Regulations Governing Practice Before the Internal Revenue Service, 32286-32312 [2011-13666]

Agencies

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

[Federal Register Volume 76, Number 107 (Friday, June 3, 2011)]
[Rules and Regulations]
[Pages 32286-32312]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-13666]



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Vol. 76

Friday,

No. 107

June 3, 2011

Part III





Department of the Treasury





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31 CFR Part 10



Regulations Governing Practice Before the Internal Revenue Service; 
Final Rule

Federal Register / Vol. 76 , No. 107 / Friday, June 3, 2011 / Rules 
and Regulations

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DEPARTMENT OF THE TREASURY

Office of the Secretary

31 CFR Part 10

[TD 9527]
RIN 1545-BH01


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 governing practice 
before the Internal Revenue Service (IRS). The regulations affect 
individuals who practice before the IRS and providers of continuing 
education programs. The regulations modify the general standards of 
practice before the IRS and the standards with respect to tax returns.

DATES: 
    Effective Date. These regulations are effective on August 2, 2011.
    Applicability Date: For dates of applicability, see Sec. Sec.  
10.0(b), 10.1(c), 10.2(b), 10.3(j), 10.4(f), 10.5(g), 10.6(n), 10.7(f), 
10.8(d), 10.9(c), 10.20(c), 10.25(e), 10.30(e), 10.34(e), 10.36(c), 
10.38(b), 10.50(e), 10.51(b), 10.53(e), 10.60(d), 10.61(c), 10.62(d), 
10.63(f), 10.64(f), 10.65(c), 10.66(b), 10.69(c), 10.72(g), 10.76(e), 
10.77(f), 10.78(d), 10.79(e), 10.80(b), 10.81(b), 10.82(h), and 
10.90(c).

FOR FURTHER INFORMATION CONTACT: Matthew D. Lucey at (202) 622-4940 
(not a toll-free number).

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act

    The collection of information contained in these regulations was 
previously reviewed and approved by the Office of Management and Budget 
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)) under control number 1545-1726. The collection of information 
in these regulations is in Sec. Sec.  10.6 and 10.9. The total annual 
burden of this collection of information is an increase from the burden 
in the current regulations. This information is required in order for 
the IRS to ensure that individuals permitted to prepare tax returns are 
informed of the latest developments in Federal tax practice.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number. Books or records relating to a collection of 
information must be retained as long as their contents might become 
material in the administration of any internal revenue law.

Background

    Section 330 of title 31 of the United States Code authorizes the 
Secretary of the Treasury (the Secretary) 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 and the individuals' firms or other entities that employ 
them. Additionally, the Secretary may seek an injunction against these 
individuals under section 7408 of the Internal Revenue Code (Code).
    The Secretary has published regulations governing the practice of 
representatives before the IRS in 31 CFR part 10 and reprinted the 
regulations as Treasury Department Circular No. 230 (Circular 230). 
These regulations authorize the IRS to act upon applications for 
enrollment to practice before the IRS; to make inquiries with respect 
to matters under Circular 230; 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.
    Circular 230 has been amended periodically. The regulations were 
amended most recently on September 26, 2007 (TD 9359, 72 FR 54540), to 
modify various provisions relating to the general standards of 
practice. For example, the 2007 regulations established an enrolled 
retirement plan agent designation, modified the conflict of interest 
rules, limited the use of contingent fees by practitioners, and 
required public disclosure of OPR disciplinary decisions after the 
decisions become final.
    Those final regulations, however, did not finalize the standards 
with respect to tax returns under Sec.  10.34(a) and the definitions 
under Sec.  10.34(e) because of the amendments to section 6694(a) of 
the Code made by the Small Business and Work Opportunity Tax Act of 
2007, Public Law 110-28, 121 Stat. 190. Rather, the IRS and the 
Treasury Department reserved Sec.  10.34(a) and (e) in those final 
regulations and also simultaneously issued a notice of proposed 
rulemaking (REG-138637-07) in the Federal Register (72 FR 54621) 
proposing to conform the professional standards under Sec.  10.34 of 
Circular 230 with the civil penalty standards under section 6694(a) as 
amended by the 2007 Act.
    On October 3, 2008, the Tax Extenders and Alternative Minimum Tax 
Relief Act of 2008, Div. C. of Public Law 110-343, 122 Stat. 3765, 
again amended the standard of conduct that must be met to avoid 
imposition of the tax return preparer penalty under section 6694(a). 
The IRS and the Treasury Department published final regulations (TD 
9436) in the Federal Register (73 FR 78430) implementing amendments to 
the tax return preparer penalties on December 22, 2008. To generally be 
consistent with the return preparer penalty regulations, these final 
regulations provide updated rules with respect to the standards for tax 
returns under Sec.  10.34(a).
    These final regulations also provide new rules governing the 
oversight of tax return preparers. Previously, an individual tax return 
preparer generally was not subject to the provisions in Circular 230 
unless the tax return preparer was an attorney, certified public 
accountant, enrolled agent, or other type of practitioner identified in 
Circular 230. Prior to the issuance of these final regulations, any 
individual could prepare tax returns and claims for refund without 
meeting any qualifications or competency standards. A tax return 
preparer also used to be able to exercise the privilege of limited 
practice before the IRS pursuant to the rules in former Sec.  
10.7(c)(1)(viii) of Circular 230 and Revenue Procedure 81-38 (1981-2 CB 
592). See Sec.  601.601(d)(2)(ii)(b).
    In June 2009, the IRS launched a review of tax return preparers 
with the intent to propose a comprehensive set of recommendations to 
ensure uniform and high ethical standards of conduct for all tax return 
preparers and to increase taxpayer compliance. As part of this effort, 
the IRS received input from a large and diverse community through 
numerous channels, including public forums, solicitation of written 
comments, and meetings with advisory groups.
    The IRS made findings and recommendations in Publication 4832, 
``Return Preparer Review'' (the Report), which was published on January 
4, 2010. The Report recommends increased oversight of the tax return 
preparer industry through the issuance of regulations.
    To implement recommendations made in the Report, the IRS issued 
final

[[Page 32287]]

regulations under section 6109 of the Code (TD 9501) published in the 
Federal Register (75 FR 60309) on September 30, 2010. The final 
regulations under section 6109 provide that, for returns or claims for 
refund filed after December 31, 2010, the identifying number of a tax 
return preparer is the individual's preparer tax identification number 
(PTIN) or such other number prescribed by the IRS in forms, 
instructions, or other appropriate guidance. The regulations also 
provide that the IRS is authorized to require through other guidance 
(as well as in forms and instructions) that tax return preparers apply 
for a PTIN or other prescribed identifying number, the regular renewal 
of PTINs or other prescribed identifying number, and the payment of 
user fees. The IRS also issued final regulations (TD 9503) establishing 
a user fee to apply for or renew a PTIN published in the Federal 
Register (75 FR 60316) on September 30, 2010.
    On August 23, 2010, the Treasury Department and the IRS published 
in the Federal Register (75 FR 51713) a notice of proposed rulemaking 
(REG-138637-07) proposing amendments to Circular 230 based upon certain 
recommendations made in the Report. The proposed regulations provided 
that registered tax return preparers are practitioners under Circular 
230 and described the process for becoming a registered tax return 
preparer, as well as the scope of a registered tax return preparer's 
practice before the IRS. Amendments were also proposed to Sec.  10.30 
regarding solicitation, Sec.  10.36 regarding procedures to ensure 
compliance, and Sec.  10.51 regarding incompetence and disreputable 
conduct. A public hearing was held on the proposed regulations on 
October 8, 2010. 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.

Plain Language Summary of the Requirements for Becoming a Registered 
Tax Return Preparer or Continuing Education Provider

Am I affected by this regulation?

    If you are an attorney or certified public accountant, then the 
amendments to Sec. Sec.  10.3, 10.4, 10.5, 10.7 and 10.9 of Circular 
230 (rules regarding registered tax return preparers) do not affect 
you. If you are not an attorney or certified public accountant and you 
prepare, or assist in preparing, all or substantially all of a tax 
return or claim for refund for compensation, then you may be affected 
by this regulation.
    Section 10.2(a)(8) of the final regulations clarifies that the 
definition of ``tax return preparer'' in Circular 230 is the same as 
the meaning in section 7701(a)(36) of the Code and 26 CFR 301.7701-15. 
If you only furnish typing, reproduction, or other mechanical 
assistance with respect to a tax return or a claim for refund, you are 
not a tax return preparer under Circular 230.

How am I affected by this regulation and how does this regulation work 
with other recently issued IRS guidance?

    The final regulations, in part, provide details about: (1) The 
application process to become a registered tax preparer, (2) the 
renewal process to remain a registered tax return preparer, and (3) 
other rules that govern practice before the IRS that affect all 
practitioners.

Application Process

    Generally, you must do the following to apply to become a 
registered tax return preparer: (1) Pass a one-time competency exam, 
(2) pass a suitability check, and (3) obtain a PTIN (and pay the amount 
provided in the PTIN User Fee regulations).
    To allow tax return preparers a transition period to pass the 
competency examination and, because the competency examination will not 
be available until after these final regulations are published, Notice 
2011-6 (2011-3 IRB 315), which was published on December 30, 2010, 
provides the following guidance to tax return preparers who obtain a 
PTIN (in accordance with the PTIN regulations) and pay the applicable 
user fee (set forth in the PTIN User Fee regulations) before the 
competency examination is offered:
    Individuals who obtain a provisional PTIN before the competency 
examination is offered may prepare for compensation any tax return or 
claim for refund until December 31, 2013, as long as the individual 
renews their PTIN, passes a suitability check (when available), and 
pays the applicable user fee. After the examination is offered, only 
attorneys, certified public accountants, enrolled agents, and 
registered tax return preparers, or individuals defined in section 
1.02(a) or (b) of Notice 2011-6 may obtain a PTIN.
    The tax returns and claims for refund covered by the competency 
examination initially offered will be limited to individual tax returns 
(Form 1040 series tax returns and accompanying schedules). As provided 
in Notice 2011-6, individuals may certify that they do not prepare 
individual tax returns and, as a result, will not be required to pass 
this initial competency examination or become a registered tax return 
preparer at this time.
    The process for becoming a registered tax return preparer is 
comparable to the existing process for enrolled agents. Enrolled agents 
must pass the Special Enrollment Examination and complete continuing 
education requirements. These regulations, however, do not change 
enrolled agents' status as practitioners under Circular 230.

Renewal Process

    You must complete continuing education to maintain your status as a 
registered tax return preparer. A registered tax return preparer must 
annually renew their PTIN and pay a user fee every year. Generally, 
registered tax return preparers must complete a minimum of 15 credits 
of continuing education annually. This regulation specifies what 
constitutes continuing education. Registered tax return preparers must 
retain records of continuing education courses for four years.
    If you prepare or assist in preparing all or substantially all of a 
tax return for compensation but do not sign the tax return, you are 
exempt from the competency examination and continuing education 
requirements if the requirements of section 1.02(a) of Notice 2011-6 
are met. You must, however, renew your PTIN, pay the applicable PTIN 
user fee, and certify that the requirements of Notice 2011-6 are met.

Continuing Education Providers

    You are subject to requirements in the final regulations. The final 
regulations provide requirements applicable to continuing education 
providers who provide continuing education programs to registered tax 
return preparers and enrolled agents. Continuing education providers 
must obtain and renew continuing education provider numbers and 
continuing education provider program numbers and pay any applicable 
fees.

Summary of Comments and Explanation of Revisions

    The IRS received more than 50 written comments in response to the 
notice of proposed rulemaking. All of the comments were considered and 
are available for public inspection. Most of the comments that 
addressed the proposed regulations are summarized in this preamble. 
Some comments addressed other regulations or notices of proposed 
rulemaking and are not discussed in this preamble.

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    The scope of these rules is limited to practice before the IRS. 
These regulations do not change the existing authority of attorneys, 
certified public accountants, and enrolled agents to practice before 
the IRS under Circular 230 and do not alter or supplant ethical 
standards that might otherwise be applicable to these practitioners.

IRS Offices Administering and Enforcing Circular 230

    To fully implement the return preparer initiative, the IRS 
announced that a new return preparer office was created to administer 
PTIN applications, competency testing, and continuing education. The 
IRS decided that an office dedicated solely to these matters will allow 
the IRS to best serve tax return preparers and taxpayers by providing 
efficiency and expertise in this area.
    Concurrently, the Office of Professional Responsibility will 
continue to enforce the Circular 230 provisions relating to 
practitioner conduct and discipline. The Office of Professional 
Responsibility will continue to carry out its mission to interpret and 
apply the standards of practice for tax professionals in a fair and 
equitable manner. As discussed in the Report, a strong enforcement 
regime is a key component to increased oversight of the tax return 
preparer industry. Commentators on the proposed regulations also 
suggested that the return preparer initiative must be met with 
appropriate enforcement measures. The IRS recognizes that the Office of 
Professional Responsibility is central to the IRS' goal of maintaining 
high standards of ethical conduct for all practitioners and that the 
Office must operate independently from IRS functions enforcing Title 26 
requirements.
    The final regulations accommodate the internal structure by 
generally removing references to the Office of Professional 
Responsibility. The final regulations allow the flexibility to adjust 
responsibility appropriately between the offices as the return preparer 
initiative is implemented. The Commissioner may delegate necessary 
authorities to appropriate offices.

Definitions--Practice Before the Internal Revenue Service, Tax Return 
Preparer

    The final regulations adopt the proposed amendments to Sec.  
10.2(a)(4), which clarify that either preparing a document or filing a 
document may constitute practice before the IRS. The final regulations 
also adopt the proposed amendments to Sec.  10.2(a)(8), which clarify 
that the definition of ``tax return preparer'' in Circular 230 is the 
same as the meaning in section 7701(a)(36) of the Code and 26 CFR 
301.7701-15.

Who May Practice

    The final regulations adopt the proposed amendments to Sec.  
10.3(f), which establish a new ``registered tax return preparer'' 
designation. A registered tax return preparer is any individual so 
designated under Sec.  10.4(c) who is not currently under suspension or 
disbarment from practice before the IRS. An individual who is a 
registered tax return preparer pursuant to this part is a practitioner 
authorized to practice before the IRS, subject to the limitations 
identified in these regulations. Some commentators stated that the term 
registered tax return preparer would confuse the public because it 
implies a high level of professional capability. As stated in the 
Report, the goal of the return preparer initiative is increased 
oversight of the tax return preparer industry and to institute 
standards for minimum competence. For those individuals who have passed 
a competency examination and have met continuing education 
requirements, the Treasury Department and the IRS conclude that the 
term ``registered'' is appropriate.
    Some commentators requested that the IRS not include registered tax 
return preparers as individuals who may practice under proposed Sec.  
10.3. Representation is defined as ``[a]cts performed on behalf of a 
taxpayer by a representative before the Internal Revenue Service.'' See 
26 CFR 601.501(b)(13) (Conference and Practice Requirements). As 
discussed earlier in this preamble, practice before the IRS includes 
preparing or filing tax returns and other documents with the IRS. Thus, 
preparation of a tax return is practice before the IRS. Because 
registered tax return preparers are individuals who prepare all or 
substantially all of a tax return or claim for refund on behalf of a 
taxpayer for compensation, they practice before the IRS and must be 
included in Sec.  10.3 of the final regulations.
    The Treasury Department and the IRS received comments requesting 
clarification with respect to which forms registered tax return 
preparers are permitted to prepare. The IRS will prescribe by forms, 
instructions, or other appropriate guidance the tax returns and claims 
for refund registered tax return preparers are permitted to prepare 
after successfully completing the competency examination. Forms, 
instructions, or other appropriate guidance may also provide rules with 
respect to forms that may be prepared without completion of the 
competency examination. Notice 2011-6 permits individuals who prepare 
tax returns not covered by the competency examination to obtain a PTIN 
if certain requirements are met.
    Registered tax return preparers also may represent taxpayers before 
revenue agents, customer service representatives, or similar officers 
and employees of the IRS (including the Taxpayer Advocate Service) 
during an examination if the registered tax return preparer signed the 
tax return or claim for refund for the taxable year or period under 
examination. Consistent with the limited practice rights previously 
available to unenrolled return preparers under former Sec.  
10.7(c)(1)(viii), registered tax return preparers are not permitted to 
represent taxpayers, regardless of the circumstances requiring 
representation, before appeals officers, revenue officers, Counsel, or 
similar officers or employees of the IRS or the Treasury Department. A 
registered tax return preparer's authorization to practice under this 
part also does not include the authority to provide tax advice to a 
client or another person except as necessary to prepare a tax return, 
claim for refund, or other document intended to be submitted to the 
IRS.
    Some commentators inquired as to whether the federally authorized 
tax practitioner privilege under section 7525 applies to communications 
between a taxpayer and a registered tax return preparer. The Treasury 
Department and the IRS have concluded that the federally authorized tax 
practitioner privilege generally does not apply to communications 
between a taxpayer and a registered tax return preparer because the 
advice a registered tax return preparer provides ordinarily is intended 
to be reflected on a tax return and is not intended to be confidential 
or privileged.
    The conduct of a registered tax return preparer in connection with 
the preparation of the return, claim for refund, or other document, as 
well as any representation of the client during an examination, will be 
subject to the standards of conduct in Circular 230. Inquiries into 
possible misconduct and disciplinary proceedings relating to registered 
tax return preparer misconduct will be conducted under the provisions 
in Circular 230.
    Numerous members of the tax return preparation industry submitted 
comments requesting that certain individuals be exempted from the 
requirements in the proposed regulations. Commentators suggested that 
tax return preparers who are

[[Page 32289]]

supervised by certain practitioners currently authorized to practice 
under Circular 230 should not be required to become registered tax 
return preparers if the supervising practitioner signs the tax return 
prepared in part by the supervised tax return preparer. Commentators 
reasoned that certain practitioners who sign tax returns are subject 
to, in addition to Circular 230, professional standards and oversight 
by state licensing authorities and other professional organizations 
that place responsibility for the tax return on the signing 
practitioner.
    In Notice 2011-6, the Treasury Department and the IRS provided, 
pursuant to Sec.  1.6019-2(h), that individuals who are not attorneys, 
certified public accountants, enrolled agents, enrolled retirement plan 
agents, enrolled actuaries, or registered tax return preparers will be 
eligible to obtain a PTIN and, thus, prepare, or assist in preparing, 
all or substantially all of a tax return or claim for refund for 
compensation in certain discrete circumstances. Section 1.02(a) of the 
notice permits certain individuals supervised by an attorney, certified 
public accountant, enrolled agent, enrolled retirement plan agent, or 
enrolled actuary who signs the return or claim for refund prepared by 
the individual to obtain a PTIN. These individuals also are required to 
certify in their application to receive a PTIN that they are supervised 
by an attorney, certified public accountant, enrolled agent, enrolled 
retirement plan agent, or enrolled actuary who signs the tax return or 
claim for refund and provide a supervising individual's PTIN or other 
number if prescribed by the IRS. These individuals may not sign any tax 
return they prepare or assist in preparing for compensation. If at any 
point, the individual is no longer supervised by the signing attorney, 
certified public accountant, enrolled agent, enrolled retirement plan 
agent, or enrolled actuary, the individual must notify the IRS if 
prescribed in forms, instructions, or other appropriate guidance and 
will no longer be permitted to prepare or assist in preparing all or 
substantially all of a tax return or claim for refund for compensation 
under this exception. Because individuals meeting these requirements, 
as fully set forth in Sec.  1.02(a) of Notice 2011-6, are permitted to 
obtain a PTIN, they are not required to become registered tax return 
preparers to obtain a PTIN.

Eligibility To Become an Enrolled Agent or Enrolled Retirement Plan 
Agent

    The final regulations provide that an enrolled agent or enrolled 
retirement plan agent must be eighteen years old and obtain a PTIN to 
be eligible to practice before the IRS as an enrolled agent or enrolled 
retirement plan agent.
    Section 10.4(d) of the final regulations also provides that a 
former employee who, by virtue of past service and technical experience 
in the IRS, may be granted enrollment as an enrolled agent or enrolled 
retirement plan agent if certain criteria are satisfied. Some 
commentators on the proposed regulations suggested that former IRS 
employees should not be granted enrollment because the IRS is not 
exempting, or ``grandfathering,'' experienced unenrolled practitioners 
from the testing and continuing education requirements. This 
recommendation is not adopted because the IRS may easily check a former 
employee's IRS employment record to ensure the individual has the past 
service and technical experience for the scope of enrollment sought by 
the former employee.

Eligibility To Become a Registered Tax Return Preparer

    The final regulations require that an individual must be eighteen 
years old, possess a current or otherwise valid PTIN or other 
prescribed identifying number, and pass a minimum competency 
examination to become a registered tax return preparer. Many 
commentators supported the IRS' effort to increase the overall 
competency of tax return preparers by implementing reasonable 
standards. The minimum age requirement included in the final 
regulations will assist the Treasury Department and the IRS in 
efficient tax administration by ensuring that registered tax return 
preparers have a minimum level of experience, knowledge, judgment, and 
maturity. Other categories of Circular 230 practitioners are generally 
subject to state requirements that result in the individual possessing 
a minimum level of experience, knowledge, judgment, and maturity.
    The competency examination will be administered by, or administered 
under the oversight of, the IRS, similar to the special enrollment 
examinations for enrolled agents and enrolled retirement plan agents. 
Tax return preparers will be subject to suitability checks to determine 
whether the tax return preparer has engaged in disreputable conduct, 
which, at the time the application is filed with the IRS, could result 
in suspension or disbarment under Circular 230. An individual who has 
engaged in disreputable conduct is not eligible to become a registered 
tax return preparer.
    Commentators requested that the IRS delay implementation of the 
testing requirement. The Treasury Department and the IRS did not adopt 
any delay in implementation of the testing requirement because it is 
currently anticipated that the examination to become a registered tax 
return preparer will not be available until after the effective date of 
these regulations. Notice 2011-6 provides guidance establishing 
transition rules explaining the steps individuals must take to prepare 
all or substantially all of a tax return or claim for refund while 
awaiting full implementation of the examination process. The IRS will 
provide administrative information about the competency examination to 
tax return preparers via appropriate channels, including the Tax 
Professionals page of the IRS website, https://www.irs.gov/taxpros.
    Some commentators also requested that the Treasury Department and 
the IRS delay implementation of the continuing education requirements. 
In response to these concerns and to ensure the IRS has sufficient time 
to implement these requirements appropriately, the Treasury Department 
and the IRS announced that the implementation of the continuing 
education requirement will be postponed and that there will be no 
continuing education requirement at least during the first year of 
registration, which commenced on September 30, 2010. The IRS will 
provide administrative information about continuing education to tax 
return preparers via appropriate channels, including the Tax 
Professionals page of the IRS Web site, https://www.irs.gov/taxpros.

Procedures for Becoming or Renewing an Individual's Designation as a 
Registered Tax Return Preparer

    Section 10.5 of the final regulations sets forth the applicable 
procedures related to becoming a registered tax return preparer, which 
generally are consistent with the procedures currently utilized for 
enrolled agents and enrolled retirement plan agents. The regulations 
provide that individuals who want to become a registered tax return 
preparer or renew their designation as a registered tax return preparer 
must utilize forms and comply with the procedures established and 
published by the IRS. The final regulations permit the IRS to change 
the procedures to apply to become a registered tax return preparer.
    As a condition for consideration of an application, the IRS may 
conduct a Federal tax compliance check and

[[Page 32290]]

suitability check. The tax compliance check will be limited to an 
inquiry regarding whether the individual has filed all required 
individual or business tax returns (such as employment tax returns that 
might have been required to be filed by the applicant) and whether the 
individual has failed to pay, or make proper arrangements with the IRS 
for payment of, any Federal tax debts. The suitability check will be 
limited to an inquiry regarding whether the individual has engaged in 
any conduct that would justify suspension or disbarment of any 
practitioner under the provisions of this part, including whether the 
applicant has engaged in disreputable conduct.
    The IRS may not designate an individual as a registered tax return 
preparer only if the results of the tax compliance or suitability check 
are sufficient to establish that the individual engaged in conduct 
subject to sanctions under Circular 230 at the time the individual 
seeks to become a registered tax return preparer or the individual does 
not pass the required competency examination or meet other established 
standards. If the individual does not pass the competency examination 
or the tax compliance or suitability check, the individual will not be 
designated as a registered tax return preparer. Pursuant to Sec.  
10.5(f) of these regulations, an applicant denied status as a 
registered tax return preparer will be informed in writing as to the 
reason(s) for any denial of the application. The applicant may file a 
written protest within 30 days after receipt of the denial. The written 
protest must be filed as prescribed by the Internal Revenue Service in 
forms, guidance, or other appropriate guidance. An individual who is 
initially denied status as a registered tax return preparer for failure 
pass a tax compliance check may reapply after the initial denial if the 
individual becomes current with respect to the individual's tax 
liabilities.
    Once an individual is approved as a registered tax return preparer, 
the IRS will issue a registration card or certificate to each 
individual. The card or certificate will be in addition to any 
notification provided to an individual who obtains a PTIN. Registered 
tax return preparers must have both a valid registration card or 
certificate and a current and valid PTIN number to practice before the 
IRS.
    Section 10.6 of the final regulations sets forth the procedures for 
renewing an individual's designation as a registered tax return 
preparer. Registered tax return preparers must renew their designation 
as prescribed in forms, instructions, or other appropriate guidance. A 
condition of renewal is the completion of the requisite number of 
continuing education hours by registered tax return preparers. 
Registered tax return preparers must complete 15 hours of continuing 
education during each registration year, with a minimum of three hours 
of Federal tax law updates, two hours of tax-related ethics and 10 
hours of Federal tax law topics. The registration year is defined as 
each 12-month period that the registered tax return preparer is 
authorized to practice before the IRS.
    Registered tax return preparers must maintain records with respect 
to the completion of the continuing education credit hours and to self-
certify the completion of the continuing education credit at the time 
of renewal. These regulations require that a qualifying continuing 
education course enhance professional knowledge in Federal taxation or 
Federal tax related matters and be consistent with the Code and 
effective tax administration.
    Section 10.6(f)(2)(iii) of the proposed regulations provided that 
the maximum continuing education credit allowed for instruction and 
preparation is four hours annually. The proposed regulations also 
removed the ability to receive hours for authoring articles, books, or 
other publications that was formerly allowed with respect to enrolled 
agents and enrolled retirement plan agents. The Treasury Department and 
the IRS did receive comments objecting to the reduction of maximum 
credit and the removal of the ability to receive credit for authoring 
publications. The comments stated that the rules would result in a 
lower quality of education and lower diversity.
    In Sec.  10.6(f)(2)(iii) of the final regulations, the Treasury 
Department and the IRS modified the proposed rules regarding the 
maximum credit allowed for instruction and preparation to allow 
enrolled agents and enrolled retirement plan agents to earn six hours 
annually. The final regulations allow registered tax return preparers 
to earn four hours annually. The Treasury Department and the IRS do not 
agree with the comments concerning receiving credit for authoring 
publications because the learning involved with authoring a publication 
does necessarily not equate to the knowledge derived from a continuing 
education program that is current and developed by an individual 
qualified in the relevant subject matter. Therefore, the final 
regulations remove the ability to receive hours for authoring articles, 
books, or other publications that was formerly allowed with respect to 
enrolled agents and enrolled retirement plan agents.
    Sections 10.5(b) and 10.6(d)(7) of the final regulations provide 
that the IRS may charge a reasonable nonrefundable fee for each initial 
application and renewal of status as a registered tax return preparer 
submitted to the IRS. At the outset, the initial application fee refers 
to the initial PTIN user fee and the user fee applicable to any 
required competency examination. Similarly, a registered tax return 
preparer must renew a PTIN and pay the applicable user fee as 
prescribed by the IRS in forms, instructions, or other appropriate 
guidance. The IRS may in future regulations add or remove fees 
applicable to becoming a registered tax return preparer.
    The Treasury Department and the IRS received numerous comments 
requesting that certain non-signing tax return preparers be exempt from 
the testing and continuing education requirements. Commentators 
reasoned that the testing and continuing education requirements are not 
necessary for non-signing tax return preparers who are supervised 
because a supervising practitioner is responsible for the accuracy of 
the underlying return and must generally comply with continuing 
professional education requirements and ethical standards. Comments 
also suggested that fees for the competency examination and continuing 
education for paraprofessionals and those assisting in return 
preparation would not be justified when the signing tax return preparer 
ultimately reviews, and is responsible for, the accuracy of the tax 
return. Overall, these comments suggested that the costs of requiring 
testing and continuing education for tax return preparers who are 
supervised by attorneys, certified public accountants, enrolled agents, 
enrolled retirement plan agents, and enrolled actuaries outweighed the 
attendant benefits.
    The Treasury Department and the IRS addressed these concerns in 
Notice 2011-6, which, as previously stated in this preamble, allows 
individuals who are not attorneys, certified public accountants, 
enrolled agents, or registered tax return preparers to obtain a PTIN 
provided the individual is supervised by an attorney, certified public 
accountant, enrolled agent, enrolled retirement plan agent, or enrolled 
actuary who signs the tax return or claim for refund when the 
individual prepares all or substantially all of a tax return or claim 
for refund. Because individuals meeting these requirements, as fully 
set forth in Sec.  1.02(a) of Notice 2011-6, are permitted to obtain a 
PTIN, they are not required to become registered tax return

[[Page 32291]]

preparers and, therefore, are not required to pass the competency 
examination or meet the continuing education requirements.
    Some commentators requested that the Treasury Department and the 
IRS exempt student interns from the requirement to obtain a PTIN. These 
commentators suggested that the PTIN requirement would deter interest 
in tax accounting internships and make internship programs a money-
losing proposition. The PTIN requirement applies to anyone who prepares 
all or substantially all of a tax return for compensation. If an intern 
does not receive compensation, the intern is not required to obtain a 
PTIN under the Sec.  1.6109-2 regulations. If, however, an intern 
engages in tax return preparation activities that make the intern a tax 
return preparer for purposes of the Sec.  1.6109-2 regulations and the 
intern is compensated for these activities, the intern must obtain a 
PTIN.

Continuing Education Providers

    In Sec.  10.9 of the proposed regulations, the Treasury Department 
and the IRS proposed a new requirement that continuing education 
providers obtain approval of each program to be qualified as a 
continuing education program. The proposed regulations also required 
providers of continuing education courses to maintain records and 
educational material concerning continuing education programs and the 
individuals who attended them. Section 10.9(a)(6) of the proposed 
regulations indicated that the IRS may charge a reasonable 
nonrefundable fee for each application for qualification as a qualified 
continuing education program.
    The Treasury Department and the IRS received numerous comments 
requesting that the IRS reconsider the change in the continuing 
education approval process. Comments questioned why the IRS would 
require pre-approval of continuing education requirements when the 
number of individuals required to complete continuing education 
requirements is being significantly increased. Commentators suggested 
that the pre-approval process would be a substantial burden to 
continuing education providers and the IRS. In response to these 
comments, the Treasury Department and the IRS chose not to finalize the 
rules in proposed Sec.  10.9 regarding pre-approval of individual 
continuing education programs.
    Because the Treasury Department and the IRS are not finalizing the 
rules in proposed Sec.  10.9 with respect to pre-approval of individual 
continuing education programs, Sec.  10.9 of these final regulations 
adopts rules similar to the rules in former Sec.  10.6(g) applicable to 
qualified sponsors. Under Sec.  10.9 of the final regulations, 
continuing education providers must be qualified and must obtain a 
qualified continuing education provider number to be eligible to offer 
qualified continuing education. While continuing education providers 
initially will not be required to obtain the IRS' approval of each 
continuing education program offered, the regulations authorize the IRS 
to require such approval, at its discretion, in appropriate forms, 
instructions or other appropriate guidance. Under the final 
regulations, continuing education providers are required to obtain a 
continuing education program number for each qualified continuing 
education program offered. Although the IRS is not currently proposing 
charging providers a fee for obtaining a continuing education provider 
number or a continuing education program number, these regulations 
provide that providers must pay any user fee applicable to obtaining 
either number established in future regulations.
    Section 10.9 of these final regulations allows those listed in 
former Sec.  10.6(g) to be qualified continuing education providers. 
Commentators on the proposed regulations suggested that the Treasury 
Department and the IRS consider that some professional organizations 
have nationally recognized standards for approving continuing education 
programs that are comparable to the IRS standards in Circular 230. 
Specifically, the comments requested that continuing education 
providers approved by these organization's standards be exempted from 
the requirement to seek additional approval from the IRS with respect 
to each continuing education program.
    The Treasury Department and the IRS agree with the commentators 
that there is merit in recognizing continuing education providers that 
have been approved previously by professional organizations with 
standards comparable to Circular 230. Accordingly, Sec.  10.9 of these 
regulations includes as qualified continuing education providers those 
providers that are recognized and approved as providers of continuing 
education on subject matters within Sec.  10.6(f) of these regulations 
by a qualifying organization that has minimum education standards 
comparable to those set forth in Circular 230. The IRS intends to 
identify in forms, instructions, or other appropriate guidance the 
professional organizations whose approval will allow a continuing 
education provider to be qualified within Sec.  10.9.

Limited Practice Before the IRS, Return Preparation, and Application to 
Other Individuals

    Section 10.3(f) of these regulations permits registered tax return 
preparers to represent a taxpayer during an examination if the 
registered tax return preparer prepared the return for the taxable 
period under examination. Therefore, the final regulations remove the 
limited practice authorization in former Sec.  10.7(c)(1)(viii), which 
allowed an unenrolled tax return preparer to represent a taxpayer 
during an examination if that individual prepared the return for the 
taxable period under examination. Additionally, the final regulations 
remove former Sec.  10.8 regarding customhouse brokers from Circular 
230 and move the language in former Sec.  10.7(e) to new Sec.  10.8.
    Section 10.8(a) of the final regulations provides that any 
individual who for compensation prepares or assists with the 
preparation of all or substantially all of a tax return or claim for 
refund must have a PTIN. Except as otherwise prescribed in forms, 
instructions, or other appropriate guidance, an individual must be an 
attorney, certified public accountant, enrolled agent, or registered 
tax return preparer to obtain a preparer tax identification number. 
These rules are consistent with the final PTIN regulations under 
section 6109. An individual who is not an attorney, certified public 
accountant, enrolled agent, or registered tax return preparer who 
nevertheless prepares for compensation all or a substantial portion of 
a document (including tax returns and claims for refund) for submission 
to the IRS is engaged in practice before the IRS and is subject to the 
rules and standards of Circular 230.
    Section 10.8(b) of the final regulations provides that any 
individual, whether or not the individual is a practitioner, may assist 
with the preparation of a tax return or claim for refund (provided the 
individual prepares less than substantially all of the tax return or 
claim for refund). This revision is consistent with the inclusion of 
registered tax return preparers as practitioners authorized to practice 
before the IRS and the practice rights available to these 
practitioners.
    These regulations also establish a new Sec.  10.8(c) regarding 
other individuals. Any individual who prepares for compensation all or 
a substantial portion of a document pertaining to a taxpayer's tax 
liability for submission to the IRS is subject to the duties and 
restrictions relating to practice before the IRS and may be sanctioned, 
after notice and opportunity for a conference,

[[Page 32292]]

for any conduct that would justify a sanction under Sec.  10.50. An 
individual described in 26 CFR 301.7701-15(f) is not treated as having 
prepared all or a substantial portion of the document by reason of such 
assistance. For example, an individual who only furnishes typing, 
reproducing, or other mechanical assistance with respect to a document 
is not subject to the duties and restrictions relating to practice 
before the IRS.

Solicitation

    Section 10.30(a)(1) of these regulations provides that a 
practitioner may not, with respect to any IRS matter, in any way use or 
participate in the use of any form of public communication or private 
solicitation containing a false, fraudulent, coercive, misleading, or 
deceptive statement or claim. In describing their designation, 
registered tax return preparers may not utilize the term ``certified'' 
or imply an employer/employee relationship with the IRS.
    The proposed regulations provided that registered tax return 
preparers were permitted to use the term ``designated as a registered 
tax return preparer with the Internal Revenue Service'' when describing 
their designation. Some commentators expressed concern that the word 
``with'' may imply a closer relationship with the IRS than exists, such 
as an employer-employee relationship. These commentators suggested 
using the term ``by'' instead. Accordingly, the IRS revised the 
language in final Sec.  10.30(a)(1) to take into account this 
suggestion.

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

    After careful consideration, the IRS and the Treasury Department 
continue to conclude that the professional standards in Sec.  10.34(a) 
generally should be consistent with the civil penalty standards in 
section 6694 for tax return preparers. As discussed in this preamble, 
the limited differences between the standards in Sec.  10.34 and 
section 6694 arise from the different purposes served by those 
provisions and the different manner in which the two standards will be 
administered.
    The standards with respect to tax returns in Sec.  10.34(a) in the 
final regulations provide broader guidelines that are more appropriate 
for professional ethics standards. Under Sec.  10.34(a)(1)(i) of the 
regulations, a practitioner may not willfully, recklessly, or through 
gross incompetence, sign a tax return or claim for refund that the 
practitioner knows or reasonably should know contains a position that: 
(A) Lacks a reasonable basis; (B) is an unreasonable position as 
described in section 6694(a)(2) (including the related regulations and 
other published guidance); or (C) is a willful attempt by the 
practitioner to understate the liability for tax or a reckless or 
intentional disregard of rules or regulations by the practitioner as 
described in section 6694(b)(2) (including the related regulations and 
other published guidance).
    Under Sec.  10.34(a)(1)(ii) of these regulations, a practitioner 
may not willfully, recklessly, or through gross incompetence, advise a 
client to take a position on a tax return or claim for refund, or 
prepare a portion of a tax return or claim for refund containing a 
position, that: (A) Lacks a reasonable basis; (B) is an unreasonable 
position as described in section 6694(a)(2) (including the related 
regulations and other published guidance); or (C) is a willful attempt 
by the practitioner to understate the liability for tax or a reckless 
or intentional disregard of rules or regulations by the practitioner as 
described in section 6694(b)(2) (including the related regulations and 
other published guidance).
    Commentators on proposed Sec.  10.34 requested that the IRS clarify 
whether Notice 2009-5 (2009-3 IRB 309) applies for purposes of 
determining whether the tax return preparer prepared a return or claim 
for refund with an unreasonable position under Sec.  10.34. An 
unreasonable position for purposes of Sec.  10.34 is an unreasonable 
position as described in section 6694(a)(2) and related published 
guidance. Thus, Notice 2009-5 applies to determine whether the tax 
return preparer took an unreasonable position to the extent that it 
applies to the tax return preparer for purposes of section 6694.
    Some commentators were concerned that a violation of section 6694 
would translate to a per se violation of Sec.  10.34. If the IRS, 
however, assesses a penalty against a practitioner under section 6694 
and also refers the practitioner for possible discipline under Circular 
230, an independent determination as to whether the practitioner 
engaged in willful, reckless, or grossly incompetent conduct subject to 
discipline under Sec.  10.34(a) will be made before any disciplinary 
proceedings are instituted or any sanctions are imposed. Thus, a 
practitioner liable for a penalty under section 6694 is not 
automatically subject to discipline under Sec.  10.34(a) of these 
regulations.
    Several commentators recommended that the final regulations adopt 
the reasonable basis standard as the appropriate return position 
standard under Sec.  10.34(a) rather than the civil penalty standards 
in section 6694(a) (the substantial authority and reasonable basis with 
adequate disclosure standards). These commentators similarly requested 
clarification providing that a practitioner is not subject to 
discipline under Sec.  10.34(a) if the practitioner fails to adequately 
disclose a position on a return or claim for refund for which there is 
a reasonable basis. These comments are not adopted in final Sec.  
10.34(a). Proposed Sec.  10.34(a)(1)(i)(A) and (a)(1)(ii)(A) 
established reasonable basis as the minimum threshold standard for 
practitioners because a practitioner acts unethically when the 
practitioner advises a taxpayer to take a position on a return or claim 
for refund that lacks a reasonable basis. The Treasury Department and 
the IRS continue to believe that a practitioner also acts unethically 
in violating the civil penalty standards under section 6694(a) 
(including when there is a reasonable basis for a position on a return 
or claim for refund but the practitioner does not adequately disclose 
the position within the meaning of Sec.  1.6694-2(d)(3)) through 
willful, reckless, or grossly incompetent conduct. Accordingly, final 
Sec.  10.34(a)(1)(i) and (a)(1)(ii) provide three independent standards 
of practitioner conduct and a practitioner who fails to satisfy any one 
of these three standards is subject to discipline under Sec.  10.34(a).

Procedures To Ensure Compliance

    Section 10.36(b) of these regulations provides that firm management 
with principal authority and responsibility for overseeing a firm's 
practice of preparing tax returns, claims for refunds and other 
documents filed with the IRS must take reasonable steps to ensure that 
the firm has adequate procedures in effect for purposes of complying 
with Circular 230. The Treasury Department and the IRS continue to 
believe that expansion of Sec.  10.36 to require firm procedures for 
tax return preparation practice, in addition to the pre-existing 
application to covered opinions, will help ensure compliance and 
encourage firms to self-regulate. Firm responsibility is a critical 
factor in ensuring high quality advice and representation for 
taxpayers.

Authority To Accept a Practitioner's Consent To Sanction

    Section 10.50 of the final regulations provides that the IRS has 
the authority to accept a practitioner's offer of consent to be 
sanctioned under Sec.  10.50 in lieu of instituting or continuing a 
proceeding under Sec.  10.60(a). Section 10.61(b)(2)

[[Page 32293]]

currently provides that the IRS may accept or decline such an offer 
from a practitioner. A provision similar to the provision added to 
these regulations was removed during a previous revision of Circular 
230. Due to the removal, some stakeholders have expressed concern over 
whether the IRS has the authority to accept an offer of consent to 
sanction. The provision added in the final regulations is merely 
intended to clarify any ambiguity with respect to the authority of the 
IRS to accept an offer of consent to sanction in lieu of instituting or 
continuing a proceeding.

Incompetence and Disreputable Conduct

    Section 10.51 of Circular 230 defines disreputable conduct for 
which a practitioner may be sanctioned. Section 6011(e)(3) of the Code, 
enacted by section 17 of the Worker, Homeownership, and Business 
Assistance Act of 2009, Public Law 111-92 (123 Stat. 2984, 2996) (Nov. 
6, 2009), requires certain specified tax return preparers to file 
individual income tax returns electronically. Because the Treasury 
Department and the IRS believe that the failure to comply with this 
requirement is disreputable conduct, these regulations are amended to 
add a new paragraph in Sec.  10.51 to address practitioners who fail to 
comply with this requirement. Under Sec.  10.51(a)(16), disreputable 
conduct includes willfully failing to file on magnetic or other 
electronic media a tax return prepared by the practitioner when the 
practitioner is required to do so by Federal tax laws (unless the 
failure is due to reasonable cause and not due to willful neglect). 
Some commentators stated that a failure to electronically file is only 
a procedural failure and suggested that it could only constitute 
disreputable conduct when coupled with an attempt to defraud the 
government. Commentators also suggested that a failure to 
electronically file should not constitute disreputable conduct because 
there are many valid reasons why a practitioner would not choose to 
electronically file tax returns.
    The Treasury Department and the IRS, however, conclude that it is 
appropriate to include as disreputable conduct a tax return preparer's 
willful failure to electronically file tax returns subject to the 
mandatory electronic filing requirement. The IRS cannot permit tax 
return preparers to intentionally disregard the internal revenue laws 
and continue to practice before the IRS. Section 6011(e)(3) only 
applies to certain tax return preparers who file a specified number of 
returns per year and these tax return preparers need to be aware of the 
new electronic filing requirement. The Treasury Department and the IRS 
have issued final regulations (TD 9518) published in the Federal 
Register (76 FR 17521) on March 30, 2011, that provide exclusions from 
the electronic filing requirement. The exclusions in the final 
regulations include undue hardship waivers and administrative 
exemptions. See Rev. Proc. 2011-25 for additional information on 
hardship waivers and Notice 2011-16 for additional information on 
administrative exemptions. Moreover, tax return preparers are only 
subject to sanction under Sec.  10.51(a)(16) of the final regulations 
for not electronically filing if such a failure is willful. 
Accordingly, Sec.  10.51(a)(16) is sufficiently narrowly tailored to 
only apply to these tax return preparers who willfully fail to comply 
with the electronic filing requirement.
    Under Sec.  10.51(a)(17) of the final regulations, disreputable 
conduct also includes willfully preparing all or substantially all of, 
or signing as a compensated tax return preparer, a tax return or claim 
for refund when the practitioner does not possess a current or 
otherwise valid PTIN or other prescribed identifying number. Section 
10.51(a)(18) of these regulations states that it is disreputable 
conduct for a practitioner to willfully represent a taxpayer before an 
officer or employee of the IRS unless the practitioner is authorized to 
do so pursuant to Circular 230. These changes are consistent with the 
other revisions in these regulations and under section 6109.

Proceedings Against Appraisers

    The regulations also contain amendments to Sec.  10.60(b) relating 
to institution of proceedings against appraisers to better reflect the 
modifications made by section 1219 of the Pension Protection Act of 
2006, Public Law 109-280 (120 Stat. 780), and the enactment of the 
section 6695A penalty. The IRS may reprimand or institute a proceeding 
for disqualification against an appraiser assessed a penalty under 
sections 6694, 6695A, or 6701, among any other relevant penalty 
provisions, as long as it is determined that the appraiser acted 
willfully, recklessly, or through gross incompetence with respect to 
the proscribed conduct.

Appeal of Decision of Administrative Law Judge

    These regulations amend Sec.  10.77 to provide additional, 
clarifying information regarding the procedure for filing an appeal of 
an Administrative Law Judge's decision with respect to a proceeding 
under subpart D of Circular 230.

Records

    Section 10.90 of these final regulations clarify that the roster 
requirements also pertain to registered tax return preparers and 
qualified continuing education programs.

Effective Date

    These final regulations generally apply 60 days after the date the 
regulations are published in the Federal Register.

Special Analyses

    Executive Order 12866, as supplemented by Executive Order 13563, 
provides that regulations must promote predictability and reduce 
uncertainty, and in developing regulations, agencies must take into 
account benefits and costs, both quantitative and qualitative. 
Specifically, agencies are directed, to the extent permitted by law, to 
propose or adopt regulations only upon a reasoned determination that 
its benefits justify its costs (recognizing that some benefits and 
costs are difficult to quantify); tailor its regulations to impose the 
least burden on society, consistent with obtaining regulatory 
objectives; and in choosing among alternative regulatory approaches, 
select those approaches that maximize net benefits. This rule has been 
designated a ``significant regulatory action'' under section 3(f) of 
Executive Order 12866, inasmuch as it may adversely affect in a 
material way the economy, a sector of the economy, productivity, 
competition, or jobs. Accordingly, the rule has been reviewed by the 
Office of Management and Budget. The Regulatory Assessment prepared for 
this regulation is provided in this preamble under the heading 
``Regulatory Assessment Under E.O. 12866, as Supplemented by E.O. 
13563.''
    It has been determined that a final regulatory flexibility analysis 
is required for this final regulation under 5 U.S.C. 604. This analysis 
is set forth later in this preamble under the heading ``Final 
Regulatory Flexibility Analysis.''
    Section 202 of the Unfunded Mandates Reform Act of 1995 (``Unfunded 
Mandates Act''), Public Law 104-4 (March 22, 1995), requires that an 
agency prepare a budgetary impact statement before promulgating a rule 
that may result in expenditure by State, local, and Tribal governments, 
in the aggregate, or by the private sector, of $100 million or more in 
any one year. If a budgetary impact statement is required, section 205 
of the Unfunded Mandates Act also requires an agency to

[[Page 32294]]

identify and consider a reasonable number of regulatory alternatives 
before promulgating a rule. Please see the Regulatory Assessment for a 
discussion of the budgetary impact of this final rule.
    Pursuant to section 7805(f) of the Internal Revenue Code, the 
notice of proposed rulemaking was submitted to Chief Counsel for 
Advocacy of the Small Business Administration for comment on its impact 
on small business and no comments were received.

A. Regulatory Assessment Under E.O. 12866, as Supplemented by E.O 13563

1. Statement of the Need for the Regulatory Action
    Although the IRS has exercised its authority to regulate for 
attorneys, certified public accountants, and other specified tax 
professionals, regulations under Circular 230 currently do not apply to 
a critical group of tax professionals: Tax return preparers. As 
discussed in the Report, taxpayers' reliance on tax return preparers 
has grown steadily in recent decades. The number of taxpayers who 
prepared their own tax returns without assistance fell by more than 
two-thirds between 1993 and 2005. In fact, today, tax return preparers 
assist a majority of U.S. taxpayers in meeting their Federal tax filing 
obligations. In 2008 and 2009, for example, paid tax return preparers, 
including attorneys, certified public accountants, enrolled agents, and 
unenrolled tax return preparers, prepared almost 60 percent of all 
federal tax returns filed, including approximately 87 million Federal 
individual income tax returns. The IRS expects these numbers to 
increase in 2010 and the coming years.
    Tax return preparers are not only responsible for assisting 
taxpayers in filing complete, timely, and accurate returns, but also 
help educate taxpayers about the tax laws, and facilitate electronic 
filing. Tax return preparers provide advice to taxpayers, identify 
items or issues for which the law or guidance is unclear, and inform 
taxpayers of the benefits and risks of positions taken on a tax return, 
and the tax treatment or reporting of items and transactions. The IRS 
and the Treasury Department recognize that the majority of tax return 
preparers serve the interests of their clients and the tax system by 
preparing complete and accurate returns.
    The tax system is best served by tax return preparers who are 
ethical, provide good service, and are qualified. Recent government 
studies, including studies from the Government Accountability Office 
and the Treasury Inspector General for Tax Administration, see, for 
example, Government Accountability Office, Paid Tax Return Preparers: 
In a Limited Study, Chain Preparers Made Serious Errors, GAO-06-563T 
(Apr. 4, 2006); Treasury Inspector General for Tax Administration, Most 
Tax Returns Prepared by a Limited Sample of Unenrolled Preparers 
Contained Significant Errors, Rept.  2008-40-171 (Sept. 3, 
2008), illustrate the losses incurred by both taxpayers and the system 
of Federal tax administration when tax return preparers fail to 
properly prepare tax returns. Additionally, many of the more than 500 
public comments received by the IRS during the agency's review of the 
return preparer industry expressed concern for taxpayers, tax 
administration and the return preparer industry, all of whom are hurt 
when tax returns are not accurately prepared.
    An overwhelming number of commentators (98 percent of the persons 
who offered comments on oversight and enforcement) supported increased 
government oversight of tax return preparers, particularly for 
individuals who are not attorneys, certified public accountants or 
others currently authorized to practice before the IRS. These 
commentators argued that taxpayers, the IRS and tax administration 
generally would benefit from the registration of tax return preparers. 
Eighty-eight percent of the persons who expressed an opinion on 
registering paid tax return preparers favor registration. Ninety 
percent of the persons who commented on testing and education favor 
minimum education or testing requirements for paid tax return 
preparers. And 98 percent of the persons who commented on quality and 
ethics favor establishment of quality and ethics standards for paid tax 
return preparers.
    Because the IRS has not adopted a uniform set of regulations for 
tax return preparers, the amount of oversight of tax return 
professionals varies greatly depending on professional affiliations and 
the geographic area in which they practice. Most tax return preparers 
do not have to pas