifmade in accordance with Reg. § 1.6662-3(c)(2).

(1) Reg. §1.6662-4(f)(1) provides that disclosure isadequate if--

(a) disclosure is made on a properly completedform attached to the return or to a qualifiedamended return as defined byReg. §1.6664-(c)(3);

(b) in the case of an item or position other than onethat is contrary to a regulation, disclosure ismade on Form 8275 (Disclosure Statement);

(c) in the case of an item or position that is contraryto a regulation, disclosure is made on Form8275-R (Regulation Disclosure Statement).

(2) Reg. § 1.6662-4(f)(3) requires that disclosure withrespect to a recurring item must be made for eachtaxable year in which the item is taken into account.

(3) Reg. § 1.6662-4(f)(4) sets forth special disclosure rulesinvolving carrybacks and carryovers.

(4) Reg. §1.6662-5(f)(5) sets forth special rules involvingpass-through entities.

f. Disclosure is also adequate for purposes of the substantialunderstatement prong, but not the negligence prong, if it is

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made by disclosure of information on a return or qualifiedamended return in accordance with applicable forms andinstructions to the extent specified by the Commissioner inan annual revenue procedure or other means.Reg. § 1.6662-4(f)(2).

3. The accuracy-related penalty may also be avoided if the taxpayerestablishes that there was reasonable cause for the underpayment andthe taxpayer acted in good faith. IRC §6664(c); Reg. § 1.6664-4.

a. The determination of reasonable cause and good faith is madeon the basis of all of the facts and circumstances. The mostimportant factor is the extent of the taxpayer's effort to assessits proper tax liability. Reg. § 1.6664-4(b).

b. Reasonable reliance in good faith on advice provided by aprofessional may suffice if that advice is based on all pertinentfacts and circumstances and is not based on unreasonableassumptions. Reg. § 1.6664-4(b), (c).

c. A special rule applies to tax shelter positions taken bycorporate taxpayers. In order to satisfy the reasonablecause/good faith exception, a corporate taxpayer must establishthat there was substantial authority for the position and that thetaxpayer reasonably believed that there was a greater than 50%likelihood that the position would be sustained if challenged bythe Service. The taxpayer's belief can be based on either thetaxpayer's own belief or the opinion of a professional taxadvisor. Reg. §1.6664-4(e).

d. The substantial and gross valuation prongs of the accuracy-related penalty can also be avoided if reasonable cause/goodfaith exception is satisfied. Reg. §6662-5(a). However, themere fact that there is an appraisal does not satisfy the test.Rather, the Service will examine the methodology andassumptions of the appraisal, the circumstances under whichthe appraisal was obtained, and the appraiser's relationship tothe taxpayer or the relevant activity. Reg. § 1.6664-4(b).

Nok: Special rule applies to charitable deduction property.Reg. §1.6664-4(g); Reg. §1.170A-13(c)(3), (5).

e. Special rules have also been enacted with respect to thetransfer-pricing valuation provisions of Section 6662(e).Reg. §§1.6662-6 and 1.6664-4T.

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B. Other Statutory Restrictions.

I. Both the Internal Revenue Code and other provisions of the UnitedStates Code prohibit the willful preparation and filing of false federaltax returns and other documents submitted to federal agencies.

VI. THE TAX PRACTITIONER'S OBLIGATIONS REGARDING RETURNACCURACY

A. The RPOS Standard.

I. The Preparer Penalties. Section 6694(a) authorizes the imposition ofa $250 penalty on any preparer who prepares for compensation anincome tax return which understates a taxpayer's federal income taxliability and the understatement is attributable to a position that doesnot have a realistic possibility of being sustained on the merits iflitigated.

a. The RPOS standard is satisfied if a position has a one-in-threechance of success if litigated. Reg. § 1.6694-2(b) provides that,in order to meet the standard, a reasonable and well-informedperson, knowledgeable in the tax law would conclude, uponanalysis, that the position has approximately a one in three orgreater likelihood of being sustained on its merits.

b. The Section 6694(a) penalty does not apply if the position wasadequately disclosed on the return and is not frivolous.Reg. § 1.6694-2(c).

c. The penalty also does not apply if the preparer establishes thatthe understatement was due to reasonable cause.Reg. § 1.6694-2(d).

d. Section 6694(b) authorizes the imposition of a $1,000 penaltyif a preparer willfully attempts to understate a taxpayer's taxliability or recklessly or intentionally disregards rules andregulations.

(1) Disclosure does not avoid the penalty if thepreparer willfully attempted to understate liability.However, disclosure will avoid the disregard prong ifthe taxpayer is engaged in a good faith challenge to thevalidity of the regulation. Reg. §1.6694-3(e).

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(2) Although neither the statute or the applicableregulations provide for an exception to the Section 6694(b)penalty for reasonable cause, common sense indicates that, ifa practitioner had reasonable cause for the return position, thepenalty should not apply.

2. Circular 230. Circular 230 has adopted the RPOS standard. It definesthe standard in the same way that the preparer penalty regulations do.Circular 230, Sec. 10.34(a)(4).

a. Circular 230 differentiates between a signing preparer and anon-signing preparer.

b. A preparer may not sign a return that contains a position whichdoes not satisfy the RPOS standard unless the position is notfrivolous and is adequately disclosed on the return.

c. A non-signing preparer may not advise a taxpayer to take aposition on a tax return or prepare any part of a return unlessthe position satisfies the RPOS standard or the position is notfrivolous and the preparer advises the taxpayer of theopportunity to avoid the penalty by adequate disclosure.

3. Professional Ethical Standards. ABA Formal Opinion 85-352 andAICPA Statement No. I adopt the RPOS standard as the standard forreturn accuracy with respect to their members.

B. The Aiding and Abetting Penalty.

1. Section 6701 imposes a penalty on any person who assists in thepreparation or presentation of any document knowing (or havingreason to believe) that the document will be used for tax purposes andwho knows that the document, if used, will result in theunderstatement of the tax liability of another person.

2. The penalty is $1,000 ($10,000 if the document involves the taxliability of a corporation).

C. Other Statutory Provisions.

1. 26 U.S.C. §7206(2)

2. 18 U.S.C. §2

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APPENDIX A

APPENDIX A

DISCUSSION HYPOTHETICALS

1. You represent the sole proprietor of a business under audit by theInternal Revenue Service. The audit has been progressing smoothly and you have been ableto respond in a reasonable way to requests for information which you have received from therevenue agent conducting the audit. However, in response to the most recent informationdocument request, you have discovered that the client sold a few items as casual sales, theproceeds from which do not appear to have been deposited in the corporate bank account orreported as income for federal or state income tax purposes.

a. What if any obligation do you have to your client with regardto your discovery?

b. What if any obligation do you have to disclose the omission tothe agent conducting the audit?

c. What do you respond to the client when the client asks you ifshe has an obligation to disclose the omission to the Service?

d. Can you continue to represent the client in the audit if the clientdecides not to disclose the omission to the Service?

e. Does it make a difference if the client tells you that theomission was merely an oversight and was not intentional?

2. You are representing a corporate client in an administrative appealbefore the IRS Appeals Office following a hotly contested audit. One of the issues involvedis a very large, "bet the business" issue that the sole shareholder and chief executive officerwould like to put to bed as quickly as possible. After filing your protest, the appealsconference is held. The CEO insists on attending the conference. During the conference, theAppeals Officer, with whom you have always had an extremely cordial and professionalrelationship, summarizes the facts regarding the issue erroneously. The error is a materialone and results in the Appeals Officer offering to concede the issue in favor of your client.The CEO perpetuates the problem by confirming that the Appeals Officer's summary of thefacts is correct. You do not correct the factual summary at the Appeals Conference.However, you raise it with the CEO when you leave the conference and he acknowledges thathe knew the Appeals Officer had made a mistake but "that was his problem." The CEOrefuses to authorize you to correct the factual summary.

a. Can you continue to represent the taxpayer in this matter? Shouldyou?

b. Does it make a difference that the factual summary of the AppealsOfficer was based on erroneous facts set forth in the protest which you prepared?

c. Suppose the mistake in favor of your client is based on the erroneousor incomplete legal analysis of the Appeals Officer?

3. You have represented Mr. and Mrs. Jones for many years. Approximately oneyear ago, you were contacted by Mr. Jones, who asked you to represent him and his wife inconnection with an IRS audit. The audit is long and arduous. The Revenue Agent's Reportraises a number of issues including alleged unreported income with respect to Mr. Jones'professional practice and the fraud penalty. You contact Mr. Jones to arrange a meeting todiscuss the RAR and you are surprised to learn that he is separated from his wife and that heand Mrs. Jones expect to get a divorce although no divorce proceeding has yet been filed.When you suggest that Mrs. Jones attend the meeting to plan the administrative appeal, youare told by Mr. Jones that it is not necessary for Mrs. Jones to be present since he has fullauthority to handle the tax matters and he has agreed to pay any deficiencies which result.

a. Can or should you continue to represent both Mr. and Mrs. Jones?Under what circumstances?

b. Does it make a difference that Mrs. Jones signed the power of attorneyand knew about the audit when it first started?

c. Does it make a difference whether Mrs. Jones has already received acopy of the RAR (it is her address which appears on the report)?

4. During its prior tax year, your client acquired from a third party a licensegranted by the federal government. The client tells you that he/she believes that the licensehas a useful life of 8 years and produces a report, prepared by another firm, supporting thatuseful life. You look at the report and do not believe that it is very convincing.

a. What are the penalty risks to your client, your own firm, and the firmthat prepared the report as to the useful life of the license?

5. The Service has recently promulgated a final regulation that would precludeyour client from taking a certain return position. Both you and your client believe that theregulation may be held invalid if the issue is litigated.

a. What penalty risks do your client and your firm assume if the positionis taken on the return?

b. To what extent will disclosure protect or mitigate against any potentialpenalties?

6. Same facts as above except that the Service published a revenue ruling insteadof a regulation. But, for the revenue ruling, there is no direct authority on the issue.However, there is at least one well-known tax professional who has published an articlestating that the ruling is wrong.

7. Your client desires to take a position on its tax return that you do not believeis supported by substantial authority. You have prepared the return with the position on thereturn and have attached a completed Form 8275 fully disclosing the position. The clientstates that it will not include the Form 8275 in the filed return but otherwise will file thereturn as you have prepared it.

a. What action do you take, if any?

b. What penalty risks exist if the client does as it has indicated?

8. Your client approaches you with a position that you do not believe issupported by substantial authority but that you do believe has a greater than one-in-threechance of prevailing if litigated.

a. How do you advise your client in this case?

b. What risk if any do you have with respect to possible penalties?

9. Same facts as above except that you believe that the position has only a one-in-four chance of success if litigated.

10. A lawyer whom you are representing in connection with his departure fromhis prior law firm advises you that the law firm has failed to pay substantial amounts of trustfund taxes over the years when he was there. Although he was a partner and had authority tosign checks, your client advises you that the firm was run as a not-so-benevolent tyranny, thatthe managing partner controlled all disbursements and expenditures, and that your client didnot know that the taxes were being paid until just a few months before he departed. He hasjust been contacted by a revenue officer who is conducting a responsible person interviewand he asks you to represent him before the Service. You meet with the revenue officer andyou supply the information requested, which includes disclaimers concerning your client'sinvolvement with the firm's finances and his lack of responsibility and willfulness. After theForm 4180 is prepared and executed by your client, you discover that your client signedchecks for the firm and appears to have directed when and to whom some payments weremade. What do you do?

11. You represent a corporation with substantial unpaid tax liabilities. You havebeen working with a revenue officer ("RO") who has been extremely difficult. The RO hasproposed to file a federal tax lien with respect to the liabilities. You have filed a request thatthe Service refrain from doing so, offering instead to give the Service a voluntary securityagreement in the principal business assets. The reason for this is that the filing of a tax lien

will cause the business to lose its line of credit with its principal suppliers and will force thebusiness to close. The RO rejects your request and threatens to close down your client if itdoes not pay a substantial part of the liability within 5 days. You lose your temper andadvise the RO that you will come down to his office and give him a taste of his ownmedicine. The RO hangs up on you. When you calm down, you telephone the RO andapologize for your fit of temper. The RO does not tell you that he has referred the incident tothe Office of the Director of Practice.

a. Is the practitioner subject to discipline?

b. If so, on what grounds and to what degree?

12. You represent an estate with respect to an IRS audit of its federal estate taxreturn. The estate tax return showed that the decedent owned several pieces of antiquefurniture which were valued on the return at $200,000. The personal representative informsyou after the audit has gone on for some time that he has "discovered" additional pieceswhich were not included on the return. The value of the additional pieces is $100,000.However, if the antiques are sold as a package, the total value would probably exceed$350,000.

a. Are you obligated to disclose the additional antiques to the agent?

b. If you are required or permitted to disclose, what position can you takeregarding valuation?

c. Does the fact that you were the preparer of the return affect youranswers?

d. Assume that you determine that the additional pieces must bedisclosed. If the personal representative refuses to make the disclosure, can you continue torepresent the estate?

e. If you decide that you should not continue to represent the estate, whatif anything are you permitted or required to tell successor counsel?

13. Your client is the sole shareholder of a corporation. In 1997, the corporationreceives an IRS summons for all of its records for 1994, including all invoices for the year1994 and all cash disbursements records. The client delivers the records to your office. Allof the invoices delivered by the client are dated in 1994. However, your client advises youthat several of the invoices (8 or 9) are completely false and were created in 1994. Severalothers were created substantially after 1994 (in fact, after the summons was received) tocover up the destruction of certain other invoices prior to the beginning of the audit.

a. What must and should be produced?

What cannot be produced?

Should any explanation or statement be given with the production?

BA2DOCS1\0061002.01

APPENDIX B

TreasuryDepartmentCircular No. 230(Revised 3-86)

Regulations Governing thePractice of Attorneys,Certified Public AccountantsEnrolled Agents,Enrolled Actuaries andAppraisers before theInternal Revenue Service

Departmentof theTreasuryInternalRevenueService

31 CodeSubtitlethroughchangesRegister(Vol. 50,Register(Vol. 51,

of Federal RegulationsA, Part 10, as amendedFebruary 23, 1984 andappearing in the Federaldated October 17, 1985No. 201) and in the Federaldated January 26, 1986No. 14)

Regulations Governingthe Practice of Attorneys,Certified Public Accountants,Enrolled Agents, EnrolledActuaries and Appraisersbefore the InternalRevenue Service

This publication contains the revisionof Department Circular No. 230, datedAugust 9, 1966, appearing in 31 F.R.10773, dated August 13, 1966, and in-cludes the following amendements:

Amendment appearing in 31 F.R.12638, dated September 27, 1966,which adds omitted section heading§ 10.58.

Amendments dated October 28,1966, appearing in 31 F.R. 13992, datedNovember 2, 1966, which adds sub-paragraphs (b) anc (c) to § 10.57 andadds a sentence at the end, and as acontinuation, of paragraph (c) of§ 10.51.

Amendments dated August 14, 1970,appearing in 31 F.R. 13205, datedAugust 19, 1970, which are intendedprimarily to clarify the language ofcertain provisions of the regulations,strengthen certain conflict of interestand disciplinary provisions, and updatestatutory references.

Amendment appearing in 36 F.R.8671, dated May 11, 1971, correctederror in the August 19, 1970, amend-ment, which incorrectly added a newsentence to subparagraph 10.3 (c)rather than subparagraph 10.3 (e).

TreasuryDepartmentCircularNo. 230(Rev. 3-86)

Amendments appearing in 42 F.R.38350, dated July 28, 1977, which areeditorial, eliminate outdated terms andprovisions, and which increase therestrictions on practice by formerGovernment employees.

Amendments appearing in 44 F.R.4940, dated January 24, 1979, prescriberules permitting the expansion of ad-vertising and solicitation provisions ofthe regulations governing practice byattorneys, certified public accounts,enrolled agents and others who re-present clients before the InternalRevenue Service.

Amendments apparing in 44 F.R.4944, dated January 24, 1979, prescriberules to permit enrolled actuaries toengage in practice before the InternalRevenue Service in connection with theprovisions of the Internal Revenue Codeinvolving pension plans under theEmployee Retirement Income SecurityAct of 1974 (ERISA).

Amendments appearing in 49 F.R.6719, dated February 23, 1984, clarifywho may prepare a tax return and fur-nish information to the Internal RevenueService, and set standards for providingopinions used in the promotion of taxshelter offerings.

Amendments appearing in 50 F.R.42014, dated October 17, 1985,implement section 156 of the DeficitReduction Act of 1984, 98 Stat. 695, toprovide for the disqualification of ap-praisals and appraisers' testimony inconnection with Treasury Departmentor Internal Revenue Service proceedingswith respect to any appraiser who hasbeen assesed an aiding and abettingpenalty under 26 U.S.C. 6701(a) afterJuly 18, 1984.

Amendments appearing in 51 F.R.2875, dated January 22, 1986, requirethat those who are enrolled to practicebefore the Internal Revenue Servicerenew their enrollment on a periodicbasis. A condition of eligibility forrenewal of enrollment will be thesatisfaction of continuing professionaleducation requirements. In addition, theamendments modify the regulationsreflecting the transfer to the Office ofDirector of Practice certain functionsformerly performed by the Commis-sioner of Internal Revenue relative to theenrollment of individuals who wish topractice before the Internal RevenueService.

CONTENTS

Scope of part.

Subpart A-Rules GoverningAuthority 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 Limited practice; special apparances;

return preparation and furnishinginformation.

10.8 Customhouse brokers.

Subpart B-Duties end RestrictionsRelating 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 sus-

pended persons and former InternalRevenue Service employees.

10.25 Practice by partners of Governmentemployees.

10.26 Practice by former Governmentemployees, their partners and theirassociates.

10.27 Notaries.10.2810.2910.3010.3110.3210.33

Fees.Conflicting interests.Solicitation.Negotiation of taxpayer refund checks.Practice of law.Tax shelter opinions.

Subpart C-Rules Applicable to DisciplinaryProceedings

10.50 Authority to disbar or suspend.10.51 Disreputable conduct.10.52 Violation of regulations.10.53 Receipt of information concerning at-

torneys, certified public accountantsand enrolled agents.

10.54 Institution of proceeding.10.55 Conferences.10.56 Contents of complaints.10.57 Service of complaints and other

papers.10.58 Answer.10.59 Supplemental charges.10.60 Reply to answer.

10.61 Proof: variance: amendment ofpleadings.

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 Secretary10.72 Decision of the Secretary10.73 Effect of disbarment or suspension:

surrender of card.10.74 Notice of disbarment or suspension.10.75 Petition for reinstatement.10.76 Advisory committee.

Subpart D-Rules Applicable toDisqualification of Appraisers

Sec.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 Decison of the Secretary.10.96 Final Order.10.97 Petition for reinstatement.

Subpart E-General Provisions

10.98 Records.10.99 Effective date of regulations.10.100 Saving clause.10.101 Special orders.

AUTHORITY: Sec. 3,23 Stat. 258, les. 2-12.60 Stat. 237at seq: 6 U.S.C. 301, D, 551-M6. 31 U.S.C. 1026;Reorg. Plan No. 26 of of 1960, 15 F.R. 493,65 Stat. 128D,3CFR, 1949-1953 Comp., except as otherwise noted.

SOURCE: Department Crculer 230, Revised 31 F.R. 10773,Aug. 13. 1966, unless otherwise noted.

§ 10.0 Scope of part.

This part contains rules governing therecognition of attorneys, certified publicaccountants, enrolled agents, and otherpersons representing clients before theInternal Revenue Service. Subpart A ofthis part sets forth rules relating toauthority to practice before the InternalRevenue Service; Subpart B of this partprescribes the duties and restrictionsrelating to such practice; Subpart C ofthis part contains rules relating todisciplinary proceedings; and Subpart Dof this part contains general provisions,including provisions relating to avail-ability of official records.

[42 F.R. 38352, July 28, 1977]

Subpart A-Rules GoverningAuthority To Practice

§ 10.1 Director of Practice.

1a) Establishment of office. There isestablished in the Office of the Secretaryof the Treasury the Office of Director ofPractice. The Director of Practice shallbe appointed by the Secretary of theTreasury.

(b) Duties. The Director of Practiceshall act upon applications for enroll-ment to practice before the InternalRevenue Service; institute and providefor the conduct of disciplinary pro-ceedings relating to attorneys, certifiedpublic accountants, enrolled agents,enrolled actuaries and appraisers; makeinquiries with respect to matters underhis jurisdiction; and perform such otherduties as are necessary or appropriateto carry out his functions under this partor as are prescribed by the Secretary ofthe Treasury.

(c) Acting Director. The Secretary ofthe Treasury will designate an officer oremployee of the Treasury Departmentto act as Director of Practice in the

event of the absence of the director orof a vacancy in that office.

§ 10.2 Definitions.

As used in this part, except where thecontext clearly indicates otherwise, theterm:

(a) "Practice before the InternalRevenue Service" comprehends allmatters connected with presentation tothe Internal Revenue Service or any ofits officers or employees relating to aclient's rights, privileges, or liabilitiesunder laws or regulations administeredby the Internal Revenue Service. Suchpresentations include the preparationand filing of necessary documents,correspondence with and communica-tions to the Internal Revenue Service,and the representation of a client atconferences, hearings, and meetings.

(b) "Attorney" means any personwho is a member in good standing ofthe bar of the highest court of anyState, possession, territory, Com-monwealth, or the District of Columbia.

(c) "Certified public accountant"means any person who is duly qualifiedto practice as a certified public accoun-tant in any State, possession, territory,Commonwealth, or the District ofColumbia.

(d) "Commissioner" refers to theCommissioner of Internal Revenue.

[31 F.R. 10773, Aug. 13, 1966, as amended at 37F.R. 1017, Jan. 21, 1972; 42 F.R. 38352, July 28,1977; 49 F.R. 6719, Feb. 23, 1984]

§ 10.3 Who may practice.

(a) Attorneys. Any attorney who isnot currently under suspension ordisbarment from practice before the In-ternal Revenue Service may practicebefore the Service upon filing with theService a written declaration that he iscurrently qualified as an attorney and isauthorized to represent the particularparty on whose behalf he acts. An

enrollment card issued to such personbefore the effective date of this regula-tion shall be invalid and may not be usedin lieu of such written declaration.1

(b) Certified public accountants. Anycertified public accountant who is notcurrently under suspension or disbar-ment from practice before the InternalRevenue Service may practice beforethe Service upon filing with the Servicea written declaration that he is currentlyqualified as a certified public accountantand is authorized to represent the par-ticular party on whose behalf he acts.An enrollment card issued to such per-son before the effective date of thisregulation shall be invalid and may notbe used in lieu of such writtendeclaration.1

c) Enrolled agents. Any personenrolled as an agent pursuant to thispart may practice before the InternalRevenue Service.

(d) Enrolled Actuaries. (1) Any in-dividual who is enrolled as an actuary bythe Joint Board for the Enrollment ofActuaries pursuant to 29 U.S.C. 1242may practice before the InternalRevenue Service upon filing with theService a written declaration thathe/she is currently qualified as anenrolled actuary and is authorized torepresent the particular party on whosebehalf he/she acts. Practice as anenrolled actuary is limited to represen-tation with respect to issues involvingthe following statutory provisions.

Internal Revenue Code (Title 26U.S.C.) sections: 401 (qualification ofemployee plans), 403(a) (relating towhether an annuity plan meets the re-quirements of section 404(a)(2)), 404(deductibility of employer contribu-tions), 405 (qualification on bond pur-chase plans), 412 (funding requirementsfor certain employee plans), 413 (ap-plication of qualification requirements tocollectively bargained plans and to plansmaintained by more than oneemployer), 414 (containing definitions

and special rules relating to theemployee plan area), 4971 (relating toexcise taxes payable as a result of an ac-cumulated funding deficiency undersection 412), 6057 (annual registrationof plans), 6058 (information required inconnection with certain plans of de-ferred compensation), 6059 (periodicreport of actuary), 6652(e) (failure to fileannual registration and other notifica-tions by pension plan), 6652(f) (failureto file information required in connec-tion with certain plans of deferred com-pensation), 6692 (failure to file actuarialreport), 7805(b) (relating to the extent,if any, to which an Internal RevenueService ruling or determination lettercoming under the herein listed statutoryprovisions shall be applied withoutretroactive effect), and 29 U.S.C. 1083(relating to waiver of funding for non-qualified plans).

(2) An individual who practicesbefore the Internal Revenue Service pur-suant to this subsection shall be subjectto the provisions of this part in the samemanner as attorneys, certified public ac-countants and enrolled agents.

(e) Others. Any person qualifyingunder § 10.7 or § 10.5(c) may practicebefore Internal Revenue Service.

(f) Government officers andemployees; others. No officer oremployee of the United States in the ex-ecutive, legislative, or judicial branch ofthe Government, or in any agency of theUnited States, including the District ofColumbia, may practice before the Ser-vice, except that such officer oremployee may, subject to the conditionsand requirements of these regulationsand of 18 U.S.C. 205, represent amember of his immediate family or anyother person or estate for which heserves as guardian, executor, ad-ministrator, trustee, or other personalfiduciary. No Member of Congress orResident Commissioner (elect or serv-ing) may practice before the Service inconnection with any matter for which

he directly or indirectly receives, agreesto receive, or seeks any compensation.18 U.S.C. 203, 205. Nothing herein shallbe construed as prohibiting an officer oremployee of the United States asaforesaid, who is otherwise eligible topractice under the provision of this part,from representing others before the In-ternal Revenue Service when doing soin the proper discharge of his officialduties.

(g) State officers and employees. Noofficer or employee of any State, or sub-division thereof, whose duties requirehim to pass upon, investigate, or dealwith tax matters of such State or sub-division, may practice before the Ser-vice, if such State employment maydisclose facts or information applicableto Federal tax matters.

13] F.R. 10773, Aug. 13, 1966, as amended at 35F.R. 13205. Aug. 19, 1970; 36 F.R. 8671, May 11,1971; 44 F.R. 4944, Jan. 24, 1979]

- § 10.4 Eligibility for enrollment.

(a) Enrollment upon examination.The Director of Practice may grantenrollment to an applicant whodemonstrates special competence in taxmatters by written examination ad-ministered by the Internal RevenueService and who has not engaged in anyconduct which would justify the suspen-sion or disbarment of any attorney, cer-tified public accountant, or enrolledagent under the provisions of this part.

(b) Enrollment of former InternalRevenue Service employees. The Direc-tor of Practice may grant enrollment toan applicant who has not engaged inany conduct which would justify thesuspension or disbarment of any at-torney, certified public accountant, orenrolled agent under the provisions ofthis part and who, by virtue of his pastservice and technical experience in theInternal Revenue Service has qualifiedfor such enrollment, as follows:

(1) Application for enrollment on ac-count of former employment in the In-ternal Revenue Service shall be made tothe Director of Practice. Each applicantwill be supplied a form by the Directorof Practice which shall indicate the in-formation required respecting the appli-cant's qualifications. In addition to theapplicant's name, address, educationalexperience, etc., such information shallspecifically include a detailed account ofthe applicant's employment in the Inter-nal Revenue Service, which accountshall show (i) positions held, (ii) date ofeach appointment and terminationthereof, (iii) nature of services renderedin each position, with particularreference to the degree of technical ex-perience involved, and (iv) name ofsupervisor in such positions, togetherwith such other information regardingthe experience and training of the ap-plicant as may be relevant.

(2) Upon receipt of each such ap-plication, it shall be transmitted to theappropriate officer of the InternalRevenue Service with the request thata detailed report of the nature and ratingof the applicant's services in the Inter-nal Revenue Service, accompanied bythe recommendation of the superior of-ficer in the particular unit or division ofthe Internal Revenue Service that suchemployment does or does not qualifythe applicant technically or otherwise forthe desired authorization, be furnishedto the Director of Practice.

(3) In examining the qualification ofan applicant for enrollment on accountof employment in the Internal RevenueService, the Director of Practice will begoverned by the following policies:

(i) Enrollment on account of suchemployment may be of unlimited scopeor may be limited to permit the presen-tation of matters only of the particularclass or only before the particular unitor division of the Internal Revenue Ser-vice for which his former employment

in the Internal Revenue Service hasqualified the applicant.

(ii) Application for enrollment on ac-count of employment in the InternalRevenue Service must be made within3 years from the date of separation fromsuch employment.

(iii) It shall be requisite for enrollmenton account of such employment thatthe applicant shall have had a minimumof 5 years continuous employment inthe Service during which he shall havebeen regularly engaged in applying andinterpreting the provisions of the Inter-nal Revenue Code and the regulationsthereunder relating to income, estate,gift, employment, or excise taxes.

(iv) For the purposes of paragraph(b)(3)(iii) of this section an aggregate of10 or more years of employment, atleast 3 of which occurred within the 5years preceding the date of application,shall be deemed the equivalent of 5years continuous employment.

(c) Natural persons. Enrollment topractice may be granted only to naturalpersons.

(d) Attorneys; certified public ac-countants. Enrollment is not available topersons who qualify to practice under§ 10.3(a) or (b).

[3] F.R. 10773, Aug. 13, 1966, as amended at 35F.R. 13205. Aug. 19, 1970; 42 F.R. 38352, July28, 1977; 51 F.R. 2875, Jan. 26, 1986]

§ 10.5 Application for enrollment.

(a) Form; fee. An applicant for enroll-ment shall file with the Director of Prac-tice an application on Form 23, properlyexecuted under oath or affirmation.Such application shall be accompaniedby a check or money order in theamount set forth on Form 23, payableto the Internal Revenue Service, whichamount shall constitute a fee which shallbe charged to each applicant for enroll-ment. The fee shall be retained by theUnited States whether or not the appli-cant is granted enrollment.

(b) Additional information; examina-tion. The Director of Practice, as a con-dition to consideration of an applicationfor enrollment, may require the appli-cant to file additional information and tosubmit to any written or oral examina-tion under oath or otherwise. The Direc-tor of Practice shall upon writtenrequest, afford an applicant the oppor-tunity to be heard with respect to hisapplication for enrollment.

(c) Temporary recognition. Uponreceipt of a properly executed applica-tion, the Director of Practice may grantthe applicant temporary recognition topractice pending a determination as towhether enrollment to practice shouldbe granted. Such temporary recognitionshall not be granted if the application isnot regular on its face; if the informa-tion stated therein, if true, is not suffi-cient to warrant enrollment to practice;if there is any information before theDirector of Practice which indicates thatthe statements in the application are un-true; or which indicates that the appli-cant would not otherwise qualify forenrollment. Issuance of temporaryrecognition shall not constitute enroll-ment to practice or a finding of eligibil-ity for enrollment, and the temporaryrecognition may be withdrawn at anytime by the Director of Practice.

(d) Appeal from denial of application.The Director of Practice, in denying anapplication for enrollment, shall informthe applicant as to the reason(s)therefor. The applicant may, within 30days after receipt of the notice of denial,file a written appeal therefrom, togetherwith his/her reasons in support thereof,to the Secretary of the Treasury. A deci-sion on the appeal will be rendered bythe Secretary of the Treasury as soonas practicable.(Sec. 501. Pub. L. 82-137, 8b Stat. 290:31 U.S.C.• 483a).

[31 F.R. 10773, Aug. 13, 1966, as amended at 42F.R. 38352, July 28, 1977; 51 F.R. 2875, Jan. 26,198]

§ 10.6 Enrollment.

(a) Roster. The Director of Practiceshall maintain rosters of all individuals:

(1) Who have been granted activeenrollment to practice before the Inter-nal Revenue Service;

(2) Whose enrollment has beenplaced in an inactive status for failure tomeet the requirements for renewal ofenrollment;

(3) Whose enrollment has beenplaced in an inactive retirement status;

(4) Who have been disbarred orsuspended from practice before the In-ternal Revenue Service;

(5) Whose offer of consent toresignation from enrollment to practicebefore the Internal Revenue Service hasbeen accepted by the Director of Prac-tice under section 10.55 of this part; and

(6) Whose application for enrollmenthas been denied.

(b) Enrollment card. The Director ofPractice will issue an enrollment card toeach individual whose application forenrollment to practice before the Inter-nal Revenue Service is approved afterthe effective date of this regulation.Each such enrollment card will be validfor the period stated thereon. Enroll-ment cards issued individuals beforeFebruary 1, 1987 shall become invalidafter March 31, 1987. An individual hav-ing an invalid enrollment card is not eligi-ble to practice before the InternalRevenue Service.

(c) Term of enrollment. Active enroll-ment to practice before the InternalRevenue Service is accorded each in-dividual enrolled, so long as renewal ofenrollment is effected as provided in thispart.

(d) Renewal of enrollment. To main-tain active enrollment to practice beforethe Internal Revenue Service, each in-dividual enrolled is required to havehis/her enrollment renewed as set forthherein. Failure by an individual to receive

notification from the Director of Prac-tice of the renewal requirement will notbe justification for circumvention ofsuch requirement.

(1) All individuals enrolled to practicebefore the Internal Revenue Servicebefore November 1, 1986 shall apply forrenewal of enrollment during the periodbetween November 1, 1986 and January31, 1987. Those who rceive initial enroll-ment between November 1, 1986 andJanuary 31, 1987 shall apply for renewalof enrollment by March 1, 1987. Thefirst effective date of renewal will beApril 1, 1987.

(2) Thereafter, applications forrenewal will be required betweenNovember 1, 1989 and January 31,1990, and between November 1 andJanuary 31 of every third year subse-quent thereto. Those who receive initialenrollment during the renewal applica-tion period shall apply for renewal ofenrollment by March 1 of the renewalyear. The effective date of renewedenrollment will be April 1, 1990, andApril 1 of every third year subsequentthereto.

(3) The Director of Practice will notifythe individual of renewal of enrollmentand will issue a card evidencing suchrenewal.

(4) A reasonable nonrefundable feemay be charged for each application forrenewal of enrollment filed with theDirector of Practice.

(5) Forms required for renewal maybe obtained from the Director of Prac-tice, Internal Revenue Service,Washington, DC 20224.

(e) Condition for renewal: ContinuingProfessional Education. In order toqualify for renewal of enrollment, an in-dividual enrolled to practice before theInternal Revenue Service must certify,on the application for renewal formprescribed by the Director of Practice,that he/she has satisfied the following

continuing professional educationrequirements.

(1) For renewed enrollment effectiveApril 1, 1987.

(i) A minimum of 24 hours of contin-uing education credit must be com-pleted between January 1, 1986 andJanuary 31, 1987.

(ii) An individual who receives initialenrollment between January 1, 1986and January 31, 1987 is exempt from thecontinuing education requirement forthe renewal of enrollment effective April1, 1987, but is required to file a timelyapplication for renewal of enrollment.

(2) For renewed enrollment effectiveApril 1, 1990 and every third yearthereafter.

(i) A minimum of 72 hours of contin-uing education credit must be com-pleted between February 1, 1987 andJanuary 31, 1990, and during each threeyear period subsequent thereto. Eachsuch three year period is known as anenrollment cycle.

(ii) A minimum of 16 hours of contin-uing education credit must be com-pleted in each year of an enrollmentcycle.

(iii) An individual who receives initialenrollment during an enrollment cyclemust complete two (2) hours of quali-fying continuing education credit foreach month enrolled during such enroll-ment cycle. Enrollment for any part ofa month is considered enrollment for theentire month.

(f) Qualifying continuing education.(1) In General To qualify for contin-

uing education credit, a course of learn-ing must:

(i) Be a qualifying program designedto enhance the professional knowledgeof an individual in Federal taxation orFederal tax related matters, i.e. pro-grams comprised of current subjectmatter in Federal taxation or Federal taxrelated matters to include accounting,

financial management, business com-puter science and taxation; and

(ii) Be conducted by a qualifyingsponsor.

(2) Qualifying Programs.(i) Formal programs. Formal pro-

grams qualify as continuing educationprograms if they:

(A) Require attendance;(B) Require that the program be con-

ducted by a qualified instructor, discus-sion leader or speaker, i.e. a personwhose background, training, educationand/or experience is appropriate for in-structing or leading a discussion on thesubject matter of the particular program;and

(C) Require a written outline and/ortextbook and certificate of attendanceprovided by the sponsor, all of whichmust be retained by the attendee for athree year period following renewal ofenrollment;

(ii) Correspondence or individualstudy programs (including taped pro-grams). Qualifying continuing educationprograms include correspondence or in-dividual study programs completed onan individual basis by the enrolled in-dividual and conducted by qualifyingsponsors. The allowable credit hours forsuch programs will be measured on abasis comparable to the measurementof a seminar or course for credit in anaccredited educational institution. Suchprograms qualify as continuing educa-tion programs if they:

(A) Require registration of the par-ticipants by the sponsor;

(B) Provide a means for measuringcompletion by the participants (e.g.,written examination); and

(C) Require a written outline and/ortextbook and certificate of completionprovided by the sponsor which must beretained by the participant for a threeyear period following renewal ofenrollment.

(iii) Serving as an instructor, discus-sion leader or speaker.

(A) One hour of continuing educa-tion credit will be awarded for each con-tact hour completed as an instructor,discussion leader or speaker at aneducational program which meets thecontinuing education requirements ofthis part.

(B) Two hours of continuingeducation credit will be awarded foractual subject preparation time for eachcontact hour completed as an instruc-tor, discussion leader or speaker at suchprograms. It will be the responsibility ofthe individual claiming such credit tomaintain records to verify preparationtime.

(C) The maximum credit for instruc-tion and preparation may not exceed50% of the continuing education re-quirement for an enrollment cycle.

(D) Presentation of the same subjectmatter in an instructor, discussion leaderor speaker capacity more than one timeduring an enrollment cycle will notqualify for continuing education credit.

(iv) Credit for published articles,books, etc.

(A) Continuing education credit willbe awarded for publications on Federaltaxation or Federal tax related mattersto include accounting, financialmanagement, business computerscience, and taxation, provided the con-tent of such publications is current anddesigned for the enhancement of theprofessional knowledge of an individualenrolled to practice before the InternalRevenue Service.

(B) The credit allowed will be on thebasis of one hour credit for each hourof preparation time for the material. Itwill be the responsibility of the personclaiming the credit to maintain recordsto verify preparation time.

(C) The maximum credit for publica-tions may not exceed 25% of the con-tinuing education requirement of anyenrollment cycle.

(3) Periodic examination. Individualsmay establish eligibility for renewal ofenrollment for any enrollment cycle by:

(i) Achieving a passing score on eachpart of the Special Enrollment Examina-tion administered under this part duringthe three year period prior to renewal;and

(ii) Completing a minimum of 16hours of qualifying continuing educationduring the last year of an enrollmentcycle.

(g) Sponsors. (1) Sponsors are thoseresponsible for presenting programs.

(2) To qualify as a sponsor, a pro-gram presenter must:

(i) Be an accredited educationalinstitution;

(ii) Be recognized for continuingeducation purposes by the licensingbody of any State, possession, territory,Commonwealth, or the District of Co-lumbia responsible for the issuance ofa license in the field of accounting orlaw;

(iii) Be recognized by the Director ofPractice as a professional organizationor society whose programs include of-fering continuing professional educationopportunities in subject matter withinthe scope of this part; or

(iv) File a sponsor agreement with theDirector of Practice to obtain approvalof the program as a qualified continu-ing education program.

(3) A qualifying sponsor must ensurethe program complies with the follow-ing requirements:

(i) Programs must be developed byindividual(s) qualified in the subjectmatter;

(ii) Program subject matter must becurrent;

(iii) Instructors, discussion leaders,and speakers must be qualified withrespect to program content;

(iv) Programs must include somemeans for evaluation of technical con-tent and presentation;

(v) Certificates of completion mustbe provided those who have success-fully completed the program; and

(vi) Records must be maintained bythe sponsor to verify completion of theprogram and attendance by each par-ticipant. Such records must be retainedfor a period of three years followingcompletion of the program. In the caseof continuous conferences, conven-tions, and the like, records must bemaintained to verify completion of theprogram and attendance by each par-ticipant at each segment of theprogram.

(4) Professional organizations orsocieties wishing to be considered asqualified sponsors shall request suchstatus of the Director of Practice andfurnish information in support of the re-quest together with any further informa-tion deemed necessary by the Directorof Practice.

(5) Sponsor agreements and qualifiedprofessional organization or societysponsors approved by the Director ofPractice shall remain in effect for oneenrollment cycle. The names of suchsponsors will be published on a periodicbasis.

(h) Measurement of continuingeducation coursework.

(1) All continuing education pro-grams will be measured in terms of con-tact hours. The shortest recognized pro-gram will be one contact hour.

(2) A contact hour is 50 minutes ofcontinuous participation in a program.Credit is granted only for a full contacthour, i.e. 50 minutes or multiplesthereof. For example, a program lastingmore than 50 minutes but less than 100minutes will count as one contact hour.

(3) Individual segments at continuousconferences, conventions and the likewill be considered one total program.For example, two 90-minute segments(180 minutes) at a continuous con-ference will count as three contacthours.

(4) For university or college courses,each semester hour credit will equal 15contact hours and a quarter hour creditwill equal 10 contact hours.

(i) Recordkeeping requirements.(1) Each individual applying for

renewal shall retain for a period of threeyears following the date of renewal ofenrollment the information required withregard to qualifying continuing profes-sional education credit hours. Such in-formation shall include:

(i) The name of the sponsoringorganization:

(ii) The location of the program;(iii) The title of the program and

description of its content, e.g., coursesyllabi 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 ap-propriate; and

(vii) The certificate of completionand/or signed statement of the hours ofattendance obtained from the sponsor.

(2) To receive continuing educationcredit for service completed as an in-structor, discussion leader, or speaker,the following information must be main-tained for a period of three years follow-ing the date of renewal of enrollment:

(i) The name of the sponsoringorganization;

(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 in-formation must be maintained for aperiod of three years following the dateof 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 con-

tinuing education requirements for a

given period may be granted by theDirector of Practice for the followingreasons:

(i) Health, which prevented com-pliance with the continuing educationrequirements;

(ii) Extended active military duty;(iii) Absence from the United States

for an extended period of time due toemployment or other reasons, providedthe individual does not practice beforethe Internal Revenue Service duringsuch absence; and

(iv) Other compelling reasons, whichwill be considered on a case-by-casebasis.

(2) A request for waiver must be ac-companied by appropriate documenta-tion. The individual will be required tofurnish any additional documentation orexplanation deemed necessary by theDirector of Practice. Examples of ap-propriate documentation could be amedical certificate, military orders, etc.

(3) A request for waiver must be filedno later than the last day of the renewalapplication period.

(4) If a request for waiver is not ap-proved, the individual will be so notifiedby the Director of Practice and placedon a roster of inactive enrolledindividuals.

(5) If a request for waiver isapproved, the individual will be sonotified and issued a card evidencingsuch renewal.

(6) Those who are granted waiversare required to file timely applications forrenewal of enrollment.

(k) Failure to comply. (1) Complianceby an individual with the requirementsof this part shall be determined by theDirector of Practice. An individual whofails to meet the requirements ofeligibility for renewal of enrollment willbe notified by the Director of Practiceat his/her last known address by firstclass mail. The notice will state the basisfor the non-compliance and will provide

the individual an opportunity to furnishin writing information relating to thematter within 60 days of the date of thenotice. Such information will be con-sidered by the Director of Practice inmaking a final determination as toeligibility for renewal of enrollment.

(2) The Director of Practice may re-quire any individual, by first class mailto his/her last known mailing address,to provide copies of any records re-quired to be maintained under this part.The Director of Practice may disallowany continuing professional educationhours claimed if the individual con-cerned fails to comply with suchrequirement.

(3) An individual who has not filed atimely application for renewal of enroll-ment, who has not made a timelyresponse to the notice of non-compliance with the renewal re-quirements, or who has not satisfied therequirements of eligibility for renewalwill be placed on a roster of inactiveenrolled individuals for a period of threeyears. During this time, the individualwill be ineligible to practice before theInternal Revenue Service.

(4) During inactive enrollment statusor at any other time an individual is in-eligible to practice before the InternalRevenue Service, such individual shallnot in any manner, directly or indirectly,indicate he or she is enrolled to practicebefore the Internal Revenue Service, oruse the term "enrolled agent," thedesignation "E.A.," or other form ofreference to eligibility to practice beforethe Internal Revenue Service.

(5) An individual placed in an inactivestatus may satisfy the requirements forrenewal of enrollment during his/herperiod of inactive enrollment. If suchsatisfaction includes completing thecontinuing education requirement, aminimum of 16 hours of qualifying con-tinuing education hours must be com-pleted in the 12 month period preceding

the date on which the renewal applica-tion is filed. Continuing education creditunder this subsection may not be usedto satisfy the requirements of the enroll-ment cycle in which the individual hasbeen placed back on the active roster.

(6) An individual placed in an inactivestatus must file an application forrenewal of enrollment and satisfy the re-quirements for renewal as set forth inthis section within three years of beingplaced in an inactive status. The nameof such individual otherwise will beremoved from the inactive enrollmentroster and his/her enrollment will ter-minate. Eligibility for enrollment mustthen be reestablished by the individualas provided in this part.

(7) Inactive enrollment status is notavailable to an individual who is the sub-ject of a discipline matter in the Officeof Director of Practice.

(I) Inactive retirement status. An in-dividual who no longer practices beforethe Internal Revenue Service may re-quest being placed in an inactive statusat any time and such individual will beplaced in an inactive retirement status.The individual will be ineligible to prac-tice before the Internal Revenue Serv-ice. Such individual must file a timelyapplication for renewal of enrollment ateach applicable renewal of enrollment asprovided in this part. An individual whois placed in an inactive retirement statusmay be reinstated to an active enroll-ment status upon filing an applicationfor renewal of enrollment and providingevidence of the completion of the re-quired continuing professional educa-tion hours for the enrollment cycle. In-active retirement status is not availableto an individual who is the subject of adiscipline matter in the Office of Direc-tor of Practice.

(i) Renewal while under suspensionor disbarment. An individual who is in-eligible to practice before the InternalRevenue Service by virtue of disciplinary

action is required to meet the re-quirements for renewal of enrollmentduring the period of ineligibility.

(n) Verification. The Director of Prac-tice may review the continuing educa-tion records of an enrolled individualand/or qualified sponsor in a mannerdeemed appropriate to determine com-pliance with the requirements and stan-dards for renewal of enrollment as pro-vided in this part. (Approved by the Of-fice of Management and Budget underControl No. 1545-0946.)

(31 U.S.C. 483a)[31 F.R. 10773. Aug. 13, 1966, as amended at 42F.R. 38352, July 28. 19771(51 F.R. 2875, Jan. 26, 19861

§ 10.7 Limited practice; specialappearances; return preparation andfurnishing information.

(a) In general. Individuals may appearon their own behalf and-may otherwiseappear without enrollment, providedthey present satisfactory identification,in the following classes of cases:

(1) An individual may representanother individual who is his regular full-time employer, may represent a partner-ship of which he is a member or aregular full-time employee, or mayrepresent without compensation amember of his immediate family.

(2) Corporations (including parents,subsidiaries or affiliated corporations),trusts, estates, associations, or orga-nized groups may be represented bybona fide officers or regular full-timeemployees.

(3) Trusts, receiverships, guard-ianships, or estates may be repesentedby their trustees, receivers, guardians,administrators or executors or theirregular full-time employees.

(4) Any governmental unit, agency,or authority may be represented by anofficer or regular employee in the courseof his official duties.

(5) Unenrolled persons may par-ticipate in rule making as provided bysection 4 of the Administrative Pro-cedure Act, 60 Stat. 238 (5 U.S.C.1003).

(6) Enrollment is not required forrepresentation outside of the UnitedStates before personnel of the InternalRevenue Service.

(7) Any individual who is not underdisbarment or suspension from practicebefore the Internal Revenue Service orother practice of his profession by anyother authority (in the case of attorneys,certified public accountants, and publicaccountants) and who signs a return ashaving prepared it for the taxpayer, orwho prepared a return with respect towhich the instructions or regulations donot require that it be signed by the per-son who prepared the return for the tax-payer, may appear without enrollmentas the taxpayer's representative, with orwithout the taxpayer, before revenueagents and examining officers of the Ex-amination Division in the offices ofDistrict Directors with respect to the taxliability of the taxpayer for the taxableyear or period covered by that return.Proper authorization from the taxpayerwill be required. All such persons will besubject to such rules regarding stan-dards of conduct, the extent of their au-thority, and other matters as the Direc-tor of Practice shall prescribe. Such per-sons will be permitted to represent tax-payers within those limits without enroll-ment, except that the Director of Prac-tice may deny permission to engage insuch limited practice to any person whohas engaged in conduct which wouldjustify suspension or disbarment of anyattorney, certified public accountant, orenrolled agent under the provisions ofthis part.

(b) Special appearance. The Directorof Practice, subject to such conditionsas he deems appropriate, may authorizeany person to represent another without

enrollment for the purpose of a par-ticular matter.

(c) Preparation of tax returns and fur-nishing information. Any person mayprepare a tax return, may appear as awitness for the taxpayer before the In-ternal Revenue Service, or furnish infor-mation at the request of the InternalRevenue Service or any of its officers oremployees.

[3 F.R. 10773, Aug. 13, 1966, as amended at 35F.R. 13205. Aug. 19, 1970; 49 F.R. 6719, Feb. 23,1984; 51 F.R. 2875, Jan. 26, 1986]

§ 10.8 Customhouse brokers.

Nothing contained in the regulationsin this part shall be deemed to affect orlimit the right of a customhouse broker,licensed as such by the Commissionerof Customs in accordance with theregulations prescribed therefor, in anycustoms district in which he is solicensed, at the office of the DistrictDirector of Internal Revenue or beforethe National Office of the InternalRevenue Service, to act as a represen-tative in respect to any matters relatingspecifically to the importation or expor-tation of merchandise under thecustoms or internal revenue laws, forany person for whom he has acted asa customhouse broker.

Subpart B-Duties andRestrictions Relating to

Practice Before the InternalRevenue Service

§ 10.20 Information to be furnished.

(a) To the Internal Revenue Service.No attorney, certified public accoun-tant, or enrolled agent shall neglect orrefuse promptly to submit records or in-formation in any matter before the In-ternal Revenue Service, upon properand lawful request by a duly authorizedofficer or employee of the Internal

Revenue Service, or shall interfere, orattempt to interfere, with any properand lawful effort by the InternalRevenue Service or its officers oremployees to obtain any such record orinformation, unless he believes in goodfaith and on reasonable grounds thatsuch record or information is privilegedor that the request for, or effort to ob-tain, such record or information is ofdoubtful legality.

(b) To the Director of Practice. Itshall be the duty of an attorney or cer-tified public accountant, who practicesbefore the Internal Revenue Service, orenrolled agent, when requested by theDirector of Practice, to provide theDirector with any information he mayhave concerning violation of the regula-tions in this part by any person, and totestify thereto in any proceeding in-stituted under this part for the disbar-ment or suspension of an attorney, cer-tified public accountant, or enrolledagent, unless he believes in good faithand on reasonable grounds that such in-formation is privileged or that the re-quest therefor is of doubtful legality.

§ 10.21 Knowledge of client'somission.

Each attorney, certified public ac-countait, or enrolled agent who, hav-ing bbn retained by a client withrespect to a matter administered by theInt hinal Revenue Service, knows thatthe client has not complied with therevenue laws of the United States or hasmade an error in or omission from anyreturn, document, affidavit, or otherpaper which the client is required by therevenue laws of the United States to ex-ecute, shall advise the client promptlyof the fact of such noncompliance,error, or omission.

(42 F.R. 38352, July 28, 19771

§ 10.22 Diligence as to accuracy.

Each attorney, certified public acoun-tant, or enrolled agent shall exercise duediligence:

(a) In preparing or assisting in thepreparation of, approving, and filingreturns, documents, affidavits, andother papers relating to InternalRevenue Service matters;

(b) In determining the correctness oforal or written representations made byhim to the Department of the Treasury;and

(c) In determining the correctness oforal or written representations made byhim to clients with reference to any mat-ter administered by the Internal RevenueService.

[35 F.R. 13205, Aug. 19, 1970, as amended at 42F.R. 38352, July 28, 1977]

§ 10.23 Prompt disposition of pendingmatters.

No attorney, certified public accoun-tant, or enrolled agent shall unreason-ably delay the prompt disposition of anymatter before the Internal RevenueService.

§ 10.24 Assistance from disbarredor suspended persons and formerInternal Revenue Service employ-ees.

No attorney, certified public accoun-tant or enrolled agent, shall, in practicebefore the Internal Revenue Service,knowingly and directly or indirectly:

(a) Employ or accept assistance fromany person who is under disbarment orsuspension from practice before the In-ternal Revenue Service.

(b) Accept employment as associate,correspondent, or subagent from, orshare fees with, any such person.

(c) Accept assistance from anyformer government employee where the

provisions of § 10.26 of these regula-tions or any Federal law would beviolated.

[31 F.R. 10773, Aug. 13, 1966, as amended at 35F.R. 13205. Aug. 19, 1970, 44 F.R. 4940, Jan.1979]

§ 10.25 Practice by partners ofGovernment employees.

No partner of an officer or employeeof the executive branch of the U.S.Government, of any independentagency of the United States, or of theDistrict of Columbia, shall representanyone in any matter administered bythe Internal Revenue Service in whichsuch officer or employee of the Govern-ment participates or has participatedpersonally and substantially as aGovernment employee or which is thesubject of his offical responsibility.

[31 F.R. 10773, Aug. 13 1966, as amended at 35F.R. 13205. Aug. 19, 19701

§ 10.26 Practice by former Govern-ment employees, their partnersand their associates.

(a) Definitions. For purposes of §10.26. (1) "Assist" means to act in sucha way as to advise, furnish informationto or otherwise aid another person,directly or indirectly.

(2) "Government employee" isanother officer or employee of theUnited States or any agency of theUnited States, including a "specialgovernment employee" as defined in 18U.S.C. 202(a), or the District of Colum-bia, or of any State, or a member ofCongress or of any State legislature.

(3) "Member of a firm" is a sole prac-titioner or an employee or associatethereof, or a partner, stockholder,associate, affiliate or employee of a part-nership, joint venture, corporation, pro-fessional association or other affiliationof two or more practioners who repre-sent non-Government parties.

(4) "Practitioner" is an attorney, cer-tified public accountant, enrolled agentor any other person authorized to prac-tice before the Internal RevenueService.

(5) "Official responsibility" means thedirect administrative or operatingauthority, whether intermediate or final,and either exercisable alone or withothers, and either personally or throughsubordinates, to approve, disapprove,or otherwise direct Government action,with or without knowledge of theaction.

(6) "Participate" or "participation"means substantial involvement as aGovernment employee by making deci-sions, or preparing or reviewingdocuments with or without the right toexercise a judgment of approval ordisapproval, or participating in con-ferences or investigations, or renderingadvice of a substantial nature.

(7) "Rule" includes Treasury Regula-tions, whether issued or under prepara-tion for issuance as Notices of ProposedRule Making or as Treasury Decisions,and revenue rulings and revenue pro-cedures published in the InternalRevenue bulletin. "Rule" shall not in-clude a "transaction" as defined inparagraph (a)(8) of this section.

(8) "Transaction" means any deci-sion, determination, finding, letter rul-ing, technical advice, contract or ap-proval or disapproval thereof, relating toa particular factual situation or situationsinvolving a specific party or partieswhose rights, privileges, or liabilitiesunder laws or regulations administeredby the Internal Revenue Service, orother legal rights, are determined or im-mediately affected therein and to whichthe United States is a party or in whichit has a direct and substantial interest,whether or not the same taxable periodsare involved. "Transaction" does not in-clude "rule" as defined in paragraph(a)(7) of this section.

(b) General rules. (1) No formerGovernment employee shall subsequentto his Government employment, repre-sent anyone in any matter administeredby the Internal Revenue Service if therepresentation would violate 18 U.S.C.207(a) or (b) or any other laws of theUnited States.

(2) No former Government employeewho participated in a transaction shall,subsequent to his Government employ-ment, represent or knowingly assist, inthat transaction, any person who is orwas a specific party to that transaction.

(3) No former Government employeewho within a period of one year prior tothe termination of his Governmentemployment had official responsibilityfor a transaction shall, within one yearafter his Government employment isended, represent or knowingly assist, inthat transaction, any person who is orwas a specific party to that transaction.

(4) No former Government employeeshall, within one year after his Govern-ment employment is ended, appearbefore any employee of the TreasuryDepartment in connection with thepublication, withdrawal, amendment,modification, or interpretation of a rulein the development of which the formerGovernment employee participated orfor which, within a period of one yearprior to the termination of his Govern-ment employment, he had officialresponsibility. However, this sub-paragraph does not preclude suchformer employee from appearing on hisown behalf or from representing a tax-payer before the Internal Revenue Serv-ice in connection with a transaction in-volving the application or interpretationof such a rule with respect to that trans-action: Provided. That such formeremployee shall not utilize or disclose anyconfidential information acquired by theformer employee in the development ofthe rule, and shall not contend that therule is invalid or illegal. In addition, this

subparagraph does not preclude suchformer employee from otherwise advis-ing or acting for any person.

(c) Firm representation. (1) Nomember of a firm of which a formerGovernment employee is a member mayrepresent or knowingly assist a personwho was or is a specific party in anytransaction with respect to which therestrictions of paragraph (b)(1) (otherthan 18 U.S.C 207(b)) or (b)(2) of thissection apply to the former Governmentemployee, in that transaction, unless:

(i) No member of the firm who hadknowledge of the participation by theGovernment employee in the transac-tion initiated discussions with theGovernment employee concerning hisbecoming a member of the firm until hisGovernment employment is ended or sixmonths after the termination of his par-ticipation in the transaction, whicheveris earlier;

(ii) The former Government em-ployee did not initiate any discussionsconcerning becoming a member of thefirm while participating in the transac-tion or, if such discussions were ini-tiated, they conformed with the require-ment of 18 U.S.C. 208(b); and

(iii) The firm isolates the former Gov-ernment employee in such a way thathe does not assist in the representation.

(2) No member of a firm of which aformer Government employee is amember may represent or knowinglyassist a person who was or is a specificparty in any transaction with respect towhich the restrictions of paragraph(b)(3) of this section apply to the formeremployee, in that transaction, unless thefirm isolates the former Governmentemployee in such a way that he doesnot assist in the representation.

(3) When isolation of the formerGovernment employee is required underparagraphs (c)(1) or (c)(2) of this sec-tion, a statement affirming the fact ofsuch isolation shall be executed under

oath by the former Governmentemployee and by a member of the firmacting on behalf of the firm, and shallbe filed with the Director of Practice andin such other place and in the mannerprescribed by regulation. This statementshall clearly identify the firm, the formerGovernment employee, and transactionor transactions requiring such isolation.

(d) Pending representation. Practiceby former Government employees, theirpartners and associates with respect torepresentation in specific matters whereactual representation commencedbefore publication of this regulation isgoverned by the regulations set forth inthe June 1972 amendments to theregulations of this part (published at 37F.R. 11676): Provided. That the burdenof showing that representation com-menced before publication is with theformer Government employees, theirpartners and associates.

[42 F.R. 38352, July 28, 1977]

§ 10.27 Notaries.

No attorney, certified public accoun-tant, or enrolled agent as notary publicshall with respect to any matter ad-ministered by the Internal RevenueService take acknowledgments, ad-minister oaths, certify papers, or per-form any official act in connection withmatters in which he is employed ascounsel, attorney, or agent, or in whichhe may be in any way interested beforethe Internal Revenue Service (26 Op.Atty. Gen. 236).

§ 10.28 Fees.

No attorney, certified public accoun-tant, or enrolled agent shall charge anunconscionable fee for representation ofa client in any matter before the Inter-nal Revenue Service.

§ 10.29 Conflicting interests.

No attorney, certified public accoun-tant, or enrolled agent shall represent

conflicting interests in his practicebefore the Intemal Revenue Service, ex-cept by express consent of all directlyinterested parties after full disclosure hasbeen made.

§ 10.30 Solicitation.

(a) Advertising and Solicitationrestriction. (1) No attorney, certifiedpublic accountant, enrolled agent, orother individual eligible to practicebefore the Internal Revenue Serviceshall, with respect to any InternalRevenue Service matter, in any way useor participate in the use of any form ofpublic communication containing afalse, fraudulent, misleading, deceptive,unduly influencing, coercive or unfairstatement or claim. For the purposes ofthis subsection, the prohibition includes,but is not limited to, statements pertain-ing to the quality of services renderedunless subject to factual verification,claims of specialized expertise notauthorized by State or Federal agencieshaving jurisdiction over the practitioner,and statements or suggestions that theingenuity and/or prior record of arepresentative rather than the merit ofthe matter are principal factors likely todetermine the result of the matter.

(2) No attorney, certified public ac-countant, enrolled agent or other in-dividual eligible to practice before the In-ternal Revenue Service shall make,directly or indirectly, an uninvitedsolicitation of employment, in mattersrelated to the Internal Revenue Service.Solicitation includes, but is not limitedto, in-person contacts, telephone com-munications, and personal mailingsdirected to the specific circumstancesunique to the recipient. This restrictiondoes not apply to: (i) seeking newbusiness from an existing or formerclient in a related matter; (ii) solicitationby mailings, the contents of which aredesigned for the general public; or (iii)non-coercive in-person solicitation by

those eligible to practice before the In-ternal Revenue Service while acting asan employee, member, or officer of anexempt organization described in sec-tions 501(c)(3) or (4) of the InternalRevenue Code of 1954 (26 U.S.C.).

(b) Permissible Advertising. (1) At-torneys, certified public accountants,enrolled agents and other individualseligible to practice before the InternalRevenue Service, may publish, broad-cast, or use in a dignified mannerthrough any means of communicationset forth in paragraph (d) of this section:

(i) The name, address, telephonenumber, and office hours of the practi-tioner or firm.

(ii) The names of individualsassociated with the firm.

(iii) A factual description of the serv-ices offered.I (iv) Acceptable credit cards and othercredit arrangements.

(v) Foreign language ability.(vi) Membership in pertinent, profes-

sional organizations.(vii) Pertinent professional licenses.(viii) A statement that an individual's

or firm's practice is limited to certainareas.

(ix) In the case of an enrolled agent,the phrase "enrolled to represent tax-payers before the Internal RevenueService" or "enrolled to practice beforethe internal Revenue Service."

x) Other facts relevant to the selec-tion of a practitioner in matters relatedto the Internal Revenue Service whichare not prohibited by these regulations.

(2) Attorneys, certified public ac-countants, enrolled agents and other in-dividuals eligible to practice before theInternal Revenue Service may use, tothe extent they are consistent with theregulations in this section, customarybiographical insertions in approved lawlists and reputable professional journalsand directories, as well as professionalcards, letterheads and announcements:

Provided. That: i) attorneys do notviolate applicable standards of ethicalconduct adopted by the American BarAssociation, (ii) certified public accoun-tants do not violate applicable standardsof ethical conduct adopted by theAmerican Institute of Certified PublicAccountants, and (iii) enrolled agents donot violate applicable standards ofethical conduct adopted by either theNational Society of Public Accountantsor the National Association of EnrolledAgents.

(c) Fee Information. (1) Attorneys,certified public accountants, enrolledagents and other individuals eligible topractice before the Internal RevenueService may disseminate the followingfee information:

i) Fixed fees for specific routineservices.

(ii) Hourly rates.(iii) Range of fees for particular

services.(iv) Fee charged for an initial

consultation.(2) Attorneys, certified public ac-

countants, enrolled agents and other in-dividuals eligible to practice before theInternal Revenue Service may alsopublish the availability of a writtenschedule of fees.

(3) Attorneys, certified public ac-countants, enrolled agents and other in-dividuals eligible to practice before theInternal Revenue Service shall be boundto charge the hourly rate, the fixed feefor specific routine services, the rangeof fees for particular services, or the feefor an initial consultation published fora reasonable period of time, but no lessthan thirty days from the last publica-tion of such hourly rate or fees.

(d) Communications. Communica-tions, including fee information, shall belimited to professional lists, telephonedirectories, print media, permissiblemailings as provided in these regula-tions, radio and television. In the case

of radio and television broadcasting, thebroadcast shall be pre-recorded and thepractitioner shall retain a recording ofthe actual audio transmission.

(e) Improper Associations. Anattorney, certified public accountant orenrolled agent may, in matters relatedto the Internal Revenue Service, employor accept employment or assistance asan associate, correspondent, or sub-agent from, or share fees with any per-son or entity who, to the knowledge ofthe practitioner, obtains clients or other-wise practices in a manner forbiddenunder this section: Provided. That apractitioner does not, directly or in-directly, act or hold himself out as an In-ternal Revenue Service practitioner inconnection with that relationship.Nothing herein shall prohibit anattorney, certified public accountant, orenrolled agent from practice before theInternal Revenue Service in a capacityother than that described above.

[44 F.R. 4940, Jan. 24, 1979]

§ 10.31 Negotiation of taxpayer re-fund checks.

No attorney, certified public accoun-tant or enrolled agent who is an incometax return preparer shall endorse orotherwise negotiate any check made inrespect of income taxes which is issuedto a taxpayer other than the attorney,certified public accountant or enrolledagent.

142 F.R. 38353, July 28, 1977]

§ 10.32 Practice of law.

Nothing in the regulations in this partshall be construed as authorizing per-sons not members of the bar to prac-tice law.

[31 F.R. 10773, Aug. 13, 1966. Redesignated at42 F.R. 38353, July 28, 19771

§ 10.33 Tax shelter opinions.

(a) Tax shelter opinions and offeringmaterials. A practitioner who providesa tax shelter opinion analyzing theFederal tax effects of a tax shelter in-vestment shall comply with each of thefollowing requirements:

(1) Factual matters. (i) The practi-tioner must make inquiry as to all rele-vant facts, be satisfied that the materialfacts are accurately and completelydescribed in the offering materials, andassure that any representations as tofuture activities are clearly identified,reasonable and complete.

(ii) A practitioner may not accept astrue asserted facts pertaining to the taxshelter which he/she should not, basedon his/her background and knowledge,reasonably believe to be true. However,a practitioner need not conduct an auditor independent verification of theasserted facts, or assume that a client'sstatement of the facts cannot be reliedupon, unless he/she has reason tobelieve that any relevant facts assertedto him/her are untrue.

(iii) If the fair market value ofproperty or the expected financial per-formance of an investment is relevantto the tax shelter, a practitioner may notaccept an appraisal or financial projec-tion as support for the matters claimedtherein unless:

(A) The appraisal or financial projec-tion makes sense on its face;

(B) The practitioner reasonablybelieves that the person making the ap-praisal or financial projection is compe-tent to do so and is not of dubiousreputation; and

(C) The appraisal is based on thedefinition of fair market value prescribedunder the relevant Federal taxprovisions.

(iv) If the fair market value of pur-chased property is to be established byreference to its stated purchase price,

the practitioner must examine the termsand conditions upon which the propertywas (or is to be) purchased to determinewhether the stated purchase pricereasonably may be considered to be itsfair market value.

(2) Relate law to facts. The practi-tioner must relate the law to the actualfacts and, when addressing issuesbased on future activities, clearly iden-tify what facts are assumed.

(3) Identification of material issues.The practitioner must ascertain that allmaterial Federal tax issues have beenconsidered, and that all of those issueswhich involve the reasonable possibilityof a challenge by the Internal RevenueService have been fully and fairly ad-dressed in the offering materials.

(4) Opinion on each material issue.Where possible, the practitioner mustprovide an opinion whether it is morelikely than not that an investor willprevail on the merits of each material taxissue presented by the offering which in-volves a reasonable possibility of achallenge by the Internal Revenue Serv-ice. Where such an opinion cannot begiven with respect to any material taxissue, the opinion should fully describethe reasons for the practitioner's inabilityto opine as to the likely outcome.

(5) Overall evaluation. (1) Wherepossible, the practitioner must providean overall evaluation whether thematerial tax benefits in the aggregatemore likely than not will be realized.Where such an overall evaluation can-not be given, the opinion should fullydescribe the reasons for the practi-tioner's inability to make an overallevaluation. Opinions concluding that anoverall evaluation cannot be providedwill be given special scrutiny to deter-mine if the stated reasons are adequate.

(ii) A favorable overall evaluation maynot be rendered unless it is based on aconclusion that substantially more thanhalf of the material tax benefits, in terms

of their financial impact on a typical in-vestor, more likely than not will berealized if challenged by the InternalRevenue Service.

(iii) If it is not possible to give anoverall evaluation, or if the overallevaluation is that the material taxbenefits in the aggregate will not berealized, the fact that the practitioner'sopinion does not constitute a favorableoverall evaluation, or that it is an un-favorable overall evaluation, must beclearly and prominently disclosed in theoffering materials.

(iv) The following examples illustratethe principles of this paragraph:

Example (1). A limited partnership ac-quires real property in a sale-leasebacktransaction. The principal tax benefitsoffered to investing partners consist ofdepreciation and interest deductions.Lesser tax benefits are offered to in-vestors by reason of several deductionsunder Internal Revenue Code section162 (ordinary and necessary businessexpenses). If a practitioner concludesthat it is more likely than not that thepartnership will not be treated as theowner of the property for tax purposes(which is required to allow the interestand depreciation deductions), thenhe/she may not opine to the effect thatit is more likely than not that the materialtax benefits in the aggregate will berealized, regardless of whether favorableopinions may be given with respect tothe deductions claimed under Code sec-tion 162.

Example (2). A corporation electingunder subchapter S of the InternalRevenue Code is formed to engage inresearch and development activities.The offering materials forecast thatdeductions for research and experimen-tal expenditures equal to 75% of thetotal investment in the corporation willbe available during the first two years ofthe corporation's operations, other ex-penses will account for another 15% of

the total investment, and that little or nogross income will be received by the cor-poration during this period. The practi-tioner concludes that it is more likelythan not that deductions for researchand experimental expenditures will beallowable. The practitioner may renderan opinion to the effect that based onthis conclusion, it is more likely than notthat the material tax benefits in theaggregate will be realized, regardless ofwhether he/she can opine that it is morelikely than not that any of the other taxbenefits will be achieved.

Example (3). An investment programis established to acquire offsetting posi-tions in commodities contracts. The ob-jective of the program is to close the losspositions in year one and to close theprofit positions in year two. The prin-cipal tax benefit offered by the programis a loss in the first year, coupled withthe deferral of offsetting gain until thefollowing year. The practitioner con-cludes that the losses will not be deduct-ible in year one. Accordingly, he/shemay not render an opinion to the eflectthat it is more likely than not that thematerial tax benefits in the aggregatewill be realized, regardless of the factthat he/she is of the opinion that lossesnot allowable in year one will beallowable in year two, because the prin-cipal tax benefit offered is a one-yeardeferral of income.

Example (4). A limited partnership isformed to acquire, own and operateresidential rental real estate. The offer-ing 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 taxableyears. Of the total deductions, deprecia-tion and interest are projected to be$7,000,000, and other deductions$3,000,000. The practitioner concludesthat it is more likely than not all of thedepreciation and interest deductions willbe allowable, and that it is more likely

than not that the other deductions willnot be allowed. The practitioner mayrender an opinion to the effect that it ismore likely than not that the material taxbenefits in the aggregate will be realized.

(6) Description of opinion. The prac-titioner must assure that the offeringmaterials correctly and fairly representthe nature and extent of the tax shelteropinion.

(b) Reliance on other opinions- (1) Ingeneral. A practitioner may provide anopinion on less than all of the materialtax issues only if:

(i) At least one other competentpractitioner provides an opinion on thelikely outcome with respect to all of theother material tax issues which involvea reasonable possibility of challenge bythe Internal Revenue Service, and anoverall evaluation whether the materialtax benefits in the aggregate more likelythan not will be realized, which isdisseminated in the same manner as thepractitioner's opinion; and

(ii) The practitioner, upon reviewingsuch other opinions and any offeringmaterials, has no reason to believe thatthb standirds of paragraph (a) of thissection hive not been complied with.Notwithstanding the foregoing, a prac-titioner who has not been retained toprovide an overall evaluation whetherthe material tax benefits in the ag-gregate more likely than not will berealized may issue an opinion on lessthan all the material tax issues only ifhe/she has no reason to believe, basedon his/her knowledge and experience,that the overall evaluation given by thepractitioner who furnished the overallevaluation is incorrect on its face.

(2) Forecasts and projections. Apractitioner who is associated withforecasts or projections relating to orbased upon the tax consequences of thetax shelter offering that are included inthe offering materials, or are dissemi-nated to potential investors other than

the practitioner's clients, may rely on theopinion of another practitioner as to anyor all material tax issues, provided thatthe practitioner who desires to rely onthe other opinion has no reason tobelieve that the standards of paragraph(a) of this section have not been com-plied with by the practitioner renderingsuch other opinion, and the require-ments of paragraph (b)(1) of this sectionare satisfied. The practitioner's reportshall disclose any material tax issue notcovered by, or incorrectly opined upon,by the other opinion, and shall set forthhis/her opinion with respect to eachsuch issue in a manner that satisfies therequirements of paragraph (a) of thissection.

(c) Definitions. For purposes of thissection:

(1) "Practitioner" is any personauthorized under § 10.3 of this part topractice before the Internal RevenueService.

(2) A "tax shelter," as the term isused in this section, is an investmentwhich has as a significant and intendedfeature for Federal income or excise taxpurposes either of the following attri-butes: (i) Deductions in excess of in-come from the investment being avail-able in any year to reduce income fromother sources in that year, or (ii) creditsin excess of the tax attributable to theincome from the investment beingavailable in any year to offset taxes onincome from other sources in that year.Excluded from the term are municipalbonds; annuities; family trusts [but notincluding schemes or arrangements thatare marketed to the public other than ina direct practitioner-client relationship];qualified retirement plans; individualretirement accounts; stock option plans;securities issued in a corporatereorganization; mineral developmentventures, if the only tax benefit wouldbe percentage depletion; and real estatewhere it is anticipated that in no year is

it likely that deductions will exceed thetax attributable to the income from theinvestment in that year. Whether an in-vestment is intended to have tax shelterfeatures depends on the objective factsand circumstances of each case. Signifi-cant weight will be given to the featuresdescribed in the offering materials todetermine whether the investment is atax shelter.

(3) A "tax shelter opinion," as theterm is used in this section, is advice bya practitioner concerning the Federal taxaspects of a tax shelter either appear-ing or referred to in the offeringmaterials, or used or referred to in con-nection with sales promotion efforts,and directed to persons other than theclient who engaged the practitioner togive the advice. The term includes thetax aspects or tax risks portion of the of-fering materials prepared by or at thedirection of a practitioner, whether ornot a separate opinion letter is issued orwhether or not the practitioner's nameis referred to in the offering materials orin connection with the sales promotionefforts. In addition, a financial forecastor projection prepared by a practitioneris a tax shelter opinion if it is predicatedon assumptions regarding Federal taxaspects of the investment, and it meetsthe other requirements of the firstsentence of this subparagraph. Theterm does not, however, include render-ing advice solely to the offeror orreviewing parts of the offering materials,so long as neither the name of the prac-titioner, nor the fact that a practitionerhas rendered advice concerning the taxaspects, is referred to in'the offeringmaterials or in connection with the salespromotion efforts.

(4) A "material" tax issue as the termis used in this section is Ci) any Federalincome or excise tax issue relating to atax shelter that would make a significantcontribution toward sheltering fromFederal taxes income from other

sources by providing deductions in ex-cess of the income from the tax shelterinvestment in any year, or tax creditsavailable to offset tax liabilities in excessof the tax attributable to the tax shelterinvestment in any year; (ii) any otherFederal income or excise tax issuerelating to a tax shelter that could havea significant impact (either beneficial oradverse) on a tax shelter investor underany reasonably foreseeable circum-stances (e.g., depreciation or invest-ment tax credit recapture, availability oflong-term capital gain treatment, orrealization of taxable income in excessof cash flow, upon sale or other disposi-tion of the tax shelter investment); and(iii) the potential applicability of penal-ties, additions to tax, or interest chargesthat reasonably could be assertedagainst a tax shelter investor by the In-ternal Revenue Service with respect tothe tax shelter. The determination ofwhat is material is to be made in goodfaith by the practitioner, based on infor-mation available at the time the offer-ing materials are circulated.

[49 F.R. 6719, Feb. 23. 1984]

Subpart C-RulesApplicable to Disciplinary

Proceedings

§ 10.50 Authority to disbar orsuspend.

Pursuant to section 3 of the Act ofJuly 7, 1884, 23 Stat. 258 (31 U.S.C1026), the Secretary of the Treasury,after due notice and opportunity forhearing, may suspend or disbar frompractice before the Internal RevenueService any attorney, certified public ac-countant, or enrolled agent shown to beincompetent, disreputable or whorefuses to comply with the rules and

regulations in this part or who shall, withintent to defraud, in any manner willfullyand knowingly deceive, mislead, orthreaten any claimant or prospectiveclaimant, by word, circular, letter, or byadvertisement.

131 F.R. 10773, Aug. 13, 1966, as amended at 35F.R. 13205, Aug. 19, 1970]

§ 10.51 Disreputable conduct.

Disreputable conduct for which an at-torney, certified public accountant, orenrolled agent may be disbarred orsuspended from practice before the In-ternal Revenue Service includes, but isnot limited to:

(a) Conviction of any criminal offenseunder the revenue laws of the UnitedStates, or of any offense involvingdishonesty, or breach of trust.

(b) Giving false or misleading infor-mation, or participating in any way inthe giving of false or misleading infor-mation to the Department of theTreasury or any officer or employeethereof, or to any tribunal authorized topass upon Federal tax matters, in con-nection with any matter pending orlikely to be pending before them, know-ing such information to be false ormisleading. Facts or other matters con-tained in testimony, Federal tax returns,financial statements, applications forenrollment, affidavits, declarations, orany other document or statement, writ-ten or oral, are included in the term "in-formation."

(c Solicitation of employment asprohibited under § 10.30 of this part, theuse of false or misleading representa-tions with intent to deceive a client orprospective client in order to procureemployment, or intimating that thepractitioner is able improperly to obtainspecial consideration or action from theInternal Revenue Service or officer oremployee thereof.

(d) Willfully failing to make a Federaltax return in violation of the revenuelaws of the United States, or evading,attempting to evade, or participating inany way in evading or attempting toevade any Federal tax or paymentthereof, knowingly counseling or sug-gesting a client or prospective client anillegal plan to evade Federal taxes orpayment thereof, or concealing assetsof himself or another to evade Federaltaxes or payment thereof.

(e) Misappropriation of, or failureproperly and promptly to remit fundsreceived from a client for the purposeof payment of taxes or other obligationsdue the United States.

(f) Directly or indirectly attempting toinfluence, or offering or agreeing toattempt to influence, the official actionof any officer or employee of the Inter-nal Revenue Service by the use ofthreats, false accusations, duress orcoercion, by the offer of any special in-ducement or promise of advantage orby the bestowing of any gift, favor orthing of value.

(g) Disbarment or suspension frompractice as an attorney, certified publicaccountant, public accountant, or ac-tuary by any duly constituted authorityof any State, possession, temtory,Commonwealth, the District of Colum-bia, any Federal court of record, or anyFederal agency, body or board.

(h) Knowingly aiding and abettinganother person to practice before the In-ternal Revenue Service during a periodof suspension, disbarment, or ineligi-bility of such other person. Maintaininga partnership for the practice of law, ac-countancy, or other related professionalservice with a person who is underdisbarment from practice before theService shall be presumed to be a viola-tion of this provision.

(i) Contemptuous conduct in con-nection with practice before the Inter-nal Revenue Service, including the use

of abusive language, making false ac-cusations and statements knowing themto be false, or circulating or publishingmalicious or libelous matter.

(j) Giving a false opinion, knowingly,recklessly, or through gross incompe-tence, including an opinion which is in-tentionally or recklessly misleading, ora pattern of providing incompetentopinions on questions arising under theFederal tax laws. False opinions de-scribed in this paragraph include thosewhich reflect or result from a knowingmisstatement of fact or law; from anassertion of a position known to be un-warranted under existing law; fromcounseling or assisting in conductknown to be illegal or fraudulent; fromconcealment of matters required by lawto be revealed; or from consciousdisregard of information indicating thatmaterial facts expressed in the taxopinion or offering material are false ormisleading. For the purpose of thisparagraph, reckless conduct is a highlyunreasonable omission or misrepresen-tation, involving not merely simple or in-excusable negligence, but an extremedeparture from the standards of or-dinary care that is either known or is soobvious that the competent practitionermust or should have been aware of it.Gross incompetence includes conductthat reflects gross indifference, prepara-tion which is grossly inadequate underthe circumstances, and a consistentfailure to perform obligations to theclient.

[Dept. Circ. 230, Rev., 31 F.R. 10773, Aug. 13,1966, as amended at 35 F.R. 13205, Aug. 19, 1970,42 F.R. 38353, July 28, 1977; 44 F.R. 4944, Jan.24, 1979; 49 F.R. 6719, Feb. 23, 1984]

§ 10.52 Violation of regulations.

(a) In General. Any attorney, certifiedpublic accountant, or enrolled agentmay be disbarred or suspended frompractice before the Internal Revenue

Service for willful violation of any of theregulations contained in this part.

(b) Tax shelter opinions. An attorney,certified public accountant, enrolledagent or enrolled actuary may be dis-barred or suspended from practicebefore the Internal Revenue Service forviolating any part of § 10.33 of this part,if such violation is willfull, reckless orthrough gross incompetence (within themeaning of § 10.51(j) of this part); or ifthe violation is part of a pattern of pro-viding tax shelter opinions that fail tocomply with § 10.33 of this part.

§ 10.53 Receipt of information con-cerning attorneys, certified publicaccountants and enrolled agents.

If an officer or employee of the Inter-nal Revenue Service has reason tobelieve that an attorney, certified publicaccountant, or enrolled agent hasviolated any provision of this part, or ifany such officer or employee receivesinformation to that effect, he shallpromptly make a written report thereof,which report or a copy thereof shall beforwarded to the Director of Practice.If any other person has information ofsuch violations, he may make a reportthereof to the Director of Practice or toany officer or employee of the InternalRevenue Service.

§ 10.54 Institution of proceeding.

Whenever the Director of Practice hasreason to believe that any attorney, cer-tified public accountant, or enrolledagent has violated any provision of thelaws or regulations governing practicebefore the Internal Revenue Service, hemay reprimand such person or institutea proceeding for disbarment or suspen-sion of such person. The proceedingshall be instituted by a complaint whichnames the respondent and is signed bythe Director of Practice and filed in hisoffice. Except in cases of willfulness, or

where time, the nature of the pro-ceeding, or the public interest does notpermit, a proceeding will not be in-stituted under this section until facts orconduct which may warrant such actionhave been called to the attention of theproposed respondent in writing and hehas been accorded opportunity todemonstrate or achieve compliance withall lawful requirements.

§ 10.55 Conferences.

(a) In general. The Director of Prac-tice may confer with an attorney, cer-tified public accountant, or enrolledagent concerning allegations of miscon-duct irrespective of whether a pro-ceeding for disbarment or suspensionhas been instituted against him. If suchconference results in a stipulation inconnection with a proceeding in whichsuch person is the responent, thestipulation may be entered in the recordat the instance of either party to theproceeding.

(b) Resignation or voluntary suspen-sion. An attorney, certified public ac-countant, or enrolled agent, in order toavoid the institution or conclusion of adisbarment or suspension proceeding,may offer his consent to suspensionfrom practice before the InternalRevenue Service. An enrolled agentmay also offer his resignation. TheDirector of Practice, in his discretion,may accept the offered resignation of anenrolled agent and may suspend an at-torney, certified public accountant, orenrolled agent in accordance with theconsent offered.

[31 F.R. 10773, Aug. 13, 1966, as amended at 35F.R. 13206, Aug. 19, 1970]

§ 10.56 Contents of complaint.

(a) Charges. A complaint shall give aplain and concise description of theallegations which constitute the basisfor the proceeding. A complaint shall bedeemed sufficient if it fairly informs the

respondent of the charges against himso that he is able to prepare his defense.

(b) Demand for answer. In the com-plaint, or in a separate paper attachedto the complaint, notification shall begiven of the place and time within whichthe respondent shall file his answer,which time shall not be less than 15 daysfrom the date of service of the com-plaint, and notice shall be given that adecision by default may be renderedagainst the respondent in the event hefails to file his answer as required.

131 F.R. 10773, Aug. 13, 1966, as amended at 42F.R. 38353, July 28, 1977]

§ 10.57 Service of complaint andother papers.

(a) Complaint. The complaint orcopy thereof may be served upon threspondent by certified mail, or firsiclass mail as hereinafter provided; bdelivering it to the respondent or his altorney or agent of record either in petson or by leaving it at the office or placeof business of the respondent, attorneyor agent; or in any other manner whichhas been agreed to by the respondent.Where the service is by certified mail,the return post office receipt duly signedby or on behalf of the respondent shallbe proof of service. If the certifiedmatter is not claimed or accepted by therespondent and is returned undelivered,complete service may be made upon therespondent by mailing the complaint tohim by first-class mail, addressed to himat the address under which he is en-rolled or at the last address known to theDirector of Practice. If service is madeupon the respondent or his attorney oragent of record in person or by leavingthe complaint at the office or place ofbusiness of the respondent, attorney oragent, the verified return by the personmaking service, setting forth the man-ner of service, shall be proof of suchservice.

(b) Service of papers other than com-plaint. Any paper other than the com-plaint may be served upon an attorney,certified public accountant, or enrolledagent as provided in paragraph (a) ofthis section or by mailing the paper byfirst-class mail to the respondent at thelast address known to the Director ofPractice, or by mailing the paper by first-class mail to the respondent's attorneyor agent of record. Such mailing shallconstitute complete service. Noticesmay be served upon the respondent orhis attorney or agent of record bytelegraph.

(c) Filing of papers. Whenever the fil-ing of a paper is required or permittedin connection with a disbarment orsuspension proceeding, and the place offiling is not specified by this subpart orby rule or order of the AdministrativeLaw Judge, the paper shall be filed withthe Director of Practice, Treasury De-partment, Washington, D.C. 20220. Allpapers shall be filed in duplicate.

(Dept. Circ. 230, Rev., 31 F.R. 10773 Aug. 13,1966, as amended at 31 F.R. 13992, Nov. 2, 1966;42 F.R. 38354, July 28, 1977]

§ 10.58 Answer.

(a) Filing. The respondent's answershall be filed in writing within the timespecified in the complaint or notice ofinstitution of the proceeding, unless onapplication the time is extended by theDirector of Practice or the Ad-ministrative Law Judge. The answershall be filed in duplicate with the Direc-tor of Practice.

(b) Contents. The answer shall con-tain a statement of facts which con-stitute the grounds of defense, and itshall specifically admit or deny eachallegation set forth in the complaint, ex-cept that the respondent shall not denya material allegation in the complaintwhich he knows to be true, or state thathe is without sufficient information toform a belief when in fact he possesses

such information. The respondent mayalso state affirmatively special mattersof defense.

(c) Failure to deny or answer allega-tions in the complaint. Every allegationin the complaint which is not denied inthe answer shall be deemed to be ad-mitted and may be considered asproved, and no further evidence inrespect of such allegation need be ad-duced at a hearing. Failure to file ananswer within the time prescribed in thenotice to the respondent, except as thetime for answer is extended by theDirector of Practice or the Ad-ministrative Law Judge, shall constitutean admission of the allegations of thecomplaint and a waiver of hearing, andthe Administrative Law Judge maymake his decision by default without ahearing or further procedure.

(31 F.R. 10773, Aug. 13. 1966, as amended at 42F.R. 38354, July 28, 19771

§ 10.59 Supplemental charges.

If it appears that the respondent in hisanswer, falsely and in bad faith, deniesa material allegation of fact in the com-plaint or states that the respondent hasno knowledge sufficient to form a beliefwhen he in fact possesses such infor-mation, or if it appears that the respon-dent has knowingly introduced falsetestimony during proceedings for hisdisbarment or suspension, the Directorof Practice may thereupon file sup-plemental charges against the respon-dent. Such supplemental charges maybe tried with other charges in the case,provided the respondent is given duenotice thereof and is afforded an oppor-tunity to prepare a defense thereto.

§ 10.60 Reply to answer.

No reply to the respondent's answershall be required, and new matter in theanswer shall be deemed to be denied,but the Director of Practice may file a

reply in his discretion or at the requestof the Administrative Law Judge.

(31 F.R. 10773, Aug. 13, 1966, as amended at 42F.R. 38354, July 28, 1977]

§ 10.61 Proof; variance; amendmentof pleadings.

In the case of a variance between theallegations in a pleading and theevidence adduced in support of thepleading, the Administrative Law Judgemay order or authorize amendment ofthe pleading to conform to theevidence: Provided, That the party whowould otherwise be prejudged by theamendment is given reasonable oppor-tunity to meet the allegations of thepleading as amended; and the Ad-ministrative Law Judge shall make find-ings on any issue presented by thepleadings as so amended.

(31 F.R. 10773, Aug. 13, 1966, as amended at 42F.R. 38354, July 28, 1977]

§ 10.62 Motions and requests.

Motions and requests may be filedwith the Director of Practice or with theAdministrative Law Judge.

[31 F.R. 10773, Aug. 13 1966, as amended at 42

F.R. 38354, July 28, 1977)

§ 10.63 Representation.

A respondent or proposed respon-dent may appear in person or he maybe represented by counsel or otherrepresentative who need not be enrolledto practice before the Internal RevenueService. The Director may berepresented by an attorney or otheremployee of the Internal RevenueService.

§ 10.64 Administrative Law Judge.

(a) Appointment. An AdministrativeLaw Judge appointed as provided by 5U.S.C. 3105 (1966), shall conduct pro-ceedings upon complaints for thedisbarment or suspension of attorneys,

certified public accountants, or enrolledagents.

(b) Powers of Administrative LawJudge. Among other powers, the Ad-ministrative Law Judge shall haveauthority, in connection with any disbar-ment or suspension proceedingassigned or referred to him, to do thefollowing:

(1) Administer oaths and affir-mations;

(2) Make rulings upon motions andrequests, which rulings may not be ap-pealed from prior to the close of a hear-ing except, at the discretion of the Ad-ministrative Law Judge, in extraordinarycircumstances;

(3) Determine the time and place ofhearing and regulate its course andconduct;

(4) Adopt rules of procedure andmodify the same from time to time asoccasion requires for the orderly disposi-tion of proceedings;

(5) Rule upon offers of proof, receiverelevant evidence, and examinewitnesses;

(6) Take or authorize the taking ofdepositions;

(7) Receive and consider oral or writ-ten argument on facts or law;

(8) Hold or provide for the holding ofconferences for the settlement or sim-plification of the issues by consent ofthe parties;

(9) Perform such acts and take suchmeasures as are necessary or appro-priate to the efficient conduct of anyproceeding; and

(10) Make initial decisions.

(31 F.R. 10773, Aug. 13, 1966, as amended at 42F.R. 38353, 38354, July 28, 19771

§ 10.65 Hearings.

(a) In general. The AdministrativeLaw Judge shall preside at the hearingon a complaint for the disbarment orsuspension of an attorney, certifiedpublic accountant, or enrolled agent.

Hearings shall be stenographicallyrecorded and transcribed and thetestimony of witnesses shall be takenunder oath or affirmation. Hearings willbe conducted pursuant to 5 U.S.C. 556(1966).

(b) Failure to appear. If either partyto the proceeding fails to appear at thehearing, after due notice thereof hasbeen sent to him, he shall be deemedto have waived the right to a hearingand the Administrative Law Judge maymake his decision against the absentparty by default.

[31 F.R. 10773, Aug. 13, 1966, as amended at 42F.R. 38354, July 28, 1977]

§ 10.66 Evidence.

(a) In general. The rules of evidenceprevailing in courts of law and equity arenot controlling in hearings on com-plaints for the disbarment or suspensionof attorneys, certified public accoun-tants, and enrolled agents. However,the Administrative Law Judge shall ex-clude evidence which is irrelevant, im-material, or unduly repetitious.

(b) Depositions. The deposition ofany witness taken pursuant to § 10.67may be admitted.

(c) Proof of documents. Officialdocuments, records and papers of theInternal Revenue Service and the Officeof Director of Practice shall be admissi-ble in evidence without the productionof an officer or employee to authen-ticate them. Any such documents,records, and papers may be evidencedby a copy attested or identified by an of-ficer or employee of the InternalRevenue Service or the TreasuryDepartment, as the case may be.

(d) Exhibits. If any document, record,or other paper is introduced in evidenceas an exhibit, the Administrative LawJudge may authorize the withdrawal ofthe exhibit subject to any conditionswhich he deems proper.

(e) Objections. Objections to evi-dence shall be in short form, stating thegrounds of objection relied upon, andthe record shall not include argumentthereon, except as ordered by the Ad-ministrative Law Judge. Rulings onsuch objections shall be a part of therecord. No exception to the ruling isnecessary to preserve the rights of theparties.

[31 F.R. 10773, Aug. 13, 1966, as amended at 35F.R. 13206, Aug. 19, 1970; 42 F.R. 38354, July28, 19771

§ 10.67 Depositions.

Depositions for use at a hearing may,with the written approval of the Ad-ministrative Law Judge, be taken byeither the Director of Practice or therespondent or their duly authorizedrepresentatives. Depositions may betaken upon oral or written inter-rogatories, upon not less than 10 days'written notice to the other party beforeany officer duly authorized to administeran oath for general purposes or beforean officer or employee of the InternalRevenue Service who is authorized toadminister an oath in internal revenuematters. Such notice shall state thenames of the witnesses and the timeand place where the depositions are tobe taken. The requirement of 10 days'notice may be waived by the parties inwriting, and depositions may then betaken from the persons and at the timesand places mutually agreed to by theparties. When a deposition is takenupon written interrogatories, any cross-examination shall be upon written inter-rogatories. Copies of such written inter-rogatories shall be served upon theother party with the notice, and copiesof any written cross-interrogatories shallbe mailed or delivered to the opposingparty at least 5 days before the date oftaking the depositions, unless theparties mutually agree otherwise. Aparty upon whose behalf a deposition

is taken must file it with the Adminis-trative Law Judge and serve one copyupon the opposing party. Expenses inthe reporting of depositions shall beborne by the party at whose instancethe deposition is taken.

[31 F.R. 10773, Aug. 13, 1966, as amended at 42F.R. 38354, July 28, 1977]

§ 10.68 Transcript.

In cases where the hearing is steno-graphically reported by a Governmentcontract reporter, copies of the tran-script may be obtained from the reporterat rates not to exceed the maximumrates fixed by contract between theGovernment and the reporter. Wherethe hearing is stenographically reportedby a regular employee of the InternalRevenue Service, a copy thereof will besupplied to the respondent either with-out charge or upon the payment of areasonable fee. Copies of exhibits in-troduced at the hearing or at the takingof depositions will be supplied to theparties upon the payment of a reason-able fee (Sec. 501, Pub. L. 82-137,65 Stat. 290 (31 U.S.C. 483a)).

[31 F.R. 10773, Aug. 13, 1966, as amended at 42F.R. 38354, July 28, 1977]

§10.69 Proposed findings andconclusions.

Except in cases where the respondenthas failed to answer the complaint orwhere a party has failed to appear at thehearing, the Administrative Law Judgeprior to making his decision, shall affordthe parties a reasonable opportunity tosubmit proposed findings and conclu-sions and supporting reasons therefor.

[31 F.R. 10773, Aug. 13, 1966, as amended at 42F.R. 38354, July 28, 1977]

§ 10.70 Decision of the Administra-tive Law Judge.

As soon as practicable after the con-clusion of a hearing and the receipt of

any proposed findings and conclusionstimely submitted by the parties, the Ad-ministrative Law Judge shall make theinitial decision in the case. The decisionshall include (a) a statement of findingsand conclusions, as well as the reasonsor bases therefor, upon all the materialissues of fact, law, or discretion pre-sented on the record, and (b) an orderof disbarment, suspension, or repri-mand or an order of dismissal of thecomplaint. The Administrative LawJudge shall file the decision with theDirector of Practice and shall transmita copy thereof to the respondent or hisattorney of record. In the absence of anappeal to the Secretary of the Treasury,or review of the decision upon motionof the Secretary, the decision of the Ad-ministrative Law Judge shall withoutfurther proceedings become the deci-sion of the Secretary of the Treasury 30days from the date of the AdministrativeLaw Judge's decision.

(31 F.R. 10773, Aug. 13, 1966, as amended at 42F.R. 38354, July 28, 19771

§10.71 Appeal to the Secretary.

Within 30 days from the date of theAdministrative Law Judge's decision,either party may appeal to the Secretaryof the Treasury. The appeal shall be filedwith the Director of Practice in duplicateand shall include exceptions to the deci-sion of the Administrative Law Judgeand supporting reasons for such excep-tions. If an appeal is filed by the Direc-tor of Practice, he shall transmit a copythereof to the respondent. Within 30days after receipt of an appeal or copythereof, the other party may file a replybrief in duplicate with the Director ofPractice. If the reply brief is filed by theDirector, he shall transmit a copy of itto the respondent. Upon the filing of anappeal and a reply brief, if any, theDirector of Practice shall transmit theentire record to the Secretary of theTreasury.

[31 F.R. 10773, Aug. 13, 1966, as amended at 42F.R. 38354, July 28, 19771

§ 10.72 Decision of the Secretary.

On appeal from or review of the in-itial decison of the Administrative LawJudge, the Secretary of the Treasurywill make the agency decision. In mak-ing his decision the Secretary of theTreasury will review the record or suchportions thereof as may be cited by theparties to permit limiting of the issues.A copy of the Secretary's decision shallbe transmitted to the respondent by theDirector of Practice.

[31 F.R. 10773, Aug. 13, 1966, as amended at 42F.R. 38354, July 28, 19771

§ 10.73 Effect of disbarment or sus-pension; surrender of card.

In case the final order against therespondent is for disbarment, the re-spondent shall not thereafter be per-mitted to practice before the InternalRevenue Service unless and untilauthorized to do so by the Director ofPractice pursuant to § 10.75. In case thefinal order against the respondent is forsuspension, the respondent shall notthereafter be permitted to practicebefore the Internal Revenue Serviceduring the period of suspension. If anenrolled agent is disbarred or sus-pended, he shall surrender his enroll-ment card to the Director of Practice forcancellation, in the case of disbarment,or for retention during the period ofsuspension.

§ 10.74 Notice of disbarment orsuspension.

Upon the issuance of a final orderdisbarring or suspending an attorney,certified public accountant, or enrolledagent, the Director of Practice shall givenotice thereof to appropriate officersand employees of the Internal RevenueService and to interested departments

and agencies of the Federal Govern-ment. Notice in such manner as theDirector of Practice may determine maybe given to the proper authorities of theState by which the disbarred or sus-pended person was licensed to practiceas an attorney or accountant.

§ 10.75 Petition for reinstatement.

The Director of Practice may enter-tain a petition for reinstatement fromany person disbarred from practicebefore the Internal Revenue Serviceafter the expiration of 5 years followingsuch disbarment. Reinstatement maynot be granted unless the Director ofPractice is satisfied that the petitioner,thereafter, is not likely to conducthimself contrary to the regulations inthis part, and that granting suchreinstatement would not be contrary tothe public interest.[31 F.R. 10773, Aug. 13, 1966, as amended at 35

F.R. 13206, Aug. 19, 1970]

§ 10.76 Advisory committee.

For purposes of advising the Directorof Practice whether an individual mayhave violated § 10.33 of this part, theDirector of Practice is authorized toestablish an Advisory Committe, com-posed of at least five individualsauthorized to practice before the Inter-nal Revenue Service. Under proceduresestablished by the Director of Practice,such Advisory Committee shall, at therequest of the Director of Practice,review and make recommendations withregard to alleged violations of § 10.33 ofthis part.

Subpart D-Rules Applicableto Disqualification of

Appraisers§ 10.77 Authority to disqualify; ef-

fect of disqualification.

(a) Authority to disqualify. Pursuantto section 156 of the Deficit Reduction

Act of 1984, 98 Stat. 695, amending 31U.S.C. 330, the Secretary of theTreasury, after due notice and oppor-tunity for hearing may disqualify any ap-praiser with respect to whom a penaltyhas been assessed after July 18, 1984,under section 6701(a) of the InternalRevenue Code of 1954, as amended (26U.S.C. 6701(a)).

(b) Effect of disqualification. If anyappraiser is disqualified pursuant to 31U.S.C. 330 and this Subpart:

(1) Appraisals by such appraiser shallnot have any probative effect in any ad-ministrative proceeding before theDepartment of the Treasury or the In-ternal Revenue Service; and

(2) Such appraiser shall be barredfrom presenting evidence or testimonyin any such administrative proceeding.Paragraph (b)(1) shall apply to appraisalsmade by such appraiser after the effec-tive date of disqualification, but shall notapply to appraisals made by the ap-praiser on or before such date. Not-withstanding the foregoing sentence, anappraisal otherwise barred from admis-sion into evidence pursuant toparagraph (b)(1) may be admitted intoevidence solely for the purpose of deter-mining the taxpayer's reliance in goodfaith on such appraisal. Paragraph (b)(2)shall apply to the presentation oftestimony or evidence in any adminis-trative proceeding after the date of suchdisqualification, regardless of whethersuch testimony or evidence would per-tain to any appraisal made prior to suchdate.

§ 10.78 Institution of proceeding.

(a) In general. Whenever the Direc-tor of Practice is advised or becomesaware that a penalty has been assessedagainst an appraiser under 26 U.S.C.6701(a), he/she may reprimand suchperson or institute a proceeding for dis-qualification of such appraiser throughthe filing of a complaint. Irrespective of

whether a proceeding for disqualifica-tion has been instituted against an ap-praiser, the Director of Practice mayconfer with an appraiser against whomsuch a penalty has been assessed con-cerning such penalty.

(b) Voluntary disqualification. Inorder to avoid the initiation or conclu-sion of a disqualification proceeding, anappraiser may offer his/her consent todisqualification. The Director of Prac-tice, in his/her discretion, may disqualifyan appraiser in accordance with the con-sent offered.

§ 10.79 Contents of complaint.

(a) Charges. A proceeding for dis-qualification of an appraiser shall be in-stituted through the filing of a com-plaint, which shall give a plain and con-cise description of the allegations thatconstitute the the basis for the pro-ceeding. A complaint shall be deemedsufficient if it refers to the penaltypreviously imposed on the respondentunder section 6701(a) of the InternalRevenue Code of 1954, as amended (26U.S.C. 6701(a)), and advises him/her ofthe institution of the proceeding.

(b) Demand for answer. In the com-plaint, or in a separate paper attachedto the complaint, notification shall begiven of the place and time within whichthe respondent shall file his/her answer,which time shall not be less than 15 daysfrom the date of service of the com-plaint, and notice shall be given that adecision by default -may be renderedagainst the respondent in the eventthere is failure to file an answer.

§ 10.80 Service of complaint andother papers.

(a) Complaint. The complaint or acopy thereof may be. served upon therespondent by certified mail, or first-class mail as hereinafter provided, bydelivering it to the respondent or his/her

attorney or agent of record either in per-son or by leaving it at the office or placeof business of the respondent, attorneyor agent, or in any other manner thathas been agreed to by the respondent.Where the service is by certified mail,the return post office receipt duly signedby or on behalf of the respondent shallbe proof of service. If the certified mailis not claimed or accepted by therespondent and is returned undelivered,complete service may be made by mail-ing the complaint to the respondent byfirst-class mail, addressed to the respon-dent at the last address known to theDirector of Practice. If service is madeupon the respondent in person or byleaving the complaint at the office orplace of business of the respondent, theverified return by the person makingservice, setting forth the manner ofservice, shall be proof of such service.

(b) Service of papers other than com-plaint. Any paper other than the com-plaint may be served as provided inparagraph (a) of this section or by mail-ing the paper by first-class mail to therespondent at the last address known tothe Director of Practice, or by mailingthe paper by first-class mail to therespondent's attorney or agent ofrecord. Such mailing shall constitutecomplete service. Notices may beserved upon the respondent or his/herattorney or agent of record bytelegraph.

(c) Filing of papers. Whenever the fil-ing of a paper is required or permittedin connection with a disqualification pro-ceeding under this subpart or by rule ororder of the Administrative Law Judge,the paper shall be filed with the Direc-tor of Practice, Treasury Department,Internal Revenue Service, Washington,D.C. 20224. All papers shall be filed induplicate.

§ 10.81 Answer.

(a) Filing. The respondent's answershall be filed in writing within the time

specified in the complaint or notice ofinstitution of the proceeding, unless onapplication the time is extended by theDirector of Practice or the Ad-ministrative Law Judge. The answershall be filed in duplicate with the Direc-tor of Practice.

(b) Contents. The answer shall con-tain a statement of facts that constitutethe grounds of defense, and it shallspecifically admit or deny each allega-tion set forth in the complaint, exceptthat the respondent shall not deny amaterial allegation in the complaint thathe/she knows to be true, or state thathe/she is without sufficient informationto form a belief when in fact he/shepossesses such information.

(c) Failure to deny or answer allega-tions in the complaint. Every allegationin the complaint which is not denied inthe answer shall be deemed to beadmitted and may be considered asproved, and no further evidence inrespect of such allegation need be ad-duced at a hearing. Failure to file ananswer within the time prescribed in thenotice to the respondent, except as thetime for answer is extended by theDirector of Practice or the Adminis-trative Law Judge, shall consititute anadmission of the allegations of the com-plaint and a waiver of hearing, and theAdministrative Law Judge may makehis/her decision by default without ahearing or further procedure.

§ 10.82 Supplemental charges.

If it appears that the respondent inhis/her answer, falsely and in bad faith,denies a material allegation of fact in thecomplaint or states that the respondenthas no knowledge sufficient to form abelief, when he/she in fact possessessuch information, or if it appears thatthe respondent has knowingly intro-duced false testimony during pro-ceedings for his/her disqualification, theDirector of Practice may thereupon file

supplemental charges against therespondent. Such supplemental chargesmay be tried with other charges in thecase, provided the respondent is givendue notice thereof and is afforded anopportunity to prepare a defensethereto.

§ 10.83 Reply to answer.

No reply to the respondent's answershall be required, and any new matterin the answer shall be deemed to bedenied, but the Director of Practice mayfile a reply in his/her discretion or at therequest of the Administrative LawJudge.

§ 10.84 Proof, variance, amendmentof pleadings.

In the case of a variance between theallegations in a pleading and theevidence adduced in support of thepleading, the Administrative Law Judgemay order or authorize amendment ofthe pleading to conform to the evi-dence; provided, that the party whowould otherwise be prejudiced by theamendment is given reasonable oppor-tunity to meet the allegations of thepleading as amended, and the Admin-istrative Law Judge shall make findingson any issue presented by the pleadingsas so amended.

§ 10.85 Motions and requests.

Motions and requests may be filedwith the Director of Practice or with theAdministrative Law Judge.

§ 10.86 Representation.

A respondent may appear in personor may be represented by counsel orother representative. The Director ofPractice may be represented by an at-tomey or other employee of the Depart-ment of the Treasury.

§ 10.87 Administrative Law Judge.

(a) Appointment. An AdministrativeLaw Judge, appointed as provided by5 U.S.C. 3105, shall conduct pro-ceedings upon complaints for the dis-qualification of appraisers.

(b) Powers of Administrative LawJudge. Among other powers, the Ad-ministrative Law Judge shall haveauthority, in connection with any dis-qualification proceeding assigned orreferred to him/her, to do the following:

(1) Administer oaths and affir-mations;

(2) Make rulings upon motions andrequests, which rulings may not be ap-pealed from prior to the close of a hear-ing except at the discretion of the Ad-ministrative Law Judge, in extraordinarycircumstances;

(3) Determine the time and place ofhearing and regulate its course andconduct;

(4) Adopt rules of procedure andmodify the same from time to time asoccasion requires for the orderly disposi-tion of proceedings;

(5) Rule upon offers of proof, receiverelevant evidence, and examine wit-nesses;

(6) Take or authorize the taking ofdepositions;

(7) Receive and consider oral or writ-ten argument on facts or law;

(8) Hold or provide for the holding ofconferences for the settlement orsimplification of the issues by consentof the parties;

(9) Perform such acts and take suchmeasures as are necessary or ap-propriate to the efficient conduct of anyproceeding; and

(10) Make initial decisions.

§ 10.88 Hearings.

(a) In general. The AdministrativeLaw Judge shall preside at the hearingon a complaint for the disqualification

of an appraiser. Hearings shall be steno-graphically recorded and transcribedand the testimony of witnesses shall betaken under oath or affirmation. Hear-ings will be conducted pursuant to 5U.S.C. 556.

(b) Failure to appear. If either partyto the proceeding fails to appear at thehearing after due notice thereof hasbeen sent to him/her, the right to ahearing shall be deemed to have beenwaived and the Administrative LawJudge may make a decision by defaultagainst the absent party.

§ 10.89 Evidence.

(a) In general. The rules of evidenceprevailing in courts of law and equity arenot controlling in hearings on com-plaints for the disqualification of ap-praisers. However, the AdministrativeLaw Judge shall exclude evidencewhich is irrelevant, immaterial, or undulyrepetitious.

(b) Depositions. The deposition ofany witness taken pursuant to §10.90may be admitted.

(c) Proof of Documents. Officialdocuments, records, and papers of theInternal Revenue Service or the Depart-ment of the Treasury shall be admissi-ble in evidence without the productionof an officer or employee to authen-ticate them. Any such documents,records, and papers may be evidencedby a copy attested or identified by anofficer or employee of the InternalRevenue Service or the Department ofthe Treasury, as the case may be.

(d) Exhibits. If any document, record,or other paper is introduced in evidenceas an exhibit, the Administrative LawJudge may authorize the withdrawal ofthe exhibit subject to any conditionswhich he/she deems proper.

(e) Objections. Objections to evi-dence shall be in short form, stating thegrounds of objection relied upon, and

the record shall not include argumentthereon, except as ordered by the Ad-ministrative Law Judge. Rulings onsuch objections shall be a part of therecord. No exception to the ruling isnecessary to preserve the rights of theparties.

§ 10.90 Depositions.

Depositions for use at a hearing may,with the written approval of the Ad-ministrative Law Judge, be taken eitherby the Director of Practice or therespondent or their duly authorizedrepresentatives. Depositions may betaken upon oral or written inter-rogatories, upon not less than 10 days'written notice to the other party beforeany officer duly authorized to administeran oath for general purposes or beforean officer or employee of the InternalRevenue Service who is authorized toadminister an oath in Internal Revenuematters. Such notice shall state thenames of the witnesses and the timeand place where the depositions are tobe taken. The requirement of 10 days'notice may be waived by the parties inwriting, and depositions may then betaken from the persons and at the timesand places mutually agreed to by theparties. When a deposition is takenupon written interrogatories, any cross-examination shall be upon written inter-rogatories. Copies of such written inter-rogatories shall be served upon theother party with the notice, and copiesof any written cross-interrogatories shallbe mailed or delivered to the opposingparty at least 5 days before the date oftaking the depositions, unless the par-ties mutually agree otherwise. A partyupon whose behalf a deposition is takenmust file it with the Administrative LawJudge and serve one copy upon the op-posing party. Expenses in the reportingof depositions shall be borne by theparty at whose instance the depositionis taken.

§ 10.91 Transcript.

In cases where the hearing isstenographically reported by a Govern-ment contract reporter, copies of thetranscript may be obtained from thereporter at rates not to exceed the max-imum rates fixed by contract betweenthe Government and the reporter.Where a hearing is stenographicallyreported by a regular employee of theInternal Revenue Service, a copythereof will be supplied to the respon-dent either without charge or upon thepayment of a reasonable fee. Copies ofexhibits introduced at the hearing or atthe taking of depositions will be suppliedto the parties upon the payment of areasonable fee (Sec. 501, Pub. L.82-137,65 Stat. 290 (31 U.S.C. 483a)).

§ 10.92 Proposed findings and con-clusions.

Except in cases where the respondenthas failed to answer the complaint orwhere a party has failed to appear at thehearing, the Administrative Law Judge,prior to making a decision, shall affordthe parties a reasonable opportunity tosubmit proposed findings and conclu-sions and supporting reasons therefor.

§ 10.93 Decision of the Administra-tive Law Judge.

As soon as practicable after the con-clusion of a hearing and the receipt ofany proposed findings and conclusionstimely submitted by the parties, the Ad-ministrative Law Judge shall make theinitial decision in the case. The decisionshall include (a) a statement of findingsand conclusions, as well as the reasonsor bases therefor, upon all the materialissues of fact, law, or discretion pre-sented on the record, and (b) an orderof disqualification or an order ofdismissal of the complaint. The Admin-istrative Law Judge shall file the deci-sion with the Director of Practice and

shall transmit a copy thereof to therespondent or his attorney of record. Inthe absence of an appeal to theSecretary of the Treasury, or review ofthe decision upon motion of the Sec-retary, the decision of the Adminis-trative Law Judge shall without furtherproceedings become the decision of theSecretary of the Treasury 30 days fromthe date of the Administrative LawJudge's decision.

§ 10.94 Appeal to the Secretary.

Within 30 days from the date of theAdministrative Law Judge's decision,either party may appeal such decisionto the Secretary of the Treasury. If anappeal is by the respondent, the appealshall be filed with the Director of Prac-tice in duplicate and shall include excep-tions to the decision of the Ad-ministrative Law Judge and supportingreasons for such exceptions. If an ap-peal is filed by the Director of Practice,a copy thereof shall be transmitted tothe respondent. Within 30 days afterreceipt of an appeal or copy thereof, theother party may file a reply brief induplicate with the Director of Practice.,If the reply brief is filed by the Director,a copy shall be transmitted to therespondent. Upon the filing of an appealand a reply brief, if any, the Director ofPractice shall transmit the entire recordto the Secretary of the Treasury.

§ 10.95 Decision of the Secretary.On appeal from or review of the initial

decision of the Administrative LawJudge, the Secretary of the Treasuryshall make the agency decision. In mak-ing such decision, the Secretary of theTreasury will review the record or suchportions thereof as may be cited by theparties. A copy of the Secretary's deci-sion shall be transmitted to the respon-dent by the Director of Practice.

§ 10.96 Final Order.

Upon the issuance of a final order dis-qualifying an appraiser, the Director ofPractice shall give notice thereof to ap-propriate officers and employees of theInternal Revenue Service and to in-terested departments and agencies ofthe Federal Government.

§ 10.97 Petition for reinstatement.

The Director of Practice may enter-tain a petition for reinstatement fromany disqualified appraiser after the ex-piration of 5 years following such dis-qualification. Reinstatement may not begranted unless the Director of Practiceis satisfied that the petitioner, thereafter,is not likely to conduct himself/herselfcontrary to26 U.S.C. 6701(a), and thatgranting such reinstatement would notbe contrary to the public interest.

Subpart E-General Provisions

§ 10.98 Records.

(a) Availability. There are madeavailable to public inspection at the Of-fice of Director of Practice the roster ofall persons enrolled to practice, theroster of all persons disbarred orsuspended from practice, and the rosterof all disqualified appraisers. Otherrecords may be disclosed upon specificrequest, in accordance with the disclo-sure regulations of the Internal RevenueService and the Treasury Department.

(b) Disciplinary procedures. A re-quest by a practitioner that a hearing ina disciplinary proceeding concerninghim be public, and that the recordthereof be made available for inspectionby interested persons, may be grantedif agreement is reached by stipulation inadvance to protect from disclosure taxinformation which is confidential, in ac-cordance with the applicable statutesand regulations.

§ 10.99 Effective date of regu-lations.

The regulations of this part shall be-come effective on January 22, 1986 andshall supersede all prior regulationsrelated to this part.

§ 10.100 Saving clause.

Any proceeding for the disbarment orsuspension of an attorney, certified pub-lic accountant, or enrolled agent, in-stituted but not closed prior to the ef-fective date of these revised regulations,shall not be affected by such regula-tions. Any proceeding under this Partbased on conduct engaged in prior tothe effective date of these regulations

may be instituted subsequent to sucheffective date.

150 F.R. 42014, Oct. 17, 19851

§ 10.101 Special orders.

The Secretary of the Treasuryreserves the power to issue such specialorders as he may deem proper in anycases within the purview of this part.

[SEAL] Robert M. KimmittGeneral Counsel, Department of theTreasury

[FR Doc. 86-1234; filed 1-21-86; 8:45 am]

t" U.S. GOVERNMENT PRINTING OFFICE: 193 - 343-073184184