Regulations Governing Practice Before the Internal Revenue Service, 54540-54555 [E7-18918]

Agencies

• Office of the Secretary
• DEPARTMENT OF THE TREASURY
• Department of Treasury

[Federal Register Volume 72, Number 186 (Wednesday, September 26, 2007)]
[Rules and Regulations]
[Pages 54540-54555]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-18918]


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DEPARTMENT OF THE TREASURY

Office of the Secretary

31 CFR Part 10

[TD 9359]
RIN 1545-BA72


Regulations Governing Practice Before the Internal Revenue 
Service

AGENCY: Office of the Secretary, Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations revising the 
regulations governing practice before the Internal Revenue Service 
(Circular 230). These regulations affect individuals who practice 
before the Internal Revenue Service (IRS). The amendments modify the 
general standards of practice before the IRS.

DATES: Effective Date: These regulations are effective September 26, 
2007.
    Applicability Date: For dates of applicability, see Sec. Sec.  
10.1(d), 10.2(b), 10.3(i), 10.4(e), 10.5(f), 10.6(p), 10.7(g), 
10.22(c), 10.25(e), 10.27(d), 10.29(d), 10.30(e), 10.34(f), 10.50(e), 
10.51(b), 10.52(b), 10.53(e), 10.60(d), 10.61(c), 10.62(d), 10.63(f), 
10.65(c), 10.68(e), 10.70(c), 10.71(g), 10.72(g), 10.73(g), 10.76(e), 
10.77(c), 10.78(d), 10.82(h), 10.90(b), and 10.91.

FOR FURTHER INFORMATION CONTACT: Matthew Cooper at (202) 622-4940.

SUPPLEMENTARY INFORMATION:

Background

    Section 330 of title 31 of the United States Code authorizes the 
Secretary of the Treasury to regulate the practice of representatives 
before the Treasury Department. The Secretary is authorized, after 
notice and an opportunity for a proceeding, to censure, suspend or 
disbar from practice before the Treasury Department those 
representatives who are incompetent, disreputable, or who violate 
regulations prescribed under section 330 of title 31. The Secretary 
also is authorized to impose a monetary penalty against these 
individuals or seek an injunction under section 7408 of the Internal 
Revenue Code.
    The Secretary has published regulations governing the practice of 
representatives before the IRS in Circular 230 (31 CFR part 10). These 
regulations authorize the Director of the Office of Professional 
Responsibility to act upon applications for enrollment to practice 
before the IRS, to make inquiries with respect to matters under the 
Office of Professional Responsibility's jurisdiction, to institute 
proceedings to impose a monetary penalty or to censure, suspend or 
disbar a practitioner from practice before the IRS, to institute 
proceedings to disqualify appraisers, and to perform other duties 
necessary to carry out these functions.
    On December 19, 2002 (67 FR 77724), the Treasury Department and the 
IRS issued an advance notice of proposed rulemaking (2002 ANPRM) 
requesting comments on amendments to the regulations relating to the 
Office of Professional Responsibility, unenrolled practice, eligibility 
for enrollment, sanctions and disciplinary proceedings, contingent fees 
and confidentiality agreements. On February 8, 2006, the Treasury 
Department and the IRS published in the Federal Register (71 FR 6421) 
proposed amendments to the regulations (REG-122380-02) reflecting 
consideration of the comments received in response to the 2002 ANPRM 
and reflecting amendments to section 330 of title 31 made by the 
American Jobs Creation Act of 2004, Public Law 108-357 (118 Stat. 1418) 
(the Jobs Act). A public hearing was held on these proposals on June 
21, 2006. Written public comments responding to the proposed 
regulations were received. After consideration of the public comments, 
the proposed regulations are adopted as revised by this Treasury 
decision.

Summary of Comments and Explanation of Revisions

    Over 30 written comments were received in response to the notice of 
proposed rulemaking. All comments were considered and are available for 
public inspection upon request. A number of these comments are 
summarized in this preamble. The scope of these regulations is limited 
to practice before the IRS. These regulations do not alter or supplant 
ethical standards that are otherwise applicable to practitioners.

Definitions--Practice Before the Internal Revenue Service

    Section 10.2(a)(4) of the final regulations adopts the proposed 
change without modification. The final regulations provide that 
practice before

[[Page 54541]]

the IRS comprehends all matters connected with a presentation to the 
IRS or any of its officers or employees relating to a taxpayer's 
rights, privileges, or liabilities under laws or regulations 
administered by the IRS. Consistent with the Jobs Act amendment to 
section 330 of title 31, the final regulations provide that practice 
includes rendering written advice with respect to any entity, 
transaction, plan or arrangement, or other plan or arrangement having a 
potential for tax avoidance or evasion. Several commentators stated 
that, notwithstanding the clarification provided by the Jobs Act, the 
rendition of tax advice is not, in and of itself, an act constituting 
practice before the IRS. The Treasury Department and IRS conclude that 
the rendering of written advice is practice before the IRS subject to 
Circular 230 when it is provided by a practitioner.

Who May Practice

    Sections 10.3(a) and (b) of these final regulations clarify that an 
attorney or CPA is not required to file a Form 2848, ``Power of 
Attorney and Declaration of Representative'', with the IRS before 
rendering written advice covered under Sec.  10.35 or Sec.  10.37. As 
stated earlier in this preamble, the rendering of this advice is 
practice before the IRS when provided by a practitioner. Any practice 
before the IRS other than the rendering of written advice covered under 
Sec.  10.35 or Sec.  10.37 continues to require the attorney or CPA to 
file a Form 2848 with the IRS.
    The notice of proposed rulemaking invited comments on a proposal 
from the Advisory Committee for Tax Exempt/Governmental Entities 
recommending that individuals who provide technical services to plan 
sponsors to maintain the tax qualified status of their retirement plans 
(retirement plan administrators) be authorized to practice provided 
they demonstrate the competency to do so.
    The commentators supported this proposal provided that practice is 
limited to representing taxpayers with respect to qualified retirement 
plan issues. In light of the favorable comments and the immediate need 
for this program, the final regulations under Sec.  10.3(e) establish 
an enrolled retirement plan agent designation, subject to the 
limitations identified in these regulations.
    These regulations generally limit the practice of enrolled 
retirement plan agents to representation with respect to issues arising 
under the following employee plan programs: (1) Employee Plans 
Determination Letter program; (2) Employee Plans Compliance Resolution 
System; and (3) Employee Plans Master and Prototype and Volume 
Submitter program. Enrolled retirement plan agents also are permitted 
to represent taxpayers generally with respect to IRS forms under the 
5300 and 5500 series, which are filed by retirement plans and plan 
sponsors, but not with respect to actuarial forms or schedules.
    The Advisory Committee recommended the implementation of procedures 
for enrollment similar to the current enrolled agent program. The 
Treasury Department and IRS adopt that recommendation. Enrolled 
retirement plan agents will be subject to an examination to determine 
competency, a renewal process and continuing professional education 
requirements.

Enrollment Procedures

    Sections 10.4, 10.5 and 10.6 of the regulations set forth the 
applicable procedures relating to the enrollment and renewal of 
enrollment of an enrolled agent. The final regulations adopt the 
proposed changes in these sections with one modification. Sections 
10.5(b) and 10.6(d)(6) are revised to reflect the publishing of TD 9288 
(71 FR 58740), which establishes user fees for enrollment and renewal 
of this enrollment in 26 CFR part 300, on October 5, 2006. The 
procedures in Sec. Sec.  10.4, 10.5, and 10.6 also are expanded to 
include the enrollment and renewal of enrollment for the new category 
of enrolled retirement plan agents.

Limited Practice Before the IRS

    The final regulations do not adopt the provisions governing limited 
practice as proposed under Sec.  10.7. Accordingly, the authorization 
in Sec.  10.7(c)(viii), which allows an individual, who was not 
otherwise a practitioner, to represent a taxpayer during an examination 
if that individual prepared the return for the taxable period under 
examination, is retained. An unenrolled return preparer who prepared 
the taxpayer's return for the year under examination, therefore, may 
continue to negotiate with the IRS on behalf of that taxpayer during an 
examination or bind that taxpayer to a position during an examination. 
The unenrolled return preparer, however, may still not represent a 
taxpayer before any other office of the IRS, including Collection or 
Appeals; execute closing agreements, claims for refund, or waivers; or 
otherwise represent taxpayers before the IRS unless authorized by Sec.  
10.7(c)(1)(i) through (vii).
    These final regulations do not adopt one commentator's suggestion 
that payroll reporting agents be allowed to represent taxpayers on a 
limited basis with respect to Federal tax deposits made by the payroll 
agents on behalf of their clients. Payroll agents have not demonstrated 
their qualifications to practice before the IRS as required under 
section 330(a)(2) of title 31. Payroll agents may assist, however, in 
the exchange of information with the IRS regarding a taxpayer's return 
if the taxpayer specifically authorizes the payroll agent to receive 
confidential tax information from the IRS through the use of a tax 
information authorization.

Practice by Former Government Employees, Their Partners and Their 
Associates

    The final regulations adopt the proposed amendments to Sec.  10.25, 
with modification. The final regulations modify Sec.  10.25(b)(4) to 
prohibit, for a period of one year after Government employment is 
ended, former employees from appearing before, or communicating with 
the intent to influence, an employee of the Treasury Department with 
respect to a rule in which they were involved in developing. This 
modification is consistent with the scope of activities covered by 18 
U.S.C. 207(a) and 207(c). Commentators generally supported the changes 
to Sec.  10.25 governing the restrictions on the practice of former 
Government employees, their partners, and their associates with respect 
to matters that the former Government employees participated in during 
the course of their Government employment.

Contingent Fees

    The final regulations adopt the amendments as proposed in Sec.  
10.27, with several modifications. Most commentators opposed further 
limitations on contingent fees under Sec.  10.27 and supported the 
withdrawal or significant modification of this section. Specifically, 
several commentators stated that the proposed rules were overly broad, 
improperly interfered with the practitioner-client relationship, and 
prohibited some small and middle market taxpayers from appropriately 
requesting refunds. Another group of commentators requested that 
contingent fees be allowed in situations in which IRS review of the 
taxpayer's position is probable and the fees do not provide an 
incentive for abuse (including interest and penalty reviews, private 
letter rulings, pre-filing agreements, advance pricing agreements, and 
requests for relief under section 9100).
    The Treasury Department and the IRS continue to believe that a rule 
restricting contingent fees for preparing tax returns

[[Page 54542]]

supports voluntary compliance with the Federal tax laws by discouraging 
return positions that exploit the audit selection process. In 
particular, the Treasury Department and IRS are concerned with the use 
of contingent fee arrangements in connection with claims for refund or 
amended returns filed late in the examination process. Balancing these 
concerns with the appropriate use of contingent fee arrangements in 
other situations, the final regulations permit a practitioner to charge 
a contingent fee for services rendered in connection with the IRS 
examination of, or challenge, to (i) An original tax return, or (ii) an 
amended return or claim for refund or credit where the amended return 
or claim for refund or credit was filed within 120 days of the taxpayer 
receiving a written notice of the examination or a written challenge to 
the original tax return.
    Based on comments received, the final regulations also permit the 
use of contingent fees for interest and penalty reviews because there 
is no exploitation of the audit lottery in these situations as they are 
generally completed on a post-examination basis. A practitioner, 
therefore, may charge a contingent fee for services rendered in 
connection with a claim for credit or refund filed in connection with 
the determination of statutory interest or penalties assessed by the 
Internal Revenue Service.
    Finally, the final regulations adopt the amendment in proposed 
Sec.  10.27 which allows a practitioner to charge a contingent fee for 
services rendered in connection with any judicial proceeding arising 
under the Internal Revenue Code.
    To eliminate any adverse impact that the adoption of these final 
regulations could have on pending or imminent transactions, Sec.  
10.27(d), as amended, will apply to fee arrangements entered into after 
March 26, 2008.

Conflicting Interests

    The final regulations adopt the proposed amendments found in Sec.  
10.29 with modification. Under the final regulations, a practitioner is 
required to obtain consent to the representation from each affected 
client in writing in order to represent the conflicting interests. The 
written consent may vary in form. The practitioner may prepare a letter 
to the client outlining the conflict, as well as the possible 
implications of the conflict, and submit the letter to the client for 
the client to countersign. Unlike American Bar Association model rule 
1.7, which permits affected clients to provide informed consent 
verbally if the consent is contemporaneously documented by the 
practitioner in writing, a verbal consent followed by a confirmatory 
letter authored by the practitioner will not satisfy Sec.  10.29 unless 
the confirmatory letter is countersigned by the client. A number of 
commentators opposed the proposed rules on the grounds that it is 
arguably broader than American Bar Association model rule 1.7. The 
Treasury Department and IRS, however, conclude that the language in the 
final regulations is appropriate to protect taxpayer interests and 
protect settlements from future collateral attack. In order to provide 
greater flexibility to both the practitioner and client, the Treasury 
Department and IRS have revised the final regulations to allow the 
confirmation to be made within a reasonable period after the informed 
consent, but in no event later than 30 days. It is not the intent of 
the Treasury Department and IRS to sanction minor technical violations 
of this final Sec.  10.29 when there is little or no injury to a 
client, the public, or tax administration. For example, if a client 
fails to return the confirmatory writing to the practitioner, 
notwithstanding the practitioner's documented good faith effort to 
obtain the client's signature, the practitioner would not be subject to 
a sanction or monetary penalty provided the practitioner promptly 
withdrew from representation upon the failure to receive the client's 
written confirmation within a reasonable period.

Standards With Respect to Tax Returns and Documents, Affidavits and 
Other Papers

    Section 10.34 sets forth standards applicable to advice with 
respect to tax return positions and applicable to preparing or signing 
returns. These final regulations adopt Sec.  10.34 as proposed, with 
modifications.
    On May 25, 2007, the President signed into law the Small Business 
and Work Opportunity Tax Act of 2007, Public Law 110-28 (121 Stat. 
190), which amended several provisions of the Code to extend the 
application of the income tax return preparer penalties to all tax 
return preparers, alter the standards of conduct that must be met to 
avoid imposition of the penalties for preparing a return that reflects 
an understatement of liability, and increase applicable penalties. On 
June 11, 2007, the IRS released Notice 2007-54, 2007-27 IRB 1 (see 
Sec.  601.601(d)(2)(ii)(b)), providing guidance and transitional relief 
for the return preparer provisions under section 6694 of the Code, as 
recently amended. The standards with respect to tax returns under Sec.  
10.34(a) in these final regulations do not reflect amendments to the 
Code made by the Small Business and Work Opportunity Tax Act of 2007. 
Rather, the Treasury Department and the IRS are reserving Sec.  
10.34(a) and (e) in these final regulations and are simultaneously 
issuing a notice of proposed rulemaking proposing to amend this part to 
reflect these recent amendments to the Code.
    Several commentators requested that the Treasury Department and the 
IRS clarify the rule concerning advising a client to submit a document 
that contains or omits information in a manner that demonstrates an 
intentional disregard of a rule or regulation and a taxpayer's right to 
offer a good faith challenge to a rule or regulation. The language 
under Sec.  10.34(b)(2)(iii) now provides that a practitioner may not 
advise a client to submit a document to the IRS that contains or omits 
information in a manner that demonstrates an intentional disregard of a 
rule or regulation unless the practitioner also advises the client to 
submit a document showing a good faith challenge to the rule or 
regulation.

Sanctions

    The final regulations adopt the amendments under Sec.  10.50 
authorizing the imposition of a monetary penalty in addition to, or in 
lieu of, any other sanction in accordance with section 822(a) of the 
Jobs Act. The Treasury Department and the IRS released Notice 2007-39, 
2007-20 IRB 1243 (see Sec.  601.601(d)(2)(ii)(b)), on April 23, 2007, 
which provides guidance for practitioners, employers, firms, and other 
entities that may be subject to monetary penalties. In addition, the 
Notice requests comments from the public regarding rules and standards 
relating to the imposition of the monetary penalty. The regulations 
also contain conforming amendments to other provisions relating to 
sanctions, including modifications made by section 1219 of the Pension 
Protection Act of 2006, Public Law 109-280 (120 Stat. 780). The 
Secretary of the Treasury, or delegate, after due notice and 
opportunity for hearing, may now disqualify an appraiser who violates 
Circular 230 with or without the assessment of a section 6701 penalty 
against the appraiser.

Incompetence and Disreputable Conduct

    Section 10.51 of the regulations defines disreputable conduct for 
which a practitioner may be sanctioned. A number of commentators stated 
that inclusion of ``failure to sign a tax return'' as a type of 
disreputable conduct is inappropriate unless the rule clarifies how the 
practitioner should

[[Page 54543]]

appropriately handle competing duties, including section 6694 of the 
Internal Revenue Code or Sec.  10.34 of Circular 230. The Treasury 
Department and the IRS agree that there might be instances in which the 
failure to sign a return should not lead to discipline. Therefore, 
Sec.  10.51(a)(14) of the final regulations is modified to provide that 
failure to sign a return is not disreputable conduct if the failure is 
due to reasonable cause and not due to willful neglect. This change is 
consistent with the standard applied under section 6695(b) of the Code.

Conferences

    The final regulations adopt the proposed rule in Sec.  10.61(a) 
relating to the ability of the Director of the Office of Professional 
Responsibility to confer with a practitioner, employer, firm or other 
entity, or an appraiser concerning allegations of misconduct 
irrespective of whether a proceeding has been instituted. Commentators 
suggested that the practitioner, employer, firm or other entity, or an 
appraiser be provided with a right to a conference with the Office of 
Professional Responsibility. The commentators' suggestion was not 
adopted in light of the Office of Professional Responsibility's policy 
that it will not deny a first request for conference made by a 
practitioner, employer, firm or other entity, or an appraiser regarding 
allegations of misconduct. The Office of Professional Responsibility 
may conduct a conference by telephonic means or in person.

Service of Complaint

    The final regulations adopt the rules related to service of the 
complaint as proposed. Proposed regulations in Sec.  10.63(d) provide 
that within 10 days of serving the complaint, copies of the evidence in 
support of the complaint must be served on the respondent in any manner 
provided by regulations. Commentators requested that the Director of 
the Office of Professional Responsibility furnish evidence not solely 
in support of the complaint, but also additional evidence collected 
during the course of investigating the conduct of the respondent, 
including any exculpatory evidence. Although not formalized in the 
regulations or the Internal Revenue Manual currently, the current 
practice of the Office of Professional Responsibility is to provide to 
the respondent upon request a copy of what informally is understood as 
the ``OPR administrative file'' prior to the filing of a complaint 
under Sec.  10.60. In general, the OPR administrative file contains 
material that the Office of Professional Responsibility considered in 
the course of determining whether to issue a final complaint. Some 
material related to the case, including but not limited to legal 
memoranda provided to the Office of Professional Responsibility by the 
Office of Chief Counsel will not be included in the OPR administrative 
file. The Treasury Department and IRS intend for the practice of 
releasing the OPR administrative file upon request to continue. This 
practice addresses in part commentators' concern that documents 
included in the investigatory file, including releasable exculpatory 
evidence, be provided to the respondent. The IRS expects to issue 
Internal Revenue Manual provisions in the near future pertaining to the 
Office of Professional Responsibility's procedures for investigations. 
It is expected that those provisions will formalize the definition of 
the OPR administrative file and the current practice of providing it to 
the respondent upon request. In order to help ensure that a respondent 
has access to the evidence in support of OPR's position, as well as 
other evidence included in the investigatory file, the Treasury 
Department and IRS are considering ways in which the existing practice 
relating to the OPR administrative file can be formalized, and will 
consider addressing this issue in future published guidance.

Supplemental Charges

    The final regulations adopt the rules on supplemental charges as 
proposed with minor revisions. Section 10.65 of the regulations 
provides that the Director of the Office of Professional Responsibility 
may file supplemental charges against a practitioner or appraiser by 
amending the complaint to reflect the additional charges if the 
practitioner or appraiser is given notice and an opportunity to prepare 
a defense to the supplemental charges.

Discovery, Hearings, and Publicity of Proceedings

    The final regulations adopt the proposed changes to Sec. Sec.  
10.68, 10.71, and 10.72(a) through (c) without modification. Most 
commentators supported expanding the use of discovery in disciplinary 
proceedings. Most commentators also supported providing further 
procedural protections such as a guarantee of the right to cross-
examine witnesses. Section 10.71(f) of the final regulations provides 
that no discovery other than that specifically provided in that section 
is permitted.
    Section 10.72(d) regarding the publicity of disciplinary 
proceedings is adopted with modification. These final regulations 
provide that reports and decisions of the ALJ and appellate authority 
will be available for public inspection within 30 days after the 
agency's decision becomes final, subject to procedures to protect the 
identities of any third-party taxpayers. This publicity will provide 
greater transparency to the disciplinary process.
    Although most commentators do not oppose disclosure if a sanction 
is imposed, commentators raised concerns about disclosure before the 
Secretary's decision is final. The concerns are that premature public 
disclosure will unfairly tarnish practitioners' reputations and that 
IRS proceedings lack the independent review and system of checks and 
balances found in State bar disciplinary proceedings. Several 
commentators specifically requested that an independent party outside 
of the IRS make a probable cause determination prior to disclosure.
    Attorneys in the Office of Professional Responsibility review every 
allegation received by the office. If an allegation warrants 
investigation, the practitioner is provided with an opportunity to 
confer with the Office of Professional Responsibility regarding the 
allegation against the practitioner. After the conference, the Office 
of Professional Responsibility may close their investigation without 
action, or, if a violation of Circular 230 has occurred, attempt to 
reach an agreement with the practitioner on an appropriate sanction. If 
an agreement is not reached, the Office of Professional Responsibility 
sends the case to the Office of the Associate Chief Counsel (General 
Legal Services) for further action. An attorney in the Office of the 
Associate Chief Counsel (General Legal Services) thoroughly reviews the 
case file, and, if a violation of Circular 230 has occurred, the 
practitioner is offered one more opportunity to discuss the merits and 
settlement of the case before a formal complaint is filed. Only after 
the case has been reviewed by the Office of the Associate Chief Counsel 
(General Legal Services) and the practitioner has been offered this 
second opportunity to discuss and settle the case is a formal complaint 
filed.
    In light of the concerns raised by commentators that premature 
public disclosure could potentially tarnish practitioners' reputations, 
the final regulations require that disclosure of the disciplinary 
decision be delayed until after the decision becomes final. This 
modification ensures that there is no potential premature tarnishing of 
a practitioner's reputation.

[[Page 54544]]

Decision of Administrative Law Judge

    The final regulations do not adopt the proposed rules under 
Sec. Sec.  10.77 and 10.78, which provided for a more streamlined 
process for deciding appeals of the Administrative Law Judges' 
decisions. The intent of this streamlined process was to provide a more 
timely process for deciding appeals. Numerous concerns were raised with 
the streamlined process, and, after consideration of the concerns, 
these final regulations keep the current rules under Sec. Sec.  10.77 
and 10.78 in effect. But to achieve a more timely review of any appeal, 
the regulations now provide that the Secretary of the Treasury, or 
delegate, should make the agency decision within 180 days after receipt 
of the appeal. The failure of the Secretary of the Treasury, or 
delegate, to meet this timeframe, as well as any other discretionary 
timeframe in subpart D, does not create a right of action for the 
practitioner.

Expedited Suspension

    The final regulations adopt, with modification, the proposed 
amendments to Sec.  10.82. Final Sec.  10.82 expands the authority of 
the Office of Professional Responsibility to institute expedited 
suspension proceedings against practitioners who advance frivolous or 
obstructionist positions (after a sanction by a court of competent 
jurisdiction). The Treasury Department and the IRS continue to believe 
that the expedited suspension process is equitable and appropriate in 
the limited listed circumstances. The Office of Professional 
Responsibility completes an investigation of the issues prior to 
instituting an expedited proceeding and practitioners are entitled to a 
conference with the Office of Professional Responsibility upon request.
    Several commentators expressed concern that expanding the 
authorized use of the expedited procedures to compliance cases further 
erodes a practitioner's rights to due process. After further 
consideration of this issue, final Sec.  10.82 does not expand the 
authority of the Office of Professional Responsibility to institute 
expedited suspension proceedings against practitioners who are not in 
compliance with their own Federal tax obligations (failure to file or 
pay a tax in 3 of the preceding 5 years, or in 4 of the preceding 7 
periods).

Special Analyses

    It has been determined that this final rule is not a significant 
regulatory action as defined in Executive Order 12866. Therefore, a 
regulatory assessment is not required.
    It is hereby certified, under the provisions of the Regulatory 
Flexibility Act (5 U.S.C. 601 et seq.), that these regulations will not 
have a significant economic impact on a substantial number of small 
entities. Persons authorized to practice have long been required to 
comply with certain standards of conduct when practicing before the 
Internal Revenue Service. These regulations do not alter the basic 
nature of the obligations and responsibilities of these practitioners. 
These regulations merely clarify those obligations in response to 
public comments, replace certain terminology to conform with the 
terminology used in 18 U.S.C. 207, and 5 CFR parts 2637 and 2641 (or 
superseding regulations), make modifications to reflect amendments to 
section 330 of title 31 made by the Jobs Act, and make other 
modifications to reflect concerns about greater independence, 
transparency and due process. These regulations will not impose, or 
otherwise cause, a significant increase in reporting, recordkeeping, or 
other compliance burdens on a substantial number of small entities. A 
regulatory flexibility analysis, therefore, is not required.
    Pursuant to section 7805(f) of the Internal Revenue Code, the 
notice of proposed rulemaking preceding these regulations was submitted 
to the Chief Counsel for Advocacy of the Small Business Administration 
for comment on the regulations' impact on small businesses.

Drafting Information

    The principal author of these regulations is Matthew S. Cooper of 
the Office of the Associate Chief Counsel (Procedure and 
Administration).

List of Subjects in 31 CFR Part 10

    Accountants, Administrative practice and procedure, Lawyers, 
Reporting and recordkeeping requirements, Taxes.

Adoption of Amendments to the Regulations

0
Accordingly, 31 CFR part 10 is amended to read as follows:

PART 10--PRACTICE BEFORE THE INTERNAL REVENUE SERVICE

0
Paragraph 1. The authority citation for 31 CFR part 10 continues to 
read as follows:

    Authority: Sec. 3, 23 Stat. 258, secs. 2-12, 60 Stat. 237 et 
seq.; 5 U.S.C. 301, 500, 551-559; 31 U.S.C. 321; 31 U.S.C. 330; 
Reorg. Plan No. 26 of 1950, 15 FR 4935, 64 Stat. 1280, 3 CFR, 1949-
1953 Comp., p. 1017.


0
Par. 2. In Part 10, remove the language ``Director of Practice'' 
wherever it appears and add, in its place, the language ``Director of 
the Office of Professional Responsibility'' in each of the following 
sections and paragraphs:
    Section 10.5(c), (d) and (e);
    Section 10.6(a)(5), (b), (g)(2)(iii), (g)(2)(iv), (g)(4), (j)(1), 
(j)(2), (j)(4), (k)(1), (k)(2) and (n);
    Section 10.7(c)(2)(iii) and (d);
    Section 10.20(b) heading, (b) and (c);
    Section 10.60(b);
    Section 10.63(c) heading, (c);
    Section 10.64(a);
    Section 10.66;
    Section 10.69(a)(1) and (b);
    Section 10.73(a);
    Section 10.79(a), (b), (c) and (d);
    Section 10.80;
    Section 10.81;
    Section 10.82(a), (c) introductory text, (c)(3), (d), (e), (f)(1) 
and (g).

0
Par. 3. Section 10.1 is revised to read as follows:


Sec.  10.1  Director of the Office of Professional Responsibility.

    (a) Establishment of office. The Office of Professional 
Responsibility is established in the Internal Revenue Service. The 
Director of the Office of Professional Responsibility is appointed by 
the Secretary of the Treasury, or delegate.
    (b) Duties. The Director of the Office of Professional 
Responsibility acts on applications for enrollment to practice before 
the Internal Revenue Service; makes inquiries with respect to matters 
under the Director's jurisdiction; institutes and provides for the 
conduct of disciplinary proceedings relating to practitioners (and 
employers, firms or other entities, if applicable) and appraisers; and 
performs other duties as are necessary or appropriate to carry out the 
functions under this part or as are otherwise prescribed by the 
Secretary of the Treasury, or delegate.
    (c) Acting Director of the Office of Professional Responsibility. 
The Secretary of the Treasury, or delegate, will designate an officer 
or employee of the Treasury Department to act as Director of the Office 
of Professional Responsibility in the absence of the Director or during 
a vacancy in that office.
    (d) Effective/applicability date. This section is applicable on 
September 26, 2007.

0
Par. 4. Section 10.2 is revised to read as follows:


Sec.  10.2  Definitions.

    (a) As used in this part, except where the text provides 
otherwise--
    (1) Attorney means any person who is a member in good standing of 
the bar of

[[Page 54545]]

the highest court of any state, territory, or possession of the United 
States, including a Commonwealth, or the District of Columbia.
    (2) Certified public accountant means any person who is duly 
qualified to practice as a certified public accountant in any state, 
territory, or possession of the United States, including a 
Commonwealth, or the District of Columbia.
    (3) Commissioner refers to the Commissioner of Internal Revenue.
    (4) Practice before the Internal Revenue Service comprehends all 
matters connected with a presentation to the Internal Revenue Service 
or any of its officers or employees relating to a taxpayer's rights, 
privileges, or liabilities under laws or regulations administered by 
the Internal Revenue Service. Such presentations include, but are not 
limited to, preparing and filing documents, corresponding and 
communicating with the Internal Revenue Service, rendering written 
advice with respect to any entity, transaction, plan or arrangement, or 
other plan or arrangement having a potential for tax avoidance or 
evasion, and representing a client at conferences, hearings and 
meetings.
    (5) Practitioner means any individual described in paragraphs (a), 
(b), (c), (d) or (e) of Sec.  10.3.
    (6) A tax return includes an amended tax return and a claim for 
refund.
    (7) Service means the Internal Revenue Service.
    (b) Effective/applicability date. This section is applicable on 
September 26, 2007.

0
Par. 5. Section 10.3 is amended by:
0
(1) Revising paragraphs (a) and (b).
0
(2) Redesignating paragraphs (e), (f), and (g) as paragraphs (f), (g), 
and (h), respectively.
0
(3) Adding new paragraphs (e) and (i).
    The revisions and additions read as follows:


Sec.  10.3  Who may practice.

    (a) Attorneys. Any attorney who is not currently under suspension 
or disbarment from practice before the Internal Revenue Service may 
practice before the Internal Revenue Service by filing with the 
Internal Revenue Service a written declaration that the attorney is 
currently qualified as an attorney and is authorized to represent the 
party or parties. Notwithstanding the preceding sentence, attorneys who 
are not currently under suspension or disbarment from practice before 
the Internal Revenue Service are not required to file a written 
declaration with the IRS before rendering written advice covered under 
Sec.  10.35 or Sec.  10.37, but their rendering of this advice is 
practice before the Internal Revenue Service.
    (b) Certified public accountants. Any certified public accountant 
who is not currently under suspension or disbarment from practice 
before the Internal Revenue Service may practice before the Internal 
Revenue Service by filing with the Internal Revenue Service a written 
declaration that the certified public accountant is currently qualified 
as a certified public accountant and is authorized to represent the 
party or parties. Notwithstanding the preceding sentence, certified 
public accountants who are not currently under suspension or disbarment 
from practice before the Internal Revenue Service are not required to 
file a written declaration with the IRS before rendering written advice 
covered under Sec.  10.35 or Sec.  10.37, but their rendering of this 
advice is practice before the Internal Revenue Service.
* * * * *
    (e) Enrolled Retirement Plan Agents--(1) Any individual enrolled as 
a retirement plan agent pursuant to this part who is not currently 
under suspension or disbarment from practice before the Internal 
Revenue Service may practice before the Internal Revenue Service.
    (2) Practice as an enrolled retirement plan agent is limited to 
representation with respect to issues involving the following programs: 
Employee Plans Determination Letter program; Employee Plans Compliance 
Resolution System; and Employee Plans Master and Prototype and Volume 
Submitter program. In addition, enrolled retirement plan agents are 
generally permitted to represent taxpayers with respect to IRS forms 
under the 5300 and 5500 series which are filed by retirement plans and 
plan sponsors, but not with respect to actuarial forms or schedules.
    (3) An individual who practices before the Internal Revenue Service 
pursuant to paragraph (e)(1) of this section is subject to the 
provisions of this part in the same manner as attorneys, certified 
public accountants and enrolled agents.
* * * * *
    (i) Effective/applicability date. This section is applicable on 
September 26, 2007.

0
Par. 6. Section 10.4 is revised to read as follows:


Sec.  10.4  Eligibility for enrollment as enrolled agent or enrolled 
retirement plan agent.

    (a) Enrollment as an enrolled agent upon examination. The Director 
of the Office of Professional Responsibility may grant enrollment as an 
enrolled agent to an applicant who demonstrates special competence in 
tax matters by written examination administered by, or administered 
under the oversight of, the Director of the Office of Professional 
Responsibility and who has not engaged in any conduct that would 
justify the censure, suspension, or disbarment of any practitioner 
under the provisions of this part.
    (b) Enrollment as a retirement plan agent upon examination. The 
Director of the Office of Professional Responsibility may grant 
enrollment as an enrolled retirement plan agent to an applicant who 
demonstrates special competence in qualified retirement plan matters by 
written examination administered by, or administered under the 
oversight of, the Director of the Office of Professional Responsibility 
and who has not engaged in any conduct that would justify the censure, 
suspension, or disbarment of any practitioner under the provisions of 
this part.
    (c) Enrollment of former Internal Revenue Service employees. The 
Director of the Office of Professional Responsibility may grant 
enrollment as an enrolled agent or enrolled retirement plan agent to an 
applicant who, by virtue of past service and technical experience in 
the Internal Revenue Service, has qualified for such enrollment and who 
has not engaged in any conduct that would justify the censure, 
suspension, or disbarment of any practitioner under the provisions of 
this part, under the following circumstances--
    (1) The former employee applies for enrollment to the Director of 
the Office of Professional Responsibility on a form supplied by the 
Director of the Office of Professional Responsibility and supplies the 
information requested on the form and such other information regarding 
the experience and training of the applicant as may be relevant.
    (2) An appropriate office of the Internal Revenue Service, at the 
request of the Director of the Office of Professional Responsibility, 
will provide the Director of the Office of Professional Responsibility 
with a detailed report of the nature and rating of the applicant's work 
while employed by the Internal Revenue Service and a recommendation 
whether such employment qualifies the applicant technically or 
otherwise for the desired authorization.
    (3) Enrollment as an enrolled agent based on an applicant's former 
employment with the Internal Revenue Service may be of unlimited scope 
or it

[[Page 54546]]

may be limited to permit the presentation of matters only of the 
particular class or only before the particular unit or division of the 
Internal Revenue Service for which the applicant's former employment 
has qualified the applicant. Enrollment as an enrolled retirement plan 
agent based on an applicant's former employment with the Internal 
Revenue Service will be limited to permit the presentation of matters 
only with respect to qualified retirement plan matters.
    (4) Application for enrollment as an enrolled agent or enrolled 
retirement plan agent based on an applicant's former employment with 
the Internal Revenue Service must be made within 3 years from the date 
of separation from such employment.
    (5) An applicant for enrollment as an enrolled agent who is 
requesting such enrollment based on former employment with the Internal 
Revenue Service must have had a minimum of 5 years continuous 
employment with the Internal Revenue Service during which the applicant 
must have been regularly engaged in applying and interpreting the 
provisions of the Internal Revenue Code and the regulations relating to 
income, estate, gift, employment, or excise taxes.
    (6) An applicant for enrollment as an enrolled retirement plan 
agent who is requesting such enrollment based on former employment with 
the Internal Revenue Service must have had a minimum of 5 years 
continuous employment with the Internal Revenue Service during which 
the applicant must have been regularly engaged in applying and 
interpreting the provisions of the Internal Revenue Code and the 
regulations relating to qualified retirement plan matters.
    (7) For the purposes of paragraphs (b)(5) and (b)(6) of this 
section, an aggregate of 10 or more years of employment in positions 
involving the application and interpretation of the provisions of the 
Internal Revenue Code, at least 3 of which occurred within the 5 years 
preceding the date of application, is the equivalent of 5 years 
continuous employment.
    (d) Natural persons. Enrollment to practice may be granted only to 
natural persons.
    (e) Effective/applicability date. This section is applicable on 
September 26, 2007.

0
Par. 7. Section 10.5 is amended by revising the section heading and 
paragraphs (a) and (b), and adding paragraph (f) to read as follows:


Sec.  10.5  Application for enrollment as an enrolled agent or enrolled 
retirement plan agent.

    (a) Form; address. An applicant for enrollment as an enrolled agent 
or enrolled retirement plan agent must apply as required by forms or 
procedures established and published by the Office of Professional 
Responsibility, including proper execution of required forms under oath 
or affirmation. The address on the application will be the address 
under which a successful applicant is enrolled and is the address to 
which all correspondence concerning enrollment will be sent.
    (b) Fee. A reasonable nonrefundable fee will be charged for each 
application for enrollment as an enrolled agent filed with the Director 
of the Office of Professional Responsibility in accordance with 26 CFR 
300.5. A reasonable nonrefundable fee will be charged for each 
application for enrollment as an enrolled retirement plan agent filed 
with the Director of the Office of Professional Responsibility.
* * * * *
    (f) Effective/applicability date. This section is applicable to 
enrollment applications received on or after September 26, 2007.

0
Par. 8. Section 10.6 is amended by:
0
1. Revising the section heading.
0
2. Removing paragraph (a).
0
3. Redesignating paragraph (c) as paragraph (a).
0
4. Adding new paragraphs (c) and (p).
0
5. Revising paragraphs (d) introductory text, (d)(4), (d)(5), (d)(6), 
(d)(7), (e), (f)(1), (f)(2)(iv)(A), (g)(5), (k)(4), (k)(7) and (l).
    The revisions and additions read as follows:


Sec.  10.6  Enrollment as an enrolled agent or enrolled retirement plan 
agent.

* * * * *
    (c) Change of address. An enrolled agent or enrolled retirement 
plan agent must send notification of any change of address to the 
address specified by the Director of the Office of Professional 
Responsibility. This notification must include the enrolled agent's or 
enrolled retirement plan agent's name, prior address, new address, 
social security number or tax identification number and the date.
    (d) Renewal of enrollment. To maintain active enrollment to 
practice before the Internal Revenue Service, each individual is 
required to have the enrollment renewed. Failure to receive 
notification from the Director of the Office of Professional 
Responsibility of the renewal requirement will not be justification for 
the individual's failure to satisfy this requirement.
* * * * *
    (4) Thereafter, applications for renewal as an enrolled agent will 
be required between November 1 and January 31 of every subsequent third 
year as specified in paragraph (d)(1), (2) or (3) of this section 
according to the last number of the individual's social security number 
or tax identification number. Those individuals who receive initial 
enrollment as an enrolled agent after November 1 and before April 2 of 
the applicable renewal period will not be required to renew their 
enrollment before the first full renewal period following the receipt 
of their initial enrollment. Applications for renewal as an enrolled 
retirement plan agent will be required of all enrolled retirement plan 
agents between April 1 and June 30 of every third year period 
subsequent to their initial enrollment.
    (5) The Director of the Office of Professional Responsibility will 
notify the individual of the renewal of enrollment and will issue the 
individual a card evidencing enrollment.
    (6) A reasonable nonrefundable fee will be charged for each 
application for renewal of enrollment as an enrolled agent filed with 
the Director of the Office of Professional Responsibility in accordance 
with 26 CFR 300.6. A reasonable nonrefundable fee will be charged for 
each application for renewal of enrollment as an enrolled retirement 
plan agent filed with the Director of the Office of Professional 
Responsibility.
    (7) Forms required for renewal may be obtained by sending a written 
request to the Director of the Office of Professional Responsibility, 
Internal Revenue Service, 1111 Constitution Avenue, NW., Washington, DC 
20224 or from such other source as the Director of the Office of 
Professional Responsibility will publish in the Internal Revenue 
Bulletin (see 26 CFR 601.601(d)(2)(ii)(b)) and on the Internal Revenue 
Service Web page (https://www.irs.gov).
    (e) Condition for renewal: Continuing professional education. In 
order to qualify for renewal of enrollment, an individual enrolled to 
practice before the Internal Revenue Service must certify, on the 
application for renewal form prescribed by the Director of the Office 
of Professional Responsibility, that he or she has satisfied the 
following continuing professional education requirements.
    (1) Definitions. For purposes of this section--
    (i) Enrollment year means January 1 to December 31 of each year of 
an enrollment cycle.

[[Page 54547]]

    (ii) Enrollment cycle means the three successive enrollment years 
preceding the effective date of renewal.
    (iii) The effective date of renewal is the first day of the fourth 
month following the close of the period for renewal described in 
paragraph (d) of this section.
    (2) For renewed enrollment effective after December 31, 2006--(i) 
Requirements for enrollment cycle. A minimum of 72 hours of continuing 
education credit must be completed during each enrollment cycle.
    (ii) Requirements for enrollment year. A minimum of 16 hours of 
continuing education credit, including 2 hours of ethics or 
professional conduct, must be completed during each enrollment year of 
an enrollment cycle.
    (iii) Enrollment during enrollment cycle--(A) In general. Subject 
to paragraph (e)(2)(iii)(B) of this section, an individual who receives 
initial enrollment during an enrollment cycle must complete 2 hours of 
qualifying continuing education credit for each month enrolled during 
the enrollment cycle. Enrollment for any part of a month is considered 
enrollment for the entire month.
    (B) Ethics. An individual who receives initial enrollment during an 
enrollment cycle must complete 2 hours of ethics or professional 
conduct for each enrollment year during the enrollment cycle. 
Enrollment for any part of an enrollment year is considered enrollment 
for the entire year.
    (f) Qualifying continuing education--(1) General--(i) Enrolled 
agents. To qualify for continuing education credit for an enrolled 
agent, a course of learning must--
    (A) Be a qualifying program designed to enhance professional 
knowledge in Federal taxation or Federal tax related matters (programs 
comprised of current subject matter in Federal taxation or Federal tax 
related matters, including accounting, tax preparation software and 
taxation or ethics);
    (B) Be a qualifying program consistent with the Internal Revenue 
Code and effective tax administration; and
    (C) Be sponsored by a qualifying sponsor.
    (ii) Enrolled retirement plan agents. To qualify for continuing 
education credit for an enrolled retirement plan agent, a course of 
learning must--
    (i) Be a qualifying program designed to enhance professional 
knowledge in qualified retirement plan matters;
    (ii) Be a qualifying program consistent with the Internal Revenue 
Code and effective tax administration; and
    (iii) Be sponsored by a qualifying sponsor.
    (2) * * *
    (iv) Credit for published articles, books, etc. (A) For enrolled 
agents, continuing education credit will be awarded for publications on 
Federal taxation or Federal tax related matters, including accounting, 
tax preparation software, and taxation or ethics, provided the content 
of such publications is current and designed for the enhancement of the 
professional knowledge of an individual enrolled to practice before the 
Internal Revenue Service. The publication must be consistent with the 
Internal Revenue Code and effective tax administration. For enrolled 
retirement plan agents, continuing education credit will be awarded for 
publications on qualified retirement plan matters, provided the content 
of such publications is current and designed for the enhancement of the 
professional knowledge of an individual enrolled to practice as an 
enrolled retirement plan agent before the Internal Revenue Service. The 
publication must be consistent with the Internal Revenue Code and 
effective tax administration.
* * * * *
    (g) * * *
    (5) Sponsor renewal--(i) In general. A sponsor maintains its status 
as a qualified sponsor during the sponsor enrollment cycle.
    (ii) Renewal period. Each sponsor must file an application to renew 
its status as a qualified sponsor between May 1 and July 31, 2008. 
Thereafter, applications for renewal will be required between May 1 and 
July 31 of every subsequent third year.
    (iii) Effective date of renewal. The effective date of renewal is 
the first day of the third month following the close of the renewal 
period.
    (iv) Sponsor enrollment cycle. The sponsor enrollment cycle is the 
three successive calendar years preceding the effective date of 
renewal.
* * * * *
    (k) * * *
    (4) Individuals placed in inactive enrollment status and 
individuals ineligible to practice before the Internal Revenue Service 
may not state or imply that they are enrolled to practice before the 
Internal Revenue Service, or use the terms enrolled agent or enrolled 
retirement plan agent, the designations ``EA'' or ``ERPA'' or other 
form of reference to eligibility to practice before the Internal 
Revenue Service.
* * * * *
    (7) Inactive enrollment status is not available to an individual 
who is the subject of a disciplinary matter in the Office of 
Professional Responsibility.
    (l) Inactive retirement status. An individual who no longer 
practices before the Internal Revenue Service may request being placed 
in an inactive retirement status at any time and such individual will 
be placed in an inactive retirement status. The individual will be 
ineligible to practice before the Internal Revenue Service. Such 
individual must file a timely application for renewal of enrollment at 
each applicable renewal or enrollment period as provided in this 
section. An individual who is placed in an inactive retirement status 
may be reinstated to an active enrollment status by filing an 
application for renewal of enrollment and providing evidence of the 
completion of the required continuing professional education hours for 
the enrollment cycle. Inactive retirement status is not available to an 
individual who is the subject of a disciplinary matter in the Office of 
Professional Responsibility.
* * * * *
    (p) Effective/applicability date. This section is applicable to 
enrollment effective on or after September 26, 2007.

0
Par. 9. Section 10.7 is amended by:
0
1. Revising paragraph (c)(2)(ii).
0
2. And adding paragraph (g).
    The revisions and additions read as follows:


Sec.  10.7  Representing oneself; participating in rulemaking; limited 
practice; special appearances; and return preparation.

* * * * *
    (c) * * *
    (2) * * *
    (ii) The Director, after notice and opportunity for a conference, 
may deny eligibility to engage in limited practice before the Internal 
Revenue Service under paragraph (c)(1) of this section to any 
individual who has engaged in conduct that would justify a sanction 
under Sec.  10.50.
* * * * *
    (g) Effective/applicability date. This section is applicable on 
September 26, 2007.

0
Par. 10. Section 10.22 is amended by revising paragraph (b) and adding 
paragraph (c) to read as follows:


Sec.  10.22  Diligence as to accuracy.

    (b) Reliance on others. Except as provided in Sec. Sec.  10.34, 
10.35, and 10.37, a practitioner will be presumed to have exercised due 
diligence for purposes of this section if the practitioner relies on 
the work product of another person and the practitioner used reasonable 
care in engaging, supervising, training, and evaluating the person, 
taking proper account of the nature of the relationship between the 
practitioner and the person.

[[Page 54548]]

    (c) Effective/applicability date. This section is applicable on 
September 26, 2007.

0
Par. 11. Section 10.25 is revised to read as follows:


Sec.  10.25  Practice by former government employees, their partners 
and their associates.

    (a) Definitions. For purposes of this section--
    (1) Assist means to act in such a way as to advise, furnish 
information to, or otherwise aid another person, directly, or 
indirectly.
    (2) Government employee is an officer or employee of the United 
States or any agency of the United States, including a special 
Government employee as defined in 18 U.S.C. 202(a), or of the District 
of Columbia, or of any State, or a member of Congress or of any State 
legislature.
    (3) Member of a firm is a sole practitioner or an employee or 
associate thereof, or a partner, stockholder, associate, affiliate or 
employee of a partnership, joint venture, corporation, professional 
association or other affiliation of two or more practitioners who 
represent nongovernmental parties.
    (4) Particular matter involving specific parties is defined at 5 
CFR 2637.201(c), or superseding post-employment regulations issued by 
the U.S. Office of Government Ethics.
    (5) Rule includes Treasury regulations, whether issued or under 
preparation for issuance as notices of proposed rulemaking or as 
Treasury decisions, revenue rulings, and revenue procedures published 
in the Internal Revenue Bulletin (see 26 CFR 601.601(d)(2)(ii)(b)).
    (b) General rules--(1) No former Government employee may, 
subsequent to Government employment, represent anyone in any matter 
administered by the Internal Revenue Service if the representation 
would violate 18 U.S.C. 207 or any other laws of the United States.
    (2) No former Government employee who personally and substantially 
participated in a particular matter involving specific parties may, 
subsequent to Government employment, represent or knowingly assist, in 
that particular matter, any person who is or was a specific party to 
that particular matter.
    (3) A former Government employee who within a period of one year 
prior to the termination of Government employment had official 
responsibility for a particular matter involving specific parties may 
not, within two years after Government employment is ended, represent 
in that particular matter any person who is or was a specific party to 
that particular matter.
    (4) No former Government employee may, within one year after 
Government employment is ended, communicate with or appear before, with 
the intent to influence, any employee of the Treasury Department in 
connection with the publication, withdrawal, amendment, modification, 
or interpretation of a rule the development of which the former 
Government employee participated in, or for which, within a period of 
one year prior to the termination of Government employment, the former 
government employee had official responsibility. This paragraph (b)(4) 
does not, however, preclude any former employee from appearing on one's 
own behalf or from representing a taxpayer before the Internal Revenue 
Service in connection with a particular matter involving specific 
parties involving the application or interpretation of a rule with 
respect to that particular matter, provided that the representation is 
otherwise consistent with the other provisions of this section and the 
former employee does not utilize or disclose any confidential 
information acquired by the former employee in the development of the 
rule.
    (c) Firm representation--(1) No member of a firm of which a former 
Government employee is a member may represent or knowingly assist a 
person who was or is a specific party in any particular matter with 
respect to which the restrictions of paragraph (b)(2) of this section 
apply to the former Government employee, in that particular matter, 
unless the firm isolates the former Government employee in such a way 
to ensure that the former Government employee cannot assist in the 
representation.
    (2) When isolation of a former Government employee is required 
under paragraph (c)(1) of this section, a statement affirming the fact 
of such isolation must be executed under oath by the former Government 
employee and by another member of the firm acting on behalf of the 
firm. The statement must clearly identify the firm, the former 
Government employee, and the particular matter(s) requiring isolation. 
The statement must be retained by the firm and, upon request, provided 
to the Director of the Office of Professional Responsibility.
    (d) Pending representation. The provisions of this regulation will 
govern practice by former Government employees, their partners and 
associates with respect to representation in particular matters 
involving specific parties where actual representation commenced before 
the effective date of this regulation.
    (e) Effective/applicability date. This section is applicable on 
September 26, 2007.

0
Par. 12. Section 10.27 is revised to read as follows:


Sec.  10.27  Fees.

    (a) In general. A practitioner may not charge an unconscionable fee 
in connection with any matter before the Internal Revenue Service.
    (b) Contingent fees--(1) Except as provided in paragraphs (b)(2), 
(3), and (4) of this section, a practitioner may not charge a 
contingent fee for services rendered in connection with any matter 
before the Internal Revenue Service.
    (2) A practitioner may charge a contingent fee for services 
rendered in connection with the Service's examination of, or challenge 
to--
    (i) An original tax return; or
    (ii) An amended return or claim for refund or credit where the 
amended return or claim for refund or credit was filed within 120 days 
of the taxpayer receiving a written notice of the examination of, or a 
written challenge to the original tax return.
    (3) A practitioner may charge a contingent fee for services 
rendered in connection with a claim for credit or refund filed solely 
in connection with the determination of statutory interest or penalties 
assessed by the Internal Revenue Service.
    (4) A practitioner may charge a contingent fee for services 
rendered in connection with any judicial proceeding arising under the 
Internal Revenue Code.
    (c) Definitions. For purposes of this section--
    (1) Contingent fee is any fee that is based, in whole or in part, 
on whether or not a position taken on a tax return or other filing 
avoids challenge by the Internal Revenue Service or is sustained either 
by the Internal Revenue Service or in litigation. A contingent fee 
includes a fee that is based on a percentage of the refund reported on 
a return, that is based on a percentage of the taxes saved, or that 
otherwise depends on the specific result attained. A contingent fee 
also includes any fee arrangement in which the practitioner will 
reimburse the client for all or a portion of the client's fee in the 
event that a position taken on a tax return or other filing is 
challenged by the Internal Revenue Service or is not sustained, whether 
pursuant to an indemnity agreement, a guarantee, rescission rights, or 
any other arrangement with a similar effect.

[[Page 54549]]

    (2) Matter before the Internal Revenue Service includes tax 
planning and advice, preparing or filing or assisting in preparing or 
filing returns or claims for refund or credit, and all matters 
connected with a presentation to the Internal Revenue Service or any of 
its officers or employees relating to a taxpayer's rights, privileges, 
or liabilities under laws or regulations administered by the Internal 
Revenue Service. Such presentations include, but are not limited to, 
preparing and filing documents, corresponding and communicating with 
the Internal Revenue Service, rendering written advice with respect to 
any entity, transaction, plan or arrangement, and representing a client 
at conferences, hearings, and meetings.
    (d) Effective/applicability date. This section is applicable for 
fee arrangements entered into after March 26, 2008.

0
Par. 13. Section 10.29 is revised to read as follows:


Sec.  10.29  Conflicting interests.

    (a) Except as provided by paragraph (b) of this section, a 
practitioner shall not represent a client before the Internal Revenue 
Service if the representation involves a conflict of interest. A 
conflict of interest exists if--
    (1) The representation of one client will be directly adverse to 
another client; or
    (2) There is a significant risk that the representation of one or 
more clients will be materially limited by the practitioner's 
responsibilities to another client, a former client or a third person, 
or by a personal interest of the practitioner.
    (b) Notwithstanding the existence of a conflict of interest under 
paragraph (a) of this section, the practitioner may represent a client 
if--
    (1) The practitioner reasonably believes that the practitioner will 
be able to provide competent and diligent representation to each 
affected client;
    (2) The representation is not prohibited by law; and
    (3) Each affected client waives the conflict of interest and gives 
informed consent, confirmed i