Bulletin No. 2011-27July 5, 2011

HIGHLIGHTSOF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied upon as authoritative interpretations.

INCOME TAX

Rev. Rul. 2011–14, page 31.Federal rates; adjusted federal rates; adjusted federallong-term rate and the long-term exempt rate. For pur-poses of sections 382, 642, 1274, 1288, and other sectionsof the Code, tables set forth the rates for July 2011.

Notice 2011–47, page 34.This notice provides for the suspension of certain requirementsunder section 42 of the Code for low-income housing creditprojects in Missouri in order to provide emergency housing re-lief needed as a result of the devastation caused by severestorms, tornadoes, and flooding in that state beginning onApril 19, 2011.

Notice 2011–50, page 35.Credit for carbon dioxide sequestration; 2011 section45Q inflation adjustment factor. This notice publishes theinflation adjustment factor for the credit for carbon dioxide(CO2) sequestration under section 45Q of the Code for cal-endar year 2011. The amount of credit must be adjusted forinflation for taxable years beginning in a calendar year after2009.

Notice 2011–51, page 36.This notice extends interim guidance provided in Notice2010–79, 2010– 49 I.R.B. 809, on the modification of section833 treatment of certain health organizations.

EXEMPT ORGANIZATIONS

Announcement 2011–37, page 37.This announcement advises tax-exempt organizations that op-erate one or more hospital facilities that Part V, Section B of

Schedule H, Hospitals, of the 2010 Form 990, Return of Or-ganization Exempt From Income Tax, is optional for the 2010tax year.

ADMINISTRATIVE

T.D. 9527, page 1.Final regulations in 31 CFR Part 10 provide that registered taxreturn preparers are practitioners under Circular 230, and thatan individual is required to pass a minimum competency ex-amination to become a registered tax return preparer. The fi-nal regulations also address registered tax return preparers’continuing education requirements and incorporate the amend-ments to regulations section 10.34(a) relating to standards withrespect to tax returns.

Finding Lists begin on page ii.

The IRS MissionProvide America’s taxpayers top-quality service by helpingthem understand and meet their tax responsibilities and en-

force the law with integrity and fairness to all.

IntroductionThe Internal Revenue Bulletin is the authoritative instrument ofthe Commissioner of Internal Revenue for announcing officialrulings and procedures of the Internal Revenue Service and forpublishing Treasury Decisions, Executive Orders, Tax Conven-tions, legislation, court decisions, and other items of generalinterest. It is published weekly and may be obtained from theSuperintendent of Documents on a subscription basis. Bulletincontents are compiled semiannually into Cumulative Bulletins,which are sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletin all sub-stantive rulings necessary to promote a uniform application ofthe tax laws, including all rulings that supersede, revoke, mod-ify, or amend any of those previously published in the Bulletin.All published rulings apply retroactively unless otherwise indi-cated. Procedures relating solely to matters of internal man-agement are not published; however, statements of internalpractices and procedures that affect the rights and duties oftaxpayers are published.

Revenue rulings represent the conclusions of the Service on theapplication of the law to the pivotal facts stated in the revenueruling. In those based on positions taken in rulings to taxpayersor technical advice to Service field offices, identifying detailsand information of a confidential nature are deleted to preventunwarranted invasions of privacy and to comply with statutoryrequirements.

Rulings and procedures reported in the Bulletin do not have theforce and effect of Treasury Department Regulations, but theymay be used as precedents. Unpublished rulings will not berelied on, used, or cited as precedents by Service personnel inthe disposition of other cases. In applying published rulings andprocedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,and Service personnel and others concerned are cautionedagainst reaching the same conclusions in other cases unlessthe facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.This part includes rulings and decisions based on provisions ofthe Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.This part is divided into two subparts as follows: Subpart A,Tax Conventions and Other Related Items, and Subpart B, Leg-islation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references to thesesubjects are contained in the other Parts and Subparts. Alsoincluded in this part are Bank Secrecy Act Administrative Rul-ings. Bank Secrecy Act Administrative Rulings are issued bythe Department of the Treasury’s Office of the Assistant Secre-tary (Enforcement).

Part IV.—Items of General Interest.This part includes notices of proposed rulemakings, disbar-ment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative indexfor the matters published during the preceding months. Thesemonthly indexes are cumulated on a semiannual basis, and arepublished in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

July 5, 2011 2011–27 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986Section 42.—Low-IncomeHousing Credit

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof July 2011. See Rev. Rul. 2011-14, page 31.

Section 280G.—GoldenParachute Payments

Federal short-term, mid-term, and long-term ratesare set forth for the month of July 2011. See Rev. Rul.2011-14, page 31.

Section 330.—31USC—Practice Beforethe Department31 CFR 10.0: Scope of part.

T.D. 9527

DEPARTMENT OF THETREASURYInternal Revenue Service31 CFR Part 10

Regulations GoverningPractice Before the InternalRevenue Service

AGENCY: Office of the Secretary, Trea-sury.

ACTION: Final regulations.

SUMMARY: This document contains finalregulations governing practice before theInternal Revenue Service (IRS). The regu-lations affect individuals who practice be-fore the IRS and providers of continuingeducation programs. The regulations mod-ify the general standards of practice beforethe IRS and the standards with respect totax returns.

DATES: Effective Date: These regulationsare effective on August 2, 2011.

Applicability Date: For dates of appli-cability, see §§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 INFORMATIONCONTACT: Matthew D. Lucey at (202)622–4940 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information con-tained in these regulations was previouslyreviewed and approved by the Office ofManagement and Budget in accordancewith the Paperwork Reduction Act of 1995(44 U.S.C. 3507(d)) under control number1545–1726. The collection of informationin these regulations is in §§10.6 and 10.9.The total annual burden of this collectionof information is an increase from theburden in the current regulations. Thisinformation is required in order for theIRS to ensure that individuals permitted toprepare tax returns are informed of the lat-est developments in Federal tax practice.

An agency may not conduct or sponsor,and a person is not required to respond to, acollection of information unless it displaysa valid control number.

Books or records relating to a collectionof information must be retained as longas their contents might become material inthe administration of any internal revenuelaw.

Background

Section 330 of title 31 of the UnitedStates Code authorizes the Secretary ofthe Treasury (the Secretary) to regulate thepractice of representatives before the Trea-sury Department. The Secretary is autho-rized, after notice and an opportunity for aproceeding, to censure, suspend, or disbarfrom practice before the Treasury Depart-ment those representatives who are incom-petent, disreputable, or who violate regu-lations prescribed under section 330 of ti-tle 31. The Secretary also is authorized toimpose a monetary penalty against theseindividuals and the individuals’ firms or

other entities that employ them. Addi-tionally, the Secretary may seek an injunc-tion against these individuals under section7408 of the Internal Revenue Code (Code).

The Secretary has published regulationsgoverning the practice of representativesbefore the IRS in 31 CFR part 10 andreprinted the regulations as Treasury De-partment Circular No. 230 (Circular 230).These regulations authorize the IRS to actupon applications for enrollment to prac-tice before the IRS; to make inquiries withrespect to matters under Circular 230; toinstitute proceedings to impose a monetarypenalty or to censure, suspend, or disbar apractitioner from practice before the IRS;to institute proceedings to disqualify ap-praisers; and to perform other duties nec-essary to carry out these functions.

Circular 230 has been amendedperiodically. The regulations wereamended most recently on Septem-ber 26, 2007 (T.D. 9359, 2007–2C.B. 931 [72 FR 54540]), to modifyvarious provisions relating to the generalstandards of practice. For example,the 2007 regulations established anenrolled retirement plan agent designation,modified the conflict of interest rules,limited the use of contingent feesby practitioners, and required publicdisclosure of OPR disciplinary decisionsafter the decisions become final.

Those final regulations, however, didnot finalize the standards with respect totax returns under §10.34(a) and the def-initions under §10.34(e) because of theamendments to section 6694(a) of theCode made by the Small Business andWork Opportunity Tax Act of 2007, PublicLaw 110–28, 121 Stat. 190. Rather, theIRS and the Treasury Department reserved§10.34(a) and (e) in those final regulationsand also simultaneously issued a notice ofproposed rulemaking (REG–138637–07,2007–2 C.B. 977) in the Federal Register(72 FR 54621) proposing to conform theprofessional standards under §10.34 ofCircular 230 with the civil penalty stan-dards under section 6694(a) as amendedby the 2007 Act.

On October 3, 2008, the Tax Ex-tenders and Alternative Minimum TaxRelief Act of 2008, Div. C. of Public

2011–27 I.R.B. 1 July 5, 2011

Law 110–343, 122 Stat. 3765, againamended the standard of conduct thatmust be met to avoid imposition of thetax return preparer penalty under section6694(a). The IRS and the Treasury De-partment published final regulations (T.D.9436, 2009–3 I.R.B. 268) in the FederalRegister (73 FR 78430) implementingamendments to the tax return preparerpenalties on December 22, 2008. Togenerally be consistent with the returnpreparer penalty regulations, these finalregulations provide updated rules withrespect to the standards for tax returnsunder §10.34(a).

These final regulations also providenew rules governing the oversight of taxreturn preparers. Previously, an individ-ual tax return preparer generally was notsubject to the provisions in Circular 230unless the tax return preparer was an attor-ney, certified public accountant, enrolledagent, or other type of practitioner identi-fied in Circular 230. Prior to the issuanceof these final regulations, any individualcould prepare tax returns and claims forrefund without meeting any qualificationsor competency standards. A tax returnpreparer also used to be able to exercisethe privilege of limited practice beforethe IRS pursuant to the rules in former§10.7(c)(1)(viii) of Circular 230 and Rev-enue Procedure 81–38, 1981–2 C.B. 592.See §601.601(d)(2)(ii)(b).

In June 2009, the IRS launched a re-view of tax return preparers with the in-tent to propose a comprehensive set ofrecommendations to ensure uniform andhigh ethical standards of conduct for alltax return preparers and to increase tax-payer compliance. As part of this effort,the IRS received input from a large and di-verse community through numerous chan-nels, including public forums, solicitationof written comments, and meetings withadvisory groups.

The IRS made findings and recommen-dations in Publication 4832, “Return Pre-parer Review” (the Report), which waspublished on January 4, 2010. The Re-port recommends increased oversight ofthe tax return preparer industry through theissuance of regulations.

To implement recommendations madein the Report, the IRS issued final reg-ulations under section 6109 of the Code(T.D. 9501, 2010–46 I.R.B. 651) publishedin the Federal Register (75 FR 60309)

on September 30, 2010. The final reg-ulations under section 6109 provide that,for returns or claims for refund filed afterDecember 31, 2010, the identifying num-ber of a tax return preparer is the indi-vidual’s preparer tax identification number(PTIN) or such other number prescribed bythe IRS in forms, instructions, or other ap-propriate guidance. The regulations alsoprovide that the IRS is authorized to re-quire through other guidance (as well asin forms and instructions) that tax returnpreparers apply for a PTIN or other pre-scribed identifying number, the regular re-newal of PTINs or other prescribed iden-tifying number, and the payment of userfees. The IRS also issued final regulations(T.D. 9503, 2010–47 I.R.B. 706) establish-ing a user fee to apply for or renew a PTINpublished in the Federal Register (75 FR60316) on September 30, 2010.

On August 23, 2010, the Treasury De-partment and the IRS published in the Fed-eral Register (75 FR 51713) a notice ofproposed rulemaking (REG–138637–07,2010–44 I.R.B. 581) proposing amend-ments to Circular 230 based upon certainrecommendations made in the Report.The proposed regulations provided thatregistered tax return preparers are practi-tioners under Circular 230 and describedthe process for becoming a registered taxreturn preparer, as well as the scope ofa registered tax return preparer’s prac-tice before the IRS. Amendments werealso proposed to §10.30 regarding solic-itation, §10.36 regarding procedures toensure compliance, and §10.51 regardingincompetence and disreputable conduct.A public hearing was held on the proposedregulations on October 8, 2010. Writtenpublic comments responding to the pro-posed regulations were received. Afterconsideration of the public comments,the proposed regulations are adopted asrevised by this Treasury decision.

Plain Language Summary of theRequirements for Becoming aRegistered Tax Return Preparer orContinuing Education Provider

Am I affected by this regulation?

If you are an attorney or certified pub-lic accountant, then the amendments to§§10.3, 10.4, 10.5, 10.7 and 10.9 of Circu-lar 230 (rules regarding registered tax re-

turn preparers) do not affect you. If you arenot an attorney or certified public accoun-tant and you prepare, or assist in prepar-ing, all or substantially all of a tax returnor claim for refund for compensation, thenyou may be affected by this regulation.

Section 10.2(a)(8) of the final regula-tions clarifies that the definition of “tax re-turn preparer” in Circular 230 is the sameas the meaning in section 7701(a)(36) ofthe Code and 26 CFR 301.7701–15. If youonly furnish typing, reproduction, or othermechanical assistance with respect to a taxreturn or a claim for refund, you are not atax return preparer under Circular 230.

How am I affected by this regulation andhow does this regulation work with otherrecently issued IRS guidance?

The final regulations, in part, providedetails about: (1) the application processto become a registered tax preparer, (2)the renewal process to remain a registeredtax return preparer, and (3) other rules thatgovern practice before the IRS that affectall practitioners.

Application Process

Generally, you must do the followingto apply to become a registered tax returnpreparer: (1) pass a one-time competencyexam, (2) pass a suitability check, and (3)obtain a PTIN (and pay the amount pro-vided in the PTIN User Fee regulations).

To allow tax return preparers a transi-tion period to pass the competency exam-ination and, because the competency ex-amination will not be available until afterthese final regulations are published, No-tice 2011–6, 2011–3 I.R.B. 315, which waspublished on December 30, 2010, providesthe following guidance to tax return pre-parers who obtain a PTIN (in accordancewith the PTIN regulations) and pay the ap-plicable user fee (set forth in the PTINUser Fee regulations) before the compe-tency examination is offered:

Individuals who obtain a provisionalPTIN before the competency examinationis offered may prepare for compensationany tax return or claim for refund until De-cember 31, 2013, as long as the individ-ual renews their PTIN, passes a suitabilitycheck (when available), and pays the ap-plicable user fee. After the examination isoffered, only attorneys, certified public ac-countants, enrolled agents, and registered

July 5, 2011 2 2011–27 I.R.B.

tax return preparers, or individuals definedin section 1.02(a) or (b) of Notice 2011–6may obtain a PTIN.

The tax returns and claims for refundcovered by the competency examinationinitially offered will be limited to indi-vidual tax returns (Form 1040 series taxreturns and accompanying schedules). Asprovided in Notice 2011–6, individualsmay certify that they do not prepare indi-vidual tax returns and, as a result, will notbe required to pass this initial competencyexamination or become a registered taxreturn preparer at this time.

The process for becoming a registeredtax return preparer is comparable to theexisting process for enrolled agents. En-rolled agents must pass the Special Enroll-ment Examination and complete continu-ing education requirements. These regu-lations, however, do not change enrolledagents’ status as practitioners under Circu-lar 230.

Renewal Process

You must complete continuing educa-tion to maintain your status as a registeredtax return preparer. A registered tax returnpreparer must annually renew their PTINand pay a user fee every year. Generally,registered tax return preparers must com-plete a minimum of 15 credits of contin-uing education annually. This regulationspecifies what constitutes continuing ed-ucation. Registered tax return preparersmust retain records of continuing educa-tion courses for four years.

If you prepare or assist in preparingall or substantially all of a tax return forcompensation but do not sign the tax re-turn, you are exempt from the competencyexamination and continuing education re-quirements if the requirements of section1.02(a) of Notice 2011–6 are met. Youmust, however, renew your PTIN, pay theapplicable PTIN user fee, and certify thatthe requirements of Notice 2011–6 aremet.

Continuing Education Providers

You are subject to requirements in thefinal regulations. The final regulationsprovide requirements applicable to con-tinuing education providers who providecontinuing education programs to regis-tered tax return preparers and enrolled

agents. Continuing education providersmust obtain and renew continuing edu-cation provider numbers and continuingeducation provider program numbers andpay any applicable fees.

Summary of Comments andExplanation of Revisions

The IRS received more than 50 writ-ten comments in response to the noticeof proposed rulemaking. All of the com-ments were considered and are availablefor public inspection. Most of the com-ments that addressed the proposed regu-lations are summarized in this preamble.Some comments addressed other regula-tions or notices of proposed rulemakingand are not discussed in this preamble.

The scope of these rules is limited topractice before the IRS. These regulationsdo not change the existing authority of at-torneys, certified public accountants, andenrolled agents to practice before the IRSunder Circular 230 and do not alter or sup-plant ethical standards that might other-wise be applicable to these practitioners.

IRS Offices Administering and EnforcingCircular 230

To fully implement the return preparerinitiative, the IRS announced that a new re-turn preparer office was created to admin-ister PTIN applications, competency test-ing, and continuing education. The IRSdecided that an office dedicated solely tothese matters will allow the IRS to bestserve tax return preparers and taxpayers byproviding efficiency and expertise in thisarea.

Concurrently, the Office of Profes-sional Responsibility will continue toenforce the Circular 230 provisions relat-ing to practitioner conduct and discipline.The Office of Professional Responsibil-ity will continue to carry out its missionto interpret and apply the standards ofpractice for tax professionals in a fair andequitable manner. As discussed in theReport, a strong enforcement regime is akey component to increased oversight ofthe tax return preparer industry. Commen-tators on the proposed regulations alsosuggested that the return preparer initiativemust be met with appropriate enforcementmeasures. The IRS recognizes that theOffice of Professional Responsibility is

central to the IRS’ goal of maintaininghigh standards of ethical conduct for allpractitioners and that the Office must op-erate independently from IRS functionsenforcing Title 26 requirements.

The final regulations accommodate theinternal structure by generally removingreferences to the Office of ProfessionalResponsibility. The final regulations al-low the flexibility to adjust responsibilityappropriately between the offices as thereturn preparer initiative is implemented.The Commissioner may delegate neces-sary authorities to appropriate offices.

Definitions — Practice Before the InternalRevenue Service, Tax Return Preparer

The final regulations adopt the pro-posed amendments to §10.2(a)(4), whichclarify that either preparing a documentor filing a document may constitute prac-tice before the IRS. The final regulationsalso adopt the proposed amendments to§10.2(a)(8), which clarify that the defini-tion of “tax return preparer” in Circular230 is the same as the meaning in sec-tion 7701(a)(36) of the Code and 26 CFR301.7701–15.

Who May Practice

The final regulations adopt the pro-posed amendments to §10.3(f), whichestablish a new “registered tax return pre-parer” designation. A registered tax returnpreparer is any individual so designatedunder §10.4(c) who is not currently undersuspension or disbarment from practicebefore the IRS. An individual who is aregistered tax return preparer pursuantto this part is a practitioner authorizedto practice before the IRS, subject to thelimitations identified in these regulations.Some commentators stated that the termregistered tax return preparer would con-fuse the public because it implies a highlevel of professional capability. As statedin the Report, the goal of the return pre-parer initiative is increased oversight ofthe tax return preparer industry and toinstitute standards for minimum compe-tence. For those individuals who havepassed a competency examination andhave met continuing education require-ments, the Treasury Department and theIRS conclude that the term “registered” isappropriate.

2011–27 I.R.B. 3 July 5, 2011

Some commentators requested that theIRS not include registered tax return pre-parers as individuals who may practice un-der proposed §10.3. Representation is de-fined as “[a]cts performed on behalf ofa taxpayer by a representative before theInternal Revenue Service.” See 26 CFR601.501(b)(13) (Conference and PracticeRequirements). As discussed earlier in thispreamble, practice before the IRS includespreparing or filing tax returns and otherdocuments with the IRS. Thus, prepara-tion of a tax return is practice before theIRS. Because registered tax return prepar-ers are individuals who prepare all or sub-stantially all of a tax return or claim for re-fund on behalf of a taxpayer for compensa-tion, they practice before the IRS and mustbe included in §10.3 of the final regula-tions.

The Treasury Department and the IRSreceived comments requesting clarifica-tion with respect to which forms registeredtax return preparers are permitted to pre-pare. The IRS will prescribe by forms,instructions, or other appropriate guidancethe tax returns and claims for refund regis-tered tax return preparers are permitted toprepare after successfully completing thecompetency examination. Forms, instruc-tions, or other appropriate guidance mayalso provide rules with respect to formsthat may be prepared without completionof the competency examination. Notice2011–6 permits individuals who preparetax returns not covered by the competencyexamination to obtain a PTIN if certainrequirements are met.

Registered tax return preparers alsomay represent taxpayers before revenueagents, customer service representatives,or similar officers and employees of theIRS (including the Taxpayer AdvocateService) during an examination if the reg-istered tax return preparer signed the taxreturn or claim for refund for the taxableyear or period under examination. Con-sistent with the limited practice rightspreviously available to unenrolled returnpreparers under former §10.7(c)(1)(viii),registered tax return preparers are not per-mitted to represent taxpayers, regardlessof the circumstances requiring represen-tation, before appeals officers, revenueofficers, Counsel, or similar officers oremployees of the IRS or the TreasuryDepartment. A registered tax return pre-parer’s authorization to practice under this

part also does not include the authority toprovide tax advice to a client or anotherperson except as necessary to prepare atax return, claim for refund, or other docu-ment intended to be submitted to the IRS.

Some commentators inquired as towhether the federally authorized tax prac-titioner privilege under section 7525applies to communications between ataxpayer and a registered tax return pre-parer. The Treasury Department andthe IRS have concluded that the feder-ally authorized tax practitioner privilegegenerally does not apply to communica-tions between a taxpayer and a registeredtax return preparer because the advice aregistered tax return preparer providesordinarily is intended to be reflected on atax return and is not intended to be confi-dential or privileged.

The conduct of a registered tax returnpreparer in connection with the prepara-tion of the return, claim for refund, or otherdocument, as well as any representation ofthe client during an examination, will besubject to the standards of conduct in Cir-cular 230. Inquiries into possible miscon-duct and disciplinary proceedings relatingto registered tax return preparer miscon-duct will be conducted under the provi-sions in Circular 230.

Numerous members of the tax returnpreparation industry submitted commentsrequesting that certain individuals beexempted from the requirements in theproposed regulations. Commentatorssuggested that tax return preparers whoare supervised by certain practitionerscurrently authorized to practice underCircular 230 should not be required tobecome registered tax return preparers ifthe supervising practitioner signs the taxreturn prepared in part by the supervisedtax return preparer. Commentators rea-soned that certain practitioners who signtax returns are subject to, in addition toCircular 230, professional standards andoversight by state licensing authoritiesand other professional organizations thatplace responsibility for the tax return onthe signing practitioner.

In Notice 2011–6, the Treasury De-partment and the IRS provided, pursuantto §1.6019–2(h), that individuals who arenot attorneys, certified public accountants,enrolled agents, enrolled retirement planagents, enrolled actuaries, or registeredtax return preparers will be eligible to ob-

tain a PTIN and, thus, prepare, or assistin preparing, all or substantially all of atax return or claim for refund for compen-sation in certain discrete circumstances.Section 1.02(a) of the notice permits cer-tain individuals supervised by an attorney,certified public accountant, enrolled agent,enrolled retirement plan agent, or enrolledactuary who signs the return or claim forrefund prepared by the individual to ob-tain a PTIN. These individuals also arerequired to certify in their application toreceive a PTIN that they are supervised byan attorney, certified public accountant,enrolled agent, enrolled retirement planagent, or enrolled actuary who signs thetax return or claim for refund and providea supervising individual’s PTIN or othernumber if prescribed by the IRS. These in-dividuals may not sign any tax return theyprepare or assist in preparing for compen-sation. If at any point, the individual is nolonger supervised by the signing attorney,certified public accountant, enrolled agent,enrolled retirement plan agent, or enrolledactuary, the individual must notify theIRS if prescribed in forms, instructions,or other appropriate guidance and will nolonger be permitted to prepare or assist inpreparing all or substantially all of a tax re-turn or claim for refund for compensationunder this exception. Because individualsmeeting these requirements, as fully setforth in §1.02(a) of Notice 2011–6, arepermitted to obtain a PTIN, they are notrequired to become registered tax returnpreparers to obtain a PTIN.

Eligibility to Become an Enrolled Agentor Enrolled Retirement Plan Agent

The final regulations provide that anenrolled agent or enrolled retirement planagent must be eighteen years old and ob-tain a PTIN to be eligible to practice beforethe IRS as an enrolled agent or enrolled re-tirement plan agent.

Section 10.4(d) of the final regulationsalso provides that a former employee who,by virtue of past service and technical ex-perience in the IRS, may be granted en-rollment as an enrolled agent or enrolledretirement plan agent if certain criteria aresatisfied. Some commentators on the pro-posed regulations suggested that formerIRS employees should not be granted en-rollment because the IRS is not exempt-ing, or “grandfathering,” experienced un-

July 5, 2011 4 2011–27 I.R.B.

enrolled practitioners from the testing andcontinuing education requirements. Thisrecommendation is not adopted becausethe IRS may easily check a former em-ployee’s IRS employment record to en-sure the individual has the past service andtechnical experience for the scope of en-rollment sought by the former employee.

Eligibility to Become a Registered TaxReturn Preparer

The final regulations require that an in-dividual must be eighteen years old, pos-sess a current or otherwise valid PTIN orother prescribed identifying number, andpass a minimum competency examinationto become a registered tax return preparer.Many commentators supported the IRS’effort to increase the overall competencyof tax return preparers by implementingreasonable standards. The minimum agerequirement included in the final regula-tions will assist the Treasury Departmentand the IRS in efficient tax administra-tion by ensuring that registered tax returnpreparers have a minimum level of ex-perience, knowledge, judgment, and ma-turity. Other categories of Circular 230practitioners are generally subject to staterequirements that result in the individualpossessing a minimum level of experience,knowledge, judgment, and maturity.

The competency examination will beadministered by, or administered under theoversight of, the IRS, similar to the spe-cial enrollment examinations for enrolledagents and enrolled retirement plan agents.Tax return preparers will be subject to suit-ability checks to determine whether thetax return preparer has engaged in disrep-utable conduct, which, at the time the ap-plication is filed with the IRS, could resultin suspension or disbarment under Circu-lar 230. An individual who has engaged indisreputable conduct is not eligible to be-come a registered tax return preparer.

Commentators requested that the IRSdelay implementation of the testing re-quirement. The Treasury Department andthe IRS did not adopt any delay in im-plementation of the testing requirementbecause it is currently anticipated that theexamination to become a registered taxreturn preparer will not be available untilafter the effective date of these regula-tions. Notice 2011–6 provides guidanceestablishing transition rules explaining the

steps individuals must take to prepare allor substantially all of a tax return or claimfor refund while awaiting full implementa-tion of the examination process. The IRSwill provide administrative informationabout the competency examination to taxreturn preparers via appropriate channels,including the Tax Professionals page of theIRS website, http://www.irs.gov/taxpros.

Some commentators also requestedthat the Treasury Department and the IRSdelay implementation of the continuingeducation requirements. In response tothese concerns and to ensure the IRS hassufficient time to implement these re-quirements appropriately, the TreasuryDepartment and the IRS announced thatthe implementation of the continuing edu-cation requirement will be postponed andthat there will be no continuing educa-tion requirement at least during the firstyear of registration, which commenced onSeptember 30, 2010. The IRS will provideadministrative information about contin-uing education to tax return preparers viaappropriate channels, including the TaxProfessionals page of the IRS website,http://www.irs.gov/taxpros.

Procedures for Becoming or Renewing anIndividual’s Designation as a RegisteredTax Return Preparer

Section 10.5 of the final regulations setsforth the applicable procedures related tobecoming a registered tax return preparer,which generally are consistent with theprocedures currently utilized for enrolledagents and enrolled retirement plan agents.The regulations provide that individualswho want to become a registered tax re-turn preparer or renew their designation asa registered tax return preparer must uti-lize forms and comply with the proceduresestablished and published by the IRS. Thefinal regulations permit the IRS to changethe procedures to apply to become a regis-tered tax return preparer.

As a condition for consideration of anapplication, the IRS may conduct a Fed-eral tax compliance check and suitabilitycheck. The tax compliance check will belimited to an inquiry regarding whether theindividual has filed all required individ-ual or business tax returns (such as em-ployment tax returns that might have beenrequired to be filed by the applicant) andwhether the individual has failed to pay,

or make proper arrangements with the IRSfor payment of, any Federal tax debts. Thesuitability check will be limited to an in-quiry regarding whether the individual hasengaged in any conduct that would justifysuspension or disbarment of any practi-tioner under the provisions of this part, in-cluding whether the applicant has engagedin disreputable conduct.

The IRS may not designate an individ-ual as a registered tax return preparer onlyif the results of the tax compliance or suit-ability check are sufficient to establish thatthe individual engaged in conduct subjectto sanctions under Circular 230 at the timethe individual seeks to become a registeredtax return preparer or the individual doesnot pass the required competency exami-nation or meet other established standards.If the individual does not pass the compe-tency examination or the tax compliance orsuitability check, the individual will not bedesignated as a registered tax return pre-parer. Pursuant to §10.5(f) of these regula-tions, an applicant denied status as a regis-tered tax return preparer will be informedin writing as to the reason(s) for any denialof the application. The applicant may file awritten protest within 30 days after receiptof the denial. The written protest must befiled as prescribed by the Internal RevenueService in forms, guidance, or other appro-priate guidance. An individual who is ini-tially denied status as a registered tax re-turn preparer for failure pass a tax compli-ance check may reapply after the initial de-nial if the individual becomes current withrespect to the individual’s tax liabilities.

Once an individual is approved as a reg-istered tax return preparer, the IRS will is-sue a registration card or certificate to eachindividual. The card or certificate will bein addition to any notification provided toan individual who obtains a PTIN. Regis-tered tax return preparers must have both avalid registration card or certificate and acurrent and valid PTIN number to practicebefore the IRS.

Section 10.6 of the final regulationssets forth the procedures for renewing anindividual’s designation as a registeredtax return preparer. Registered tax returnpreparers must renew their designation asprescribed in forms, instructions, or otherappropriate guidance. A condition of re-newal is the completion of the requisitenumber of continuing education hours byregistered tax return preparers. Registered

2011–27 I.R.B. 5 July 5, 2011

tax return preparers must complete 15hours of continuing education during eachregistration year, with a minimum of threehours of Federal tax law updates, twohours of tax-related ethics and 10 hours ofFederal tax law topics. The registrationyear is defined as each 12-month periodthat the registered tax return preparer isauthorized to practice before the IRS.

Registered tax return preparers mustmaintain records with respect to the com-pletion of the continuing education credithours and to self-certify the completionof the continuing education credit at thetime of renewal. These regulations requirethat a qualifying continuing educationcourse enhance professional knowledgein Federal taxation or Federal tax relatedmatters and be consistent with the Codeand effective tax administration.

Section 10.6(f)(2)(iii) of the proposedregulations provided that the maximumcontinuing education credit allowed forinstruction and preparation is four hoursannually. The proposed regulations alsoremoved the ability to receive hours forauthoring articles, books, or other pub-lications that was formerly allowed withrespect to enrolled agents and enrolledretirement plan agents. The TreasuryDepartment and the IRS did receive com-ments objecting to the reduction of maxi-mum credit and the removal of the abilityto receive credit for authoring publica-tions. The comments stated that the ruleswould result in a lower quality of educa-tion and lower diversity.

In §10.6(f)(2)(iii) of the final regu-lations, the Treasury Department andthe IRS modified the proposed rules re-garding the maximum credit allowed forinstruction and preparation to allow en-rolled agents and enrolled retirement planagents to earn six hours annually. Thefinal regulations allow registered tax re-turn preparers to earn four hour annually.The Treasury Department and the IRS donot agree with the comments concerningreceiving credit for authoring publica-tions because the learning involved withauthoring a publication does necessarilynot equate to the knowledge derived froma continuing education program that iscurrent and developed by an individualqualified in the relevant subject matter.Therefore, the final regulations removethe ability to receive hours for authoringarticles, books, or other publications that

was formerly allowed with respect to en-rolled agents and enrolled retirement planagents.

Sections 10.5(b) and 10.6(d)(7) of thefinal regulations provide that the IRS maycharge a reasonable nonrefundable fee foreach initial application and renewal of sta-tus as a registered tax return preparer sub-mitted to the IRS. At the outset, the initialapplication fee refers to the initial PTINuser fee and the user fee applicable to anyrequired competency examination. Simi-larly, a registered tax return preparer mustrenew a PTIN and pay the applicable userfee as prescribed by the IRS in forms, in-structions, or other appropriate guidance.The IRS may in future regulations add orremove fees applicable to becoming a reg-istered tax return preparer.

The Treasury Department and the IRSreceived numerous comments requestingthat certain non-signing tax return prepar-ers be exempt from the testing and contin-uing education requirements. Commenta-tors reasoned that the testing and contin-uing education requirements are not nec-essary for non-signing tax return prepar-ers who are supervised because a supervis-ing practitioner is responsible for the ac-curacy of the underlying return and mustgenerally comply with continuing profes-sional education requirements and ethicalstandards. Comments also suggested thatfees for the competency examination andcontinuing education for paraprofessionalsand those assisting in return preparationwould not be justified when the signing taxreturn preparer ultimately reviews, and isresponsible for, the accuracy of the tax re-turn. Overall, these comments suggestedthat the costs of requiring testing and con-tinuing education for tax return preparerswho are supervised by attorneys, certifiedpublic accountants, enrolled agents, en-rolled retirement plan agents, and enrolledactuaries outweighed the attendant bene-fits.

The Treasury Department and theIRS addressed these concerns in Notice2011–6, which, as previously stated inthis preamble, allows individuals who arenot attorneys, certified public accountants,enrolled agents, or registered tax returnpreparers to obtain a PTIN provided theindividual is supervised by an attorney,certified public accountant, enrolled agent,enrolled retirement plan agent, or enrolledactuary who signs the tax return or claim

for refund when the individual prepares allor substantially all of a tax return or claimfor refund. Because individuals meetingthese requirements, as fully set forth in§1.02(a) of Notice 2011–6, are permittedto obtain a PTIN, they are not requiredto become registered tax return preparersand, therefore, are not required to passthe competency examination or meet thecontinuing education requirements.

Some commentators requested that theTreasury Department and the IRS exemptstudent interns from the requirement toobtain a PTIN. These commentators sug-gested that the PTIN requirement woulddeter interest in tax accounting internshipsand make internship programs a money-losing proposition. The PTIN requirementapplies to anyone who prepares all or sub-stantially all of a tax return for compensa-tion. If an intern does not receive compen-sation, the intern is not required to obtaina PTIN under the §1.6109–2 regulations.If, however, an intern engages in tax re-turn preparation activities that make the in-tern a tax return preparer for purposes ofthe §1.6109–2 regulations and the intern iscompensated for these activities, the internmust obtain a PTIN.

Continuing Education Providers

In §10.9 of the proposed regulations,the Treasury Department and the IRS pro-posed a new requirement that continuingeducation providers obtain approval ofeach program to be qualified as a contin-uing education program. The proposedregulations also required providers ofcontinuing education courses to maintainrecords and educational material con-cerning continuing education programsand the individuals who attended them.Section 10.9(a)(6) of the proposed regu-lations indicated that the IRS may chargea reasonable nonrefundable fee for eachapplication for qualification as a qualifiedcontinuing education program.

The Treasury Department and the IRSreceived numerous comments requestingthat the IRS reconsider the change in thecontinuing education approval process.Comments questioned why the IRS wouldrequire pre-approval of continuing ed-ucation requirements when the numberof individuals required to complete con-tinuing education requirement is beingsignificantly increased. Commentators

July 5, 2011 6 2011–27 I.R.B.

suggested that the pre-approval processwould be a substantial burden to contin-uing education providers and the IRS. Inresponse to these comments, the TreasuryDepartment and the IRS chose not to final-ize the rules in proposed §10.9 regardingpre-approval of individual continuing ed-ucation programs.

Because the Treasury Department andthe IRS are not finalizing the rules in pro-posed §10.9 with respect to pre-approvalof individual continuing education pro-grams, §10.9 of these final regulationsadopts rules similar to the rules in former§10.6(g) applicable to qualified sponsors.Under §10.9 of the final regulations, con-tinuing education providers must be quali-fied and must obtain a qualified continuingeducation provider number to be eligibleto offer qualified continuing education.While continuing education providers ini-tially will not be required to obtain theIRS’ approval of each continuing edu-cation program offered, the regulationsauthorize the IRS to require such approval,at its discretion, in appropriate forms, in-structions or other appropriate guidance.Under the final regulations, continuingeducation providers are required to obtaina continuing education program numberfor each qualified continuing educationprogram offered. Although the IRS is notcurrently proposing charging providers afee for obtaining a continuing educationprovider number or a continuing educa-tion program number, these regulationsprovide that providers must pay any userfee applicable to obtaining either numberestablished in future regulations.

Section 10.9 of these final regulationsallows those listed in former §10.6(g) to bequalified continuing education providers.Commentators on the proposed regula-tions suggested that the Treasury De-partment and the IRS consider that someprofessional organizations have nationallyrecognized standards for approving con-tinuing education programs that are com-parable to the IRS standards in Circular230. Specifically, the comments requestedthat continuing education providers ap-proved by these organization’s standardsbe exempted from the requirement to seekadditional approval from the IRS withrespect to each continuing education pro-gram.

The Treasury Department and the IRSagree with the commentators that there is

merit in recognizing continuing educationproviders that have been approved previ-ously by professional organizations withstandards comparable to Circular 230. Ac-cordingly, §10.9 of these regulations in-cludes as qualified continuing educationproviders those providers that are recog-nized and approved as providers of contin-uing education on subject matters within§10.6(f) of these regulations by a quali-fying organization that has minimum ed-ucation standards comparable to those setforth in Circular 230. The IRS intends toidentify in forms, instructions, or other ap-propriate guidance the professional orga-nizations whose approval will allow a con-tinuing education provider to be qualifiedwithin §10.9.

Limited Practice Before the IRS, ReturnPreparation, and Application to OtherIndividuals

Section 10.3(f) of these regulations per-mits registered tax return preparers to rep-resent a taxpayer during an examination ifthe registered tax return preparer preparedthe return for the taxable period under ex-amination. Therefore, the final regulationsremove the limited practice authorizationin former §10.7(c)(1)(viii), which allowedan unenrolled tax return preparer to repre-sent a taxpayer during an examination ifthat individual prepared the return for thetaxable period under examination. Addi-tionally, the final regulations remove for-mer §10.8 regarding customhouse brokersfrom Circular 230 and move the languagein former §10.7(e) to new §10.8.

Section 10.8(a) of the final regula-tions provides that any individual who forcompensation prepares or assists with thepreparation of all or substantially all of atax return or claim for refund must have aPTIN. Except as otherwise prescribed informs, instructions, or other appropriateguidance, an individual must be an attor-ney, certified public accountant, enrolledagent, or registered tax return preparer toobtain a preparer tax identification num-ber. These rules are consistent with thefinal PTIN regulations under section 6109.An individual who is not an attorney, cer-tified public accountant, enrolled agent, orregistered tax return preparer who never-theless prepares for compensation all ora substantial portion of a document (in-cluding tax returns and claims for refund)

for submission to the IRS is engaged inpractice before the IRS and is subject tothe rules and standards of Circular 230.

Section 10.8(b) of the final regulationsprovides that any individual, whether ornot the individual is a practitioner, may as-sist with the preparation of a tax return orclaim for refund (provided the individualprepares less than substantially all of thetax return or claim for refund). This revi-sion is consistent with the inclusion of reg-istered tax return preparers as practitionersauthorized to practice before the IRS andthe practice rights available to these prac-titioners.

These regulations also establish a new§10.8(c) regarding other individuals. Anyindividual who prepares for compensationall or a substantial portion of a documentpertaining to a taxpayer’s tax liability forsubmission to the IRS is subject to the du-ties and restrictions relating to practice be-fore the IRS and may be sanctioned, af-ter notice and opportunity for a confer-ence, for any conduct that would justify asanction under §10.50. An individual de-scribed in 26 CFR 301.7701–15(f) is nottreated as having prepared all or a substan-tial portion of the document by reason ofsuch assistance. For example, an individ-ual who only furnishes typing, reproduc-ing, or other mechanical assistance with re-spect to a document is not subject to theduties and restrictions relating to practicebefore the IRS.

Solicitation

Section 10.30(a)(1) of these regula-tions provides that a practitioner may not,with respect to any IRS matter, in anyway use or participate in the use of anyform of public communication or privatesolicitation containing a false, fraudu-lent, coercive, misleading, or deceptivestatement or claim. In describing theirdesignation, registered tax return prepar-ers may not utilize the term “certified” orimply an employer/employee relationshipwith the IRS.

The proposed regulations provided thatregistered tax return preparers were per-mitted to use the term “designated as aregistered tax return preparer with the In-ternal Revenue Service” when describingtheir designation. Some commentators ex-pressed concern that the word “with” mayimply a closer relationship with the IRS

2011–27 I.R.B. 7 July 5, 2011

than exists, such as an employer-employeerelationship. These commentators sug-gested using the term “by” instead. Ac-cordingly, the IRS revised the language infinal §10.30(a)(1) to take into account thissuggestion.

Standards With Respect to Tax Returnsand Documents, Affidavits and OtherPapers

After careful consideration, the IRS andthe Treasury Department continue to con-clude that the professional standards in§10.34(a) generally should be consistentwith the civil penalty standards in section6694 for tax return preparers. As discussedin this preamble, the limited differencesbetween the standards in §10.34 and sec-tion 6694 arise from the different purposesserved by those provisions and the differ-ent manner in which the two standards willbe administered.

The standards with respect to tax re-turns in §10.34(a) in the final regulationsprovide broader guidelines that are moreappropriate for professional ethics stan-dards. Under §10.34(a)(1)(i) of the reg-ulations, a practitioner may not willfully,recklessly, or through gross incompetence,sign a tax return or claim for refund that thepractitioner knows or reasonably shouldknow contains a position that: (A) lacksa reasonable basis; (B) is an unreasonableposition as described in section 6694(a)(2)(including the related regulations and otherpublished guidance); or (C) is a willfulattempt by the practitioner to understatethe liability for tax or a reckless or in-tentional disregard of rules or regulationsby the practitioner as described in section6694(b)(2) (including the related regula-tions and other published guidance).

Under §10.34(a)(1)(ii) of these regu-lations, a practitioner may not willfully,recklessly, or through gross incompetence,advise a client to take a position on a tax re-turn or claim for refund, or prepare a por-tion of a tax return or claim for refund con-taining a position, that: (A) lacks a reason-able basis; (B) is an unreasonable positionas described in section 6694(a)(2) (includ-ing the related regulations and other pub-lished guidance); or (C) is a willful attemptby the practitioner to understate the liabil-ity for tax or a reckless or intentional dis-regard of rules or regulations by the prac-titioner as described in section 6694(b)(2)

(including the related regulations and otherpublished guidance).

Commentators on proposed §10.34 re-quested that the IRS clarify whether Notice2009–5, 2009–3 I.R.B. 309, applies forpurposes of determining whether the taxreturn preparer prepared a return or claimfor refund with an unreasonable positionunder §10.34. An unreasonable positionfor purposes of §10.34 is an unreasonableposition as described in section 6694(a)(2)and related published guidance. Thus, No-tice 2009–5 applies to determine whetherthe tax return preparer took an unreason-able position to the extent that it applies tothe tax return preparer for purposes of sec-tion 6694.

Some commentators were concernedthat a violation of section 6694 wouldtranslate to a per se violation of §10.34.If the IRS, however, assesses a penaltyagainst a practitioner under section 6694and also refers the practitioner for possiblediscipline under Circular 230, an inde-pendent determination as to whether thepractitioner engaged in willful, reckless,or grossly incompetent conduct subject todiscipline under §10.34(a) will be madebefore any disciplinary proceedings areinstituted or any sanctions are imposed.Thus, a practitioner liable for a penaltyunder section 6694 is not automaticallysubject to discipline under §10.34(a) ofthese regulations.

Several commentators recommendedthat the final regulations adopt the rea-sonable basis standard as the appropriatereturn position standard under §10.34(a)rather than the civil penalty standards insection 6694(a) (the substantial authorityand reasonable basis with adequate dis-closure standards). These commentatorssimilarly requested clarification providingthat a practitioner is not subject to disci-pline under §10.34(a) if the practitionerfails to adequately disclose a position on areturn or claim for refund for which thereis a reasonable basis. These comments arenot adopted in final §10.34(a). Proposed§10.34(a)(1)(i)(A) and (a)(1)(ii)(A) estab-lished reasonable basis as the minimumthreshold standard for practitioners be-cause a practitioner acts unethically whenthe practitioner advises a taxpayer to take aposition on a return or claim for refund thatlacks a reasonable basis. The Treasury De-partment and the IRS continue to believethat a practitioner also acts unethically in

violating the civil penalty standards undersection 6694(a) (including when there is areasonable basis for a position on a returnor claim for refund but the practitionerdoes not adequately disclose the positionwithin the meaning of §1.6694–2(d)(3))through willful, reckless, or grossly in-competent conduct. Accordingly, final§10.34(a)(1)(i) and (a)(1)(ii) provide threeindependent standards of practitioner con-duct and a practitioner who fails to satisfyany one of these three standards is subjectto discipline under §10.34(a).

Procedures to Ensure Compliance

Section 10.36(b) of these regulationsprovides that firm management with prin-cipal authority and responsibility for over-seeing a firm’s practice of preparing tax re-turns, claims for refunds and other docu-ments filed with the IRS must take reason-able steps to ensure that the firm has ade-quate procedures in effect for purposes ofcomplying with Circular 230. The Trea-sury Department and the IRS continue tobelieve that expansion of §10.36 to requirefirm procedures for tax return preparationpractice, in addition to the pre-existing ap-plication to covered opinions, will help en-sure compliance and encourage firms toself-regulate. Firm responsibility is a crit-ical factor in ensuring high quality adviceand representation for taxpayers.

Authority to Accept a Practitioner’sConsent to Sanction

Section 10.50 of the final regulationsprovides that the IRS has the authority toaccept a practitioner’s offer of consent tobe sanctioned under §10.50 in lieu of in-stituting or continuing a proceeding under§10.60(a). Section 10.61(b)(2) currentlyprovides that the IRS may accept or de-cline such an offer from a practitioner. Aprovision similar to the provision addedto these regulations was removed during aprevious revision of Circular 230. Due tothe removal, some stakeholders have ex-pressed concern over whether the IRS hasthe authority to accept an offer of consentto sanction. The provision added in the fi-nal regulations is merely intended to clar-ify any ambiguity with respect to the au-thority of the IRS to accept an offer of con-sent to sanction in lieu of instituting or con-tinuing a proceeding.

July 5, 2011 8 2011–27 I.R.B.

Incompetence and Disreputable Conduct

Section 10.51 of Circular 230 de-fines disreputable conduct for which apractitioner may be sanctioned. Section6011(e)(3) of the Code, enacted by section17 of the Worker, Homeownership, andBusiness Assistance Act of 2009, Pub-lic Law 111–92 (123 Stat. 2984, 2996)(Nov. 6, 2009), requires certain specifiedtax return preparers to file individualincome tax returns electronically. Becausethe Treasury Department and the IRSbelieve that the failure to comply withthis requirement is disreputable conduct,these regulations are amended to adda new paragraph in §10.51 to addresspractitioners who fail to comply withthis requirement. Under §10.51(a)(16),disreputable conduct includes willfullyfailing to file on magnetic or otherelectronic media a tax return preparedby the practitioner when the practitioneris required to do so by Federal tax laws(unless the failure is due to reasonablecause and not due to willful neglect).Some commentators stated that a failureto electronically file is only a proceduralfailure and suggested that it could onlyconstitute disreputable conduct whencoupled with an attempt to defraudthe government. Commentators alsosuggested that a failure to electronicallyfile should not constitute disreputableconduct because there are many validreasons why a practitioner would notchoose to file electronically file taxreturns.

The Treasury Department and the IRS,however, conclude that it is appropriateto include as disreputable conduct a taxreturn preparer’s willful failure to elec-tronically file tax returns subject to themandatory electronic filing requirement.The IRS cannot permit tax return prepar-ers to intentionally disregard the internalrevenue laws and continue to practicebefore the IRS. Section 6011(e)(3) onlyapplies to certain tax return preparers whofile a specified number of returns per yearand these tax return preparers need to beaware of the new electronic filing require-ment. The Treasury Department and theIRS have issued final regulations (T.D.9518, 2011–17 I.R.B. 710, published inthe Federal Register (76 FR 17521) onMarch 30, 2011, that provide exclusionsfrom the electronic filing requirement.

The exclusions in the final regulationsinclude undue hardship waivers and ad-ministrative exemptions. See Rev. Proc.2011–25 for additional information onhardship waivers and Notice 2011–16 foradditional information on administrativeexemptions. Moreover, tax return pre-parers are only subject to sanction under§10.51(a)(16) of the final regulations fornot electronically filing if such a failure iswillful. Accordingly, §10.51(a)(16) is suf-ficiently narrowly tailored to only applyto these tax return preparers who willfullyfail to comply with the electronic filingrequirement.

Under §10.51(a)(17) of the final regu-lations, disreputable conduct also includeswillfully preparing all or substantially allof, or signing as a compensated tax returnpreparer, a tax return or claim for refundwhen the practitioner does not possess acurrent or otherwise valid PTIN or otherprescribed identifying number. Section10.51(a)(18) of these regulations statesthat it is disreputable conduct for a prac-titioner to willfully represent a taxpayerbefore an officer or employee of the IRSunless the practitioner is authorized todo so pursuant to Circular 230. Thesechanges are consistent with the other re-visions in these regulations and undersection 6109.

Proceedings Against Appraisers

The regulations also contain amend-ments to §10.60(b) relating to institutionof proceedings against appraisers to betterreflect the modifications made by sec-tion 1219 of the Pension Protection Actof 2006, Public Law 109–280 (120 Stat.780), and the enactment of the section6695A penalty. The IRS may reprimandor institute a proceeding for disqualifi-cation against an appraiser assessed apenalty under sections 6694, 6695A, or6701, among any other relevant penaltyprovisions, as long as it is determined thatthe appraiser acted willfully, recklessly, orthrough gross incompetence with respectto the proscribed conduct.

Appeal of Decision of Administrative LawJudge

These regulations amend §10.77 to pro-vide additional, clarifying information re-garding the procedure for filing an appealof an Administrative Law Judge’s decision

with respect to a proceeding under subpartD of Circular 230.

Records

Section 10.90 of these final regulationsclarify that the roster requirements alsopertain to registered tax return preparersand qualified continuing education pro-grams.

Effective Date

These final regulations generally apply60 days after the date the regulations arepublished in the Federal Register.

Special Analyses

Executive Order 12866, as supple-mented by Executive Order 13563, pro-vides that regulations must promote pre-dictability and reduce uncertainty, andin developing regulations, agencies musttake into account benefits and costs, bothquantitative and qualitative. Specifically,agencies are directed, to the extent permit-ted by law, to propose or adopt regulationsonly upon a reasoned determination thatits benefits justify its costs (recognizingthat some benefits and costs are difficult toquantify); tailor its regulations to imposethe least burden on society, consistentwith obtaining regulatory objectives; andin choosing among alternative regulatoryapproaches, select those approaches thatmaximize net benefits. This rule has beendesignated a “significant regulatory ac-tion” under section 3(f) of Executive Order12866, inasmuch as it may adversely affectin a material way the economy, a sector ofthe economy, productivity, competition,or jobs. Accordingly, the rule has beenreviewed by the Office of Managementand Budget. The Regulatory Assessmentprepared for this regulation is provided inthis preamble under the heading “Regu-latory Assessment Under E.O. 12866, asSupplemented by E.O. 13563.”

It has been determined that a final reg-ulatory flexibility analysis is required forthis final regulation under 5 U.S.C. 604.This analysis is set forth later in this pre-amble under the heading “Final Regula-tory Flexibility Analysis.”

Section 202 of the Unfunded Man-dates Reform Act of 1995 (’’UnfundedMandates Act’’), Public Law 104–4(March 22, 1995), requires that an agency

2011–27 I.R.B. 9 July 5, 2011

prepare a budgetary impact statementbefore promulgating a rule that may resultin expenditure by State, local, and Tribalgovernments, in the aggregate, or bythe private sector, of $100 million ormore in any one year. If a budgetaryimpact statement is required, section205 of the Unfunded Mandates Act alsorequires an agency to identify and considera reasonable number of regulatoryalternatives before promulgating a rule.Please see the Regulatory Assessment fora discussion of the budgetary impact ofthis final rule.

Pursuant to section 7805(f) of the Inter-nal Revenue Code, the notice of proposedrulemaking was submitted to Chief Coun-sel for Advocacy of the Small BusinessAdministration for comment on its impacton small business and no comments werereceived.

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

1. Statement of the need for the regulatoryaction

Although the IRS has exercised its au-thority to regulate for attorneys, certifiedpublic accountants, and other specified taxprofessionals, regulations under Circular230 currently do not apply to a criticalgroup of tax professionals: tax return pre-parers. As discussed in the Report, tax-payers’ reliance on tax return preparershas grown steadily in recent decades. Thenumber of taxpayers who prepared theirown tax returns without assistance fell bymore than two-thirds between 1993 and2005. In fact, today, tax return preparersassist a majority of U.S. taxpayers in meet-ing their Federal tax filing obligations. In2008 and 2009, for example, paid tax re-turn preparers, including attorneys, certi-fied public accountants, enrolled agents,and unenrolled tax return preparers, pre-pared almost 60 percent of all federal taxreturns filed, including approximately 87million federal individual income tax re-turns. The IRS expects these numbers toincrease in 2010 and the coming years.

Tax return preparers are not only re-sponsible for assisting taxpayers in filingcomplete, timely, and accurate returns, butalso help educate taxpayers about the taxlaws, and facilitate electronic filing. Tax

return preparers provide advice to taxpay-ers, identify items or issues for which thelaw or guidance is unclear, and inform tax-payers of the benefits and risks of positionstaken on a tax return, and the tax treatmentor reporting of items and transactions. TheIRS and the Treasury Department recog-nize that the majority of tax return prepar-ers serve the interests of their clients andthe tax system by preparing complete andaccurate returns.

The tax system is best served by taxreturn preparers who are ethical, providegood service, and are qualified. Recentgovernment studies, including studiesfrom the Government Accountability Of-fice and the Treasury Inspector Generalfor Tax Administration, see, for example,Government Accountability Office, PaidTax Return Preparers: In a Limited Study,Chain Preparers Made Serious Errors,GAO–06–563T (Apr. 4, 2006); TreasuryInspector General for Tax Administra-tion, Most Tax Returns Prepared by aLimited Sample of Unenrolled PreparersContained Significant Errors, Rept. #2008–40–171 (Sept. 3, 2008), illustratethe losses incurred by both taxpayers andthe system of Federal tax administrationwhen tax return preparers fail to properlyprepare tax returns. Additionally, manyof the more than 500 public commentsreceived by the IRS during the agency’sreview of the return preparer industry ex-pressed concern for taxpayers, tax admin-istration and the return preparer industry,all of whom are hurt when tax returns arenot accurately prepared.

An overwhelming number of commen-tators (98 percent of the persons who of-fered comments on oversight and enforce-ment) supported increased governmentoversight of tax return preparers, particu-larly for individuals who are not attorneys,certified public accountants or others cur-rently authorized to practice before theIRS. These commentators argued that tax-payers, the IRS and tax administrationgenerally would benefit from the registra-tion of tax return preparers. Eighty-eightpercent of the persons who expressed anopinion on registering paid tax return pre-parers favor registration. Ninety percentof the persons who commented on testingand education favor minimum educationor testing requirements for paid tax return

preparers. And 98 percent of the personswho commented on quality and ethicsfavor establishment of quality and ethicsstandards for paid tax return preparers.

Because the IRS has not adopted auniform set of regulations for tax returnpreparers, the amount of oversight of taxreturn professionals varies greatly depend-ing on professional affiliations and thegeographic area in which they practice.Most tax return preparers do not have topass any government or professionallymandated competency requirement. Mosttax return preparers are not required toparticipate in a specified program of con-tinuing professional education. And theethical rules found in Circular 230 cur-rently are not applicable to all tax returnpreparers.

As such, the IRS recognizes the need toapply a uniform set of rules to offer tax-payers some assurance that their tax re-turns are prepared completely and accu-rately. Increasing the completeness and ac-curacy of returns would necessarily lead toincreased compliance with tax obligationsby taxpayers.

2. Potentially affected tax returns

These regulations generally extendpre-existing regulations that apply to at-torneys, certified public accountants andother specified tax professionals to taxreturn preparers, including currently unen-rolled tax return preparers, who prepare allor substantially all of a tax return or claimfor refund for compensation. The rulespotentially apply to all returns preparedby tax return preparers regardless of thetaxpayer. For example, the rules apply toself-employed tax return preparers whoprepare individual tax returns for personswho have only wage and interest income.The IRS is authorized to extend the appli-cation of the rule to corporate and largepartnership returns, which are preparedpredominately by tax return preparers em-ployed by large accounting firms. Theseexamples are nonexclusive and the ap-plication or potential application of theserules is not limited to only those tax returnpreparers covered by the examples.

The current expansion of these regu-lations to currently unenrolled tax returnpreparers will impact individual taxpayersmore than large corporate taxpayers.

July 5, 2011 10 2011–27 I.R.B.

3. An assessment of benefits anticipatedfrom the regulatory action

The primary benefit anticipated fromthese regulations is that they will improvethe accuracy, completeness, and timelinessof tax returns prepared by tax return pre-parers. As illustrated in the recent gov-ernment studies, including the IRS’ recentreview of the tax return preparer indus-try, inaccurate tax returns are costly bothto taxpayers and the government. Inaccu-rate returns may affect the finances of tax-payers, who might overpay their respec-tive share of taxes or fail to take advan-tage of available tax benefits. Inaccuratetax returns may also affect the U.S. gov-ernment because of overpayments, under-payments and increased costs of enforce-ment and collection.

The regulations are expected to im-prove the accuracy, completeness, andtimeliness of tax returns in a number ofways. First, requiring registered tax returnpreparers to demonstrate the necessaryqualifications to provide a valuable serviceby successfully completing a governmentor professionally mandated competencyexamination and continued competenceby completing the specified continuingeducation credits annually will result inmore competent and ethical tax return pre-parers who are well educated in the rulesand subject matter. A more competent andethical tax return preparer community willprevent costly errors, potentially savingtaxpayers from unwanted problems andrelieving the IRS from expending valu-able examination and collection resources.Thus, regulations are critical to assistingthe IRS curtail the activities of noncom-pliant and unethical tax return preparers.

Second, these regulations, in associ-ation with new and separate regulationsunder section 6109 requiring all individ-uals who prepare all or substantially all

of a tax return for compensation to ob-tain a PTIN, are expected to improve theaccuracy, completeness and timeliness oftax returns because they will help the IRSidentify tax return preparers and the taxreturns and claims for refund that theyprepare, which will aid the IRS’ oversightof tax return preparers, and to administerrequirements intended to ensure that taxreturn preparers are competent, trained,and conform to rules of practice. Individ-uals who prepare all or substantially allof a tax return or claim for refund will berequired to obtain a PTIN prescribed bythe IRS and furnish the PTIN when thetax return preparer signs (as the tax returnpreparer) a tax return or claim for refund.Given the important role that tax returnpreparers play in Federal tax administra-tion, the IRS has a significant interest inbeing able to accurately identify tax re-turn preparers and monitor the tax returnpreparation activities of these individuals.These regulations, in conjunction with thefinal PTIN regulations, will enable theIRS to more accurately identify tax returnpreparers and improve the IRS’ abilityto associate filed tax returns and refundclaims with the responsible tax return pre-parer.

Third, the regulations are expected toimprove the accuracy of tax returns by pro-viding that all registered tax return pre-parers are practicing before the IRS and,therefore, are practitioners subject to theethical standards of conduct in Circular230. This change will authorize the IRSto inquire into possible misconduct andinstitute disciplinary proceedings relatingto registered tax return preparer miscon-duct under the provisions of Circular 230.A registered tax return preparer who isshown to be incompetent or disreputable,fails to comply with the provisions in Cir-cular 230, or with intent to defraud, will-fully and knowingly misleads or threatens

a client or prospective client, is subject tocensure, suspension, or disbarment frompractice before the IRS, as well as a mon-etary penalty.

The availability of these sanctions willact as a deterrent to registered tax returnpreparers engaging in misconduct becausedisreputable or incompetent registered taxreturn preparers who are suspended or dis-barred from practice will no longer be ableto prepare tax returns, claims for refund,and other documents submitted to the IRS.Competent and ethical tax return preparerswho are well educated in the rules and sub-ject matter of their field can prevent costlyerrors, potentially saving a taxpayer fromunwanted problems later on and relievingthe IRS from expending valuable examina-tion and collection resources.

The IRS and the Treasury Departmentexpect that the largest marginal improve-ments in accuracy will be with regard totax returns prepared by tax return preparerswho previously were unregulated throughthe Circular 230 requirements. Unlike cer-tified public accountants, attorneys, andenrolled agents, unenrolled tax return pre-parers generally are not subject to any formof testing, continuing professional educa-tion, or uniform ethical standards. Thetax returns prepared by unenrolled tax re-turn preparers may involve tax issues thatare less complicated and smaller in amountthan issues in tax returns prepared by othertypes of tax professionals. In addition, in-dividual taxpayers may face a variety ofcomplex tax issues, for which the adviceof a qualified tax advisor will improve theaccuracy on the return.

4. An assessment of costs anticipated fromthe regulatory action

There are various costs anticipated fromthis regulatory action.

2011–27 I.R.B. 11 July 5, 2011

Cost Category Preliminary Cost Estimate

COMPETENCY EXAMINATION

• Costs to registered tax preparers: costs associated with tak-ing a minimum competency examination (including costs ofexamination, amount of time required to study for the exam,and any associated travel)

Costs to Registered Tax Return Preparers

The costs associated with competency examinations forregistered tax preparers are currently unknown. Thecompetency examination has not been developed and anexamination vendor has not been selected. The cost of theexamination and amount of time required to study for it,therefore, are unknown. The costs for any associated travel willdepend on what locations the test is offered in and how closethe applicant lives to those locations. While there is currentlyno vendor for the examination, it is expected that the vendorwill offer the test in many locations across the United States andmultiple locations outside the United States.

• Costs to vendors: user fee costs IRS will charge to recoverthe costs to third-party vendors who administer the registeredtax return preparer competency examination

Costs to Vendors

The vendor for the examination has not been selected so thesefees cannot yet be determined.

• Costs to government: costs associated with creating, admin-istrating, and reviewing competency exams

Costs to Government

These costs are currently unknown. The costs to the governmentwill depend, in part, on which functions will be performed by avendor. Also, the vendor may recover the vendor’s associatedcosts through a separate fee charged by the vendor.

PTIN

• Costs to registered tax preparers: user fees for applying fora PTIN and renewing a PTIN

Costs to Registered Tax Return Preparers and Certain OtherIndividuals Eligible to Receive a PTIN under Notice 2011–6

The fees registered tax preparers and certain other individualsunder Notice 2011–6 will face for applying for a PTIN andrenewing a PTIN is $64.25 annually. Given that there are anestimated 800,000 to 1,200,000 individuals who will apply foror renew a PTIN annually, we estimate that the aggregate annualPTIN registration costs will be from $51 million to $77 million.

• Costs to vendors: user fee assessed by third-party vendor toadminister the PTIN application and renewal process

Costs to Vendors

The fee charged by the vendor is $14.25. The $14.25 feereflects costs incurred by the vendor in processing a PTINapplication or renewal. Given that there are an estimated800,000 to 1,200,000 individuals who will apply for or renewa PTIN annually, we estimate that the aggregate annual PTINregistration costs will be from $11 million to $17 million.

July 5, 2011 12 2011–27 I.R.B.

• Costs to government: administration of PTIN registrationprogram

Costs to Government

The $50 annual fee is expected to recover the $59,427,633annual costs the government will face in its administration ofthe PTIN registration program. This fee includes: (1) the coststhe government faces in administering registration cards orcertificates for each registered tax preparer, (2) costs associatedwith prescribing by forms, instructions, or other guidancewhich forms and schedules registered tax preparers can signfor, and (3) tax compliance and suitability checks conductedby the government.

RECORDKEEPING

• Costs to continuing education providers: recordkeeping re-quirements on continuing education providers to maintainrecords and educational material concerning these programsand the individuals who attend them.

Costs to Continuing Education Providers

$38,632,500 annual costs

• Costs to registered tax preparers: recordkeeping require-ments on registered tax preparers to maintain records andeducational materials regarding the completion of the re-quired qualifying continuing education credits.

Costs to Registered Tax Return Preparers

$9,880,000 annual costs

CONTINUING EDUCATION

• Costs to registered tax preparers: completing continuing ed-ucation coursework requirement

Costs to Registered Tax Return Preparers

We do not have a cost estimate available for continuingeducation costs borne by the tax preparers. The cost ofcontinuing education courses generally range from $20 to $300per course.

• Costs to continuing education providers: obtaining requirednumbers from the IRS

Costs to Continuing Education Providers

Continuing education providers are not currently charged a feefor obtaining a provider number or program number.

FINGERPRINTING

• Costs to registered tax return preparers: fingerprinting

Costs to Registered Tax Return Preparers and Certain OtherIndividuals Eligible to Receive a PTIN under Notice 2011–6

The fees that will be imposed on registered tax return preparersand certain other individuals eligible to receive a PTIN underNotice 2011–6 for fingerprinting are not available becausethe vendor processing the fingerprinting check has not beenselected.

Tax return preparers will incur costsassociated with taking a minimum com-petency examination, including the costof the examination, the amount of timerequired to study for the examination, andany associated travel depending on theproximity of tax return preparer to the testsite location. Although it is anticipated

that the vendor will offer the test at mul-tiple locations in the United States andoutside the United States, the vendor andthe test locations have not been selectedat this time. Future regulations will beproposed that address the costs to the gov-ernment for creating, administering, andreviewing the examination and the user

fee the IRS will charge to recover thesecosts. The third-party vendor who helpsadminister the registered tax return pre-parer competency examination also willcharge a reasonable fee to take the regis-tered tax return preparer examination anda reasonable fee to be fingerprinted.

2011–27 I.R.B. 13 July 5, 2011

Additionally, preparers are subject touser fees for applying for a PTIN and re-newing the PTIN. Final regulations estab-lish a $50 fee to apply for a PTIN. A thirdparty vendor administers the PTIN appli-cation and renewal process and charges a$14.25 fee that is independent of the userfee charged by the government.

The PTIN user fee recovers the full costto the government to administer the PTINapplication and renewal program. The ad-ministration of the PTIN application andrenewal program requires the use of IRSservices, goods, and resources. For thePTIN application and renewal program tobe self-sustaining, the IRS must charge auser fee to recover the costs of providingthe special benefits associated with PTIN.A PTIN confers a special benefit becausewithout a PTIN, a tax return preparer couldnot receive compensation for preparing allor substantially all of a federal tax return orclaim for refund. This analysis is consis-tent with the current practice of charging auser fee on individuals seeking to becomeenrolled agents. Being an enrolled agentconfers special benefits; and, therefore, theIRS currently charges a user fee on appli-cants seeking those special benefits.

Tax return preparers will incur record-keeping and other costs associated withtaking continuing education classes andany associated travel. Section 10.6 ofthese final regulations requires a registeredtax return preparer to maintain recordsand educational materials regarding thecompletion of the required qualifying con-tinuing education credits. The IRS andthe Treasury Department estimate thatthere are 650,000 practitioners who will beaffected by these recordkeeping require-ments and the estimated annual burden perpractitioner will vary from 30 minutes toone hour, depending on individual circum-stances, with an estimated average of 54minutes. The total annual costs resultingfrom these recordkeeping requirementswill be $9,880,000 for all affected practi-tioners.

Continuing education providers will besubject to recordkeeping costs. Section10.9 of these final regulations requiresproviders of qualifying continuing edu-cation programs to maintain records andeducational material concerning theseprograms and the individuals who attendthem. Approximately 500 continuing ed-ucation providers are currently approved

to provide continuing education programsfor the approximately 50,000 enrolledagents, enrolled actuaries and enrolledretirement plan agents who must completecontinuing education currently, but theIRS and the Treasury Department estimatethat there are 2,250 continuing educa-tion providers who will be affected bythese recordkeeping requirements and theestimated annual burden per continuingeducation provider will vary from 5 hoursto 5,000 hours, depending on individualcircumstances, with an estimated averageof 500 hours. The estimated total annualcosts resulting from these requirementswill be $38,632,500 for all affected con-tinuing education providers.

Currently, the cost to the tax returnpreparer of any particular continuing ed-ucation course can vary greatly from freeto hundreds of dollars. Many tax returnpreparation firms either provide continu-ing education courses at the firm to theiremployees for no charge or sponsor thecost of external courses for their employ-ees. Other tax return preparers, however,will have to personally pay the cost ofeach continuing education course, whichgenerally ranges anywhere from $20 to$300 per course depending on whetherthe continuing education provider offersthe course in person, online, or over thephone. Tax return preparers also may in-cur additional costs if they travel to attendcontinuing education programs. Thesecosts may include the time to travel tothe program, transportation, lodging andincidentals.

Entities may be directly affected by thecompetency examination, PTIN and con-tinuing education costs if they choose topay any or all of the user fees or expensesfor their employees. Some individualsand entities also may lose sales and prof-its while preparers are studying and sittingfor the examination or taking the continu-ing education courses. Finally, individualtax return preparers and entities that em-ploy individuals who prepare tax returnsmay need to close or change their businessmodel if all, or a majority, of their employ-ees cannot satisfy the necessary qualifica-tions and competency requirements. TheIRS and the Treasury Department believethat only a small percentage of tax returnpreparers will need to close or change theirbusiness model based upon these rules.

5. An assessment of costs and benefits ofpotential alternatives

The IRS and the Treasury Depart-ment considered various alternatives indetermining the best ways to implementproposed changes to the regulation of taxreturn preparers. In order to place thecosts and benefits of the final rule in con-text, E.O. 12866 requires a comparisonbetween the final rule, a baseline of whatthe world would look like without the fi-nal rule, and reasonable alternatives to theproposed rule.

i. Baseline scenario

Under a baseline scenario, the currentethical standards in Circular 230 wouldcontinue to apply only to attorneys, cer-tified public accountants, enrolled agents,and other practitioners who prepare tax re-turns and claims for refund, but not to un-enrolled tax return preparers. Also, anyunenrolled tax return preparer under thisbaseline scenario would be able to prepareand sign tax returns and claims for refundwithout passing an examination to estab-lish competence or satisfying continuingeducation requirements.

Remaining under the current rules re-garding tax return preparers would elimi-nate the benefits of the rule described insection A3 of this preamble. For example,under the baseline, OPR would not be au-thorized to institute disciplinary proceed-ings seeking sanctions against unenrolledtax return preparers.

Continuing to authorize any individualto prepare tax returns and claims for refundfor compensation without passing an ex-amination or taking continuing educationcourses also would eliminate any costs as-sociated with the rule described in sectionA4 of this preamble. Tax return preparers,however, would still potentially be subjectto user fees for obtaining a PTIN and re-newing the PTIN if other Treasury Depart-ment and IRS regulations specifically pre-scribed those fees.

ii. Alternative one

The first alternative that was consideredis to require all tax return preparers to com-ply with the ethical standards in Circular230, but not to require any tax return pre-parer to pass an examination and completecontinuing education courses. Under this

July 5, 2011 14 2011–27 I.R.B.

alternative, the provisions of the rule clar-ifying that tax return preparers are subjectto the ethical rules in Circular 230 wouldremain intact, but all of the other changeswould not be adopted.

The benefits resulting from this alter-native would likely be less than the ben-efits resulting from these regulations be-cause tax return preparers would not needto meet a minimum competency level andkeep educated and up-to-date on Federaltax issues. The most significant drawbackto this alternative is the potential loss ofthese benefits and the benefits that resultfrom monitoring the return preparation ac-tivities of tax return preparers generally.Under this alternative, however, tax returnpreparers would not incur the majority ofcosts that exist under the regulations.

iii. Alternative two

A second alternative is to require tax re-turn preparers who are not currently autho-rized to practice before the IRS to applyfor such authorization with the IRS, satisfyannual continuing education requirements,and meet certain ethical standards, but notto pass a minimum competency examina-tion. This alternative is identical to the reg-ulations other than requiring certain pre-parers to successfully pass an examinationadministered by, or under the oversight of,the IRS.

The benefits resulting from this alter-native are more comparable to the bene-fits in the regulations than under alterna-tive one. Nevertheless, the lack of an ex-amination would not be as effective in en-suring that tax return preparers are quali-fied to obtain professional credentials andpractice before the IRS. Tax return prepar-ers under this alternative would incur all ofthe same costs that are in the regulationsother than the costs associated with takingthe examination.

iv. Alternative three

A third alternative is to “grandfatherin” unenrolled tax return preparers whohave accurately and competently preparedtax returns for a certain amount of years.This alternative is the same as the rulesin the regulations other than authorizingsome unenrolled return preparers whohave a specified amount of prior expe-rience preparing tax returns and claimsfor refund to continue to prepare and sign

returns without passing a minimum com-petency examination.

The benefits resulting from this alter-native would likely be less than the ben-efits resulting from these regulations be-cause the IRS and the Treasury Depart-ment believe a minimum level of compe-tency needs to be assured through exam-ination. Additionally, this alternative isnot as likely to promote the same taxpayerconfidence in the tax return preparationcommunity as the regulations, which may,in turn, influence taxpayers when choosinga tax return preparer. Tax return prepar-ers under this alternative would incur allof the same costs that are in the regulationsexcept certain unenrolled preparers wouldavoid the costs associated with taking theexamination.

v. Alternative four

A fourth alternative is to require alltax return preparers, regardless of whetherthe tax return preparer is supervised, tocomplete the competency examination andcontinuing education requirements. Thisalternative is identical to the proposed reg-ulations, which proposed requiring all un-enrolled tax return preparers to meet theexamination and education requirements.

Numerous commentators suggestedthat the costs of requiring testing and con-tinuing education for tax return preparerswho are supervised by attorneys, certifiedpublic accountants and enrolled agentsoutweighed the attendant benefits. Afterfully considering these comments, the IRSdecided that the best alternative was notrequiring testing and continuing educationfor tax return preparers who are employedby law firms, certified public accountingfirms and certain other recognized firmsand are supervised by attorneys, certifiedpublic accountants, enrolled agents, en-rolled retirement plan agents and enrolledactuaries who sign the returns that theseindividuals prepare.

B. Final Regulatory Flexibility Analysis

When an agency promulgates a finalregulation that follows a required noticeof proposed rulemaking, the RegulatoryFlexibility Act (5 U.S.C. chapter 6) (RFA)requires the agency “to prepare a final reg-ulatory flexibility analysis.” A final reg-ulatory flexibility analysis must, pursuant

to 5 U.S.C. 604(a), contain the five ele-ments listed in this final regulatory flex-ibility analysis. Section 605 of the RFAprovides an exception to this requirementif the agency certifies that the rulemakingwill not have a significant economic im-pact on a substantial number of small en-tities. A small entity is defined as a smallbusiness, small nonprofit organization, orsmall governmental jurisdiction. See 5U.S.C. 601(3) through (6). The IRS andthe Treasury Department conclude that thefinal regulations will impact a substantialnumber of small entities and the economicimpact will be significant. As a result, aregulatory flexibility analysis is required.

1. Statement of the need for and objectivesof the proposed rule

Tax return preparers are critical to en-suring compliance with the Federal taxlaws and are an important component inthe IRS’ administration of those laws.More than eighty percent of U.S. taxpay-ers use a tax return preparer or consumertax return preparation software to helpprepare and file tax returns. Most taxreturn preparers are currently not subjectto the ethical rules governing practice be-fore the IRS and do not have to pass anycompetency requirement established bythe government or a professional organi-zation. After completing a comprehensivesix-month review of tax return preparers,which included receiving input throughpublic forums, solicitation of written com-ments, and meetings with advisory groups,the IRS concluded that there is a needfor increased oversight of the tax returnpreparer industry.

The principal objective of the regula-tions is to increase oversight of tax re-turn preparers and to provide guidance totax return preparers about the new require-ments imposed on them under Circular230. These regulations implement higherstandards for the tax return preparer com-munity with the goal of significantly en-hancing protections and service for tax-payers, increasing confidence in the taxsystem, and resulting in greater long-termcompliance with the tax laws.

Specifically, the regulations clarifythat a registered tax return preparer is apractitioner practicing before the IRS andthereby is subject to the ethical rules inCircular 230. The regulations require a

2011–27 I.R.B. 15 July 5, 2011

registered tax return preparer to demon-strate the necessary qualifications andcompetency to advise and assist otherpersons in the preparation of all or sub-stantially all of a tax return or claim forrefund.

2. Summaries of the significant issuesraised in the public comments respondingto the initial regulatory flexibility analysisand of the agency’s assessment of theissues, and a statement of any changes tothe rule as a result of the comments

The IRS did not receive specific com-ments from the public responding to theinitial regulatory flexibility analysis inthese final regulations. The IRS did re-ceive comments from the public on theproposed amendments to 31 CFR part 10.A summary of the comments is set forthelsewhere in this preamble, along withthe Treasury Department’s and the IRS’assessment of the issues raised in the com-ments and descriptions of any revisionsresulting from the comments.

3. Description and estimate of the numberof small entities subject to the rule

The regulations affect individuals cur-rently working as paid tax return prepar-ers, individuals who want to become desig-nated as a registered tax return preparer un-der the new oversight rules in Circular 230,and those small entities that are owned byor employ paid preparers. Only individ-uals, not businesses, can practice beforethe IRS or become a registered tax returnpreparer. Thus, the economic impact ofthese regulations on any small entity gen-erally will be a result of an unenrolled in-dividual owning a small business or on asmall business that otherwise employs un-enrolled paid return preparers.

The appropriate North American In-dustry Classification System (NAICS)codes for tax return preparers relate totax preparation services (NAICS code541213) and other accounting services(NAICS code 541219). Entities identifiedunder these codes are considered smallunder the Small Business Administrationsize standards (13 CFR 121.201) if theirannual revenue is less than $7 million or$8.5 million, respectively. The IRS esti-mates that approximately seventy to eightypercent of the individuals subject to these

regulations are paid preparers operating asor employed by small entities.

4. Description of the projected reporting,recordkeeping and related requirementsof the rule, including an estimate ofthe classes of small entities that willbe subject to the requirements and thetype of professional skills necessary forpreparation of the report or record

The IRS estimates that there are approx-imately 600,000 to 700,000 unenrolledtax return preparers who are currently notattorneys, certified public accountants, orenrolled agents and who will seek statusas a registered tax return preparer. Underthe regulations, tax return preparers whobecome registered tax return preparers aresubject to a recordkeeping requirementwithin the meaning of the Paperwork Re-duction Act because they are required tomaintain records and educational materialsregarding their satisfaction of the quali-fying continuing education requirements.These recordkeeping requirements do notrequire any specific professional skillsother than general recordkeeping skillsalready needed to own and operate a smallbusiness or to competently act as a taxreturn preparer. It is estimated that practi-tioners will annually spend approximately30 minutes to one hour in maintaining therequired records, depending on individualcircumstances.

The estimated 2,250 providers of qual-ifying continuing education programs willbe required to maintain records and educa-tional material concerning these programsand the persons who attended them. Thesecontinuing education providers will annu-ally spend approximately five minutes perattendee per program maintaining the re-quired records.

As previously discussed in sectionA4 of this preamble, the rule contains anumber of other compliance requirementsnot subject to the Paperwork ReductionAct. These include the costs tax returnpreparers incur to take a competency ex-amination, costs for continuing educationclasses, and other incidental costs and userfees. Small entities may be directly af-fected by these costs if they choose to payany or all of these fees for their employees.In some cases, small entities may lose salesand profits while their employees preparefor and take the examination or participate

in continuing education courses. Finally,some small entities that employ individ-uals who prepare tax returns may needto alter their business model if a signif-icant number of their employees cannotsatisfy the necessary qualifications andcompetency requirements. The IRS andthe Treasury Department believe that onlya small percentage of small entities, ifany, may need to cease doing business orradically change their business model dueto these rules.

5. A description of the steps the agencyhas taken to minimize the significanteconomic impact on small entitiesconsistent with the stated objectives ofapplicable statutes, including a statementof the factual, policy, and legal reasonsfor selecting any alternative adopted inthe final rule and why other significantalternatives affecting the impact on smallentities that the agency considered wererejected

The Treasury Department and the IRShave considered alternatives to the finalregulations at multiple points. These finalregulations are, in large measure, an out-growth of, and in part carry out, the Report,which extensively reviewed different ap-proaches to improving how the IRS over-sees and interacts with tax return prepar-ers. As part of the Report, the IRS receiveda large volume of comments on the over-sight and enforcement of tax return pre-parers from all interested parties, includingtax professional groups representing largeand small entities, Federal and state orga-nizations, IRS advisory groups, softwarevendors, individual return preparers, andthe public. The input received from thislarge and diverse community overwhelm-ingly expressed support for the require-ments proposed in the Report.

In concert with this tremendous pub-lic support for increased IRS oversight oftax return preparers, the IRS and the Trea-sury Department considered various alter-natives in determining the best ways to im-plement proposed changes to the regula-tion of paid preparers. These alternativesincluded:

(1) Requiring all tax return preparers tocomply with the ethical standards in Cir-cular 230 or a code of ethics similar toCircular 230, but not requiring any tax re-

July 5, 2011 16 2011–27 I.R.B.

turn preparers to demonstrate their qualifi-cations and competency;

(2) Requiring tax return preparers whoare not currently authorized to practice be-fore the IRS to apply for authorization withthe IRS, satisfy annual continuing educa-tion requirements, and meet certain ethicalstandards, but not to pass a minimum com-petency examination;

(3) Requiring all tax return preparerswho are not currently authorized to prac-tice before the IRS to pass a minimumcompetency examination and meet otherrequirements, but “grandfather in” tax re-turn preparers who have accurately andcompetently prepared tax returns for a cer-tain number of years; and

(4) Requiring all unenrolled tax returnpreparers to complete testing and continu-ing education requirements.

The proposed regulations proposed thatall unenrolled tax return preparers mustcomplete testing and continuing educationrequirements. Many commentators on theproposed regulations expressed supportfor efforts to increase the oversight oftax return preparers, particularly for thosewho are not attorneys, certified public ac-countants, or other individuals previouslyauthorized to practice before the IRS. Asdiscussed in this preamble, many com-mentators requested, however, that theIRS exempt individuals who prepare taxreturns under the supervision of Circular230 practitioners from the requirementsof these regulations. These commenta-tors were concerned that unnecessary timeand cost would be incurred with respectto the testing and continuing educationrequirements for individuals who do notsign tax returns but prepare them underthe supervision of a practitioner ultimatelyresponsible for the tax return. In responseto these comments, the IRS publishedNotice 2011–6, generally allowing indi-viduals to obtain PTINs if the individualsare employed by law firms, certified pub-lic accounting firms and certain otherrecognized firms and who are supervisedby attorneys, certified public accountants,enrolled agents, enrolled retirement planagents and enrolled actuaries who signthe returns that these individuals prepare.This step taken by the IRS will minimizethe economic impact of these regulationson many small entities in which attorneys,certified public accountants, enrolledagents, enrolled retirement plan agents, or

enrolled actuaries supervise and sign taxreturns prepared individuals who are notattorneys, certified public accountants, orenrolled agents.

The IRS also received comments ob-jecting to the rule in the proposed reg-ulations requiring continuing educationproviders to obtain continuing educationprogram approval from the IRS for eachcontinuing education program offered.In response to these comments the IRS,the IRS eliminated such a requirement.This step taken by the IRS will minimizethe economic impact of these regulationson some small entities that offer contin-uing education programs. These regu-lations do require continuing educationproviders to obtain a continuing educationprovider number and a continuing educa-tion provider program number. Althoughthe IRS is not currently proposing charg-ing providers a fee to obtain a continuingeducation provider number or a continu-ing education provider program number,these regulations provide that the paymentof any applicable user fee established infuture regulations is required to obtaineither number.

The Treasury Department and the IRSare not aware of any additional steps thatthe IRS could take to minimize the eco-nomic impact on small entities that wouldbe consistent with the objectives of thesefinal regulations. These regulations do notimpose any more requirements on smallentities than are necessary to effectivelyadminister the internal revenue laws. Fur-ther, the regulations do not subject smallentities to requirements that are not alsoapplicable to larger entities covered by theregulations.

After considering the alternatives andthe input provided through the public com-ment process, the IRS and the TreasuryDepartment concluded that the provisionsof the final regulations are necessary forsound tax administration and are the bestway to increase oversight of all paid pre-parers. The testing requirements in therules will ensure that tax return prepar-ers pass a minimum competency exami-nation to obtain their professional creden-tials, while the continuing education re-quirements will help ensure that tax re-turn preparers remain current on Federaltax law and continue to expand their taxknowledge. The extension of the rulesin Circular 230 to registered tax return

preparers will require all practitioners tomeet certain ethical standards and allowthe IRS to suspend or otherwise disciplinetax return preparers who engage in un-ethical or disreputable conduct. Accord-ingly, the implementation of the qualifi-cation and competency standards in theserules is expected to increase taxpayer com-pliance, ensure uniformity, and allow tax-payers to be confident that the tax returnpreparers to whom they turn for assistanceare knowledgeable, skilled and ethical.

Drafting Information

The principal author of these regula-tions is Matthew D. Lucey of the Officeof the Associate Chief Counsel (Procedureand Administration).

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 31 CFR part 10 isamended to read as follows:

PART 10—PRACTICE BEFORE THEINTERNAL REVENUE SERVICE

Paragraph 1. The authority citation for31 CFR part 10 is revised to read as fol-lows:

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 FR4935, 64 Stat. 1280, 3 CFR, 1949–1953Comp., p. 1017.

Par. 2. Section 10.0 is revised to readas follows:

§10.0 Scope of part.

(a) This part contains rules governingthe recognition of attorneys, certified pub-lic accountants, enrolled agents, enrolledretirement plan agents, registered tax re-turn preparers, and other persons repre-senting taxpayers before the Internal Rev-enue Service. Subpart A of this part setsforth rules relating to the authority to prac-tice before the Internal Revenue Service;subpart B of this part prescribes the dutiesand restrictions relating to such practice;subpart C of this part prescribes the sanc-tions for violating the regulations; subpartD of this part contains the rules applicableto disciplinary proceedings; and subpart E

2011–27 I.R.B. 17 July 5, 2011

of this part contains general provisions re-lating to the availability of official records.

(b) Effective/applicability date. Thissection is applicable beginning August 2,2011.

Par. 3. Section 10.1 is revised to readas follows:

§10.1 Offices.

(a) Establishment of office(s). TheCommissioner shall establish the Office ofProfessional Responsibility and any otheroffice(s) within the Internal Revenue Ser-vice necessary to administer and enforcethis part. The Commissioner shall appointthe Director of the Office of ProfessionalResponsibility and any other Internal Rev-enue official(s) to manage and direct anyoffice(s) established to administer or en-force this part. Offices established underthis part include, but are not limited to:

(1) The Office of Professional Re-sponsibility, which shall generally haveresponsibility for matters related to prac-titioner conduct and discipline, includingdisciplinary proceedings and sanctions;and

(2) An office with responsibility formatters related to authority to practice be-fore the Internal Revenue Service, includ-ing acting on applications for enrollmentto practice before the Internal RevenueService and administering competencytesting and continuing education.

(b) Officers and employees within anyoffice established under this part may per-form acts necessary or appropriate to carryout the responsibilities of their office(s)under this part or as otherwise prescribedby the Commissioner.

(c) Acting. The Commissioner will des-ignate an officer or employee of the In-ternal Revenue Service to perform the du-ties of an individual appointed under para-graph (a) of this section in the absence ofthat officer or employee or during a va-cancy in that office.

(d) Effective/applicability date. Thissection is applicable beginning August 2,2011.

Par. 4. Section 10.2 is amended by re-vising paragraphs (a)(4) and (a)(5), addingparagraph (a)(8), and revising paragraph(b) to read as follows:

§10.2 Definitions.

(a) * * *

(4) Practice before the Internal Rev-enue Service comprehends all matters con-nected with a presentation to the Inter-nal Revenue Service or any of its offi-cers or employees relating to a taxpayer’srights, privileges, or liabilities under lawsor regulations administered by the Inter-nal Revenue Service. Such presentationsinclude, but are not limited to, preparingdocuments; filing documents; correspond-ing and communicating with the InternalRevenue Service; rendering written advicewith respect to any entity, transaction, planor arrangement, or other plan or arrange-ment having a potential for tax avoidanceor evasion; and representing a client atconferences, hearings, and meetings.

(5) Practitioner means any individualdescribed in paragraphs (a), (b), (c), (d),(e), or (f) of §10.3.

* * * * *(8) Tax return preparer means any in-

dividual within the meaning of section7701(a)(36) and 26 CFR 301.7701–15.

(b) Effective/applicability date. Thissection is applicable beginning August 2,2011.

Par. 5. Section 10.3 is amended by:1. Revising paragraphs (d)(3) and (e)(3);2. Redesignating paragraphs (f), (g), (h),

and (i) as paragraphs (g), (h), (i), and (j)respectively;

3. Adding new paragraph (f); and4. Revising newly designated paragraph

(j).The revisions and additions read as fol-

lows:

§10.3 Who may practice.

* * * * *(d) * * *(3) An individual who practices before

the Internal Revenue Service pursuant toparagraph (d)(1) of this section is subjectto the provisions of this part in the samemanner as attorneys, certified public ac-countants, enrolled agents, enrolled retire-ment plan agents, and registered tax returnpreparers.

(e) * * *(3) An individual who practices before

the Internal Revenue Service pursuant toparagraph (e)(1) of this section is subjectto the provisions of this part in the samemanner as attorneys, certified public ac-countants, enrolled agents, enrolled actu-aries, and registered tax return preparers.

(f) Registered tax return preparers. (1)Any individual who is designated as aregistered tax return preparer pursuant to§10.4(c) of this part who is not currentlyunder suspension or disbarment from prac-tice before the Internal Revenue Servicemay practice before the Internal RevenueService.

(2) Practice as a registered tax returnpreparer is limited to preparing and sign-ing tax returns and claims for refund, andother documents for submission to the In-ternal Revenue Service. A registered taxreturn preparer may prepare all or substan-tially all of a tax return or claim for refundof tax. The Internal Revenue Service willprescribe by forms, instructions, or otherappropriate guidance the tax returns andclaims for refund that a registered tax re-turn preparer may prepare and sign.

(3) A registered tax return preparer mayrepresent taxpayers before revenue agents,customer service representatives, or sim-ilar officers and employees of the Inter-nal Revenue Service (including the Tax-payer Advocate Service) during an exami-nation if the registered tax return preparersigned the tax return or claim for refund forthe taxable year or period under examina-tion. Unless otherwise prescribed by reg-ulation or notice, this right does not per-mit such individual to represent the tax-payer, regardless of the circumstances re-quiring representation, before appeals of-ficers, revenue officers, Counsel or sim-ilar officers or employees of the InternalRevenue Service or the Treasury Depart-ment. A registered tax return preparer’sauthorization to practice under this partalso does not include the authority to pro-vide tax advice to a client or another personexcept as necessary to prepare a tax return,claim for refund, or other document in-tended to be submitted to the Internal Rev-enue Service.

(4) An individual who practices beforethe Internal Revenue Service pursuant toparagraph (f)(1) of this section is subject tothe provisions of this part in the same man-ner as attorneys, certified public accoun-tants, enrolled agents, enrolled retirementplan agents, and enrolled actuaries.

* * * * *(j) Effective/applicability date. This

section is generally applicable beginningAugust 2, 2011.

July 5, 2011 18 2011–27 I.R.B.

Par. 6. Section 10.4 is revised to readas follows:

§10.4 Eligibility to become an enrolledagent, enrolled retirement plan agent, orregistered tax return preparer.

(a) Enrollment as an enrolled agentupon examination. The Commissioner,or delegate, will grant enrollment as anenrolled agent to an applicant eighteenyears of age or older who demonstratesspecial competence in tax matters bywritten examination administered by, oradministered under the oversight of, theInternal Revenue Service, who possessesa current or otherwise valid preparer taxidentification number or other prescribedidentifying number, and who has not en-gaged in any conduct that would justifythe suspension or disbarment of any prac-titioner under the provisions of this part.

(b) Enrollment as a retirement planagent upon examination. The Commis-sioner, or delegate, will grant enrollmentas an enrolled retirement plan agent to anapplicant eighteen years of age or olderwho demonstrates special competencein qualified retirement plan matters bywritten examination administered by, oradministered under the oversight of, theInternal Revenue Service, who possessesa current or otherwise valid preparer taxidentification number or other prescribedidentifying number, and who has not en-gaged in any conduct that would justifythe suspension or disbarment of any prac-titioner under the provisions of this part.

(c) Designation as a registered taxreturn preparer. The Commissioner, ordelegate, may designate an individualeighteen years of age or older as a reg-istered tax return preparer provided anapplicant demonstrates competence inFederal tax return preparation matters bywritten examination administered by, oradministered under the oversight of, theInternal Revenue Service, or otherwisemeets the requisite standards prescribedby the Internal Revenue Service, possessesa current or otherwise valid preparer taxidentification number or other prescribedidentifying number, and has not engagedin any conduct that would justify the sus-pension or disbarment of any practitionerunder the provisions of this part.

(d) Enrollment of former Internal Rev-enue Service employees. The Commis-

sioner, or delegate, may grant enrollmentas an enrolled agent or enrolled retirementplan agent to an applicant who, by virtue ofpast service and technical experience in theInternal Revenue Service, has qualified forsuch enrollment and who has not engagedin any conduct that would justify the sus-pension or disbarment of any practitionerunder the provisions of this part, under thefollowing circumstances:

(1) The former employee applies forenrollment on an Internal Revenue Ser-vice form and supplies the information re-quested on the form and such other infor-mation regarding the experience and train-ing of the applicant as may be relevant.

(2) The appropriate office of the Inter-nal Revenue Service provides a detailedreport of the nature and rating of the ap-plicant’s work while employed by the In-ternal Revenue Service and a recommen-dation whether such employment qualifiesthe applicant technically or otherwise forthe desired authorization.

(3) Enrollment as an enrolled agentbased on an applicant’s former employ-ment with the Internal Revenue Servicemay be of unlimited scope or it may belimited to permit the presentation of mat-ters only of the particular specialty or onlybefore the particular unit or division ofthe Internal Revenue Service for whichthe applicant’s former employment hasqualified the applicant. Enrollment as anenrolled retirement plan agent based on anapplicant’s former employment with theInternal Revenue Service will be limitedto permit the presentation of matters onlywith respect to qualified retirement planmatters.

(4) Application for enrollment as an en-rolled agent or enrolled retirement planagent based on an applicant’s former em-ployment with the Internal Revenue Ser-vice must be made within three years fromthe date of separation from such employ-ment.

(5) An applicant for enrollment as anenrolled agent who is requesting suchenrollment based on former employmentwith the Internal Revenue Service musthave had a minimum of five years con-tinuous employment with the InternalRevenue Service during which the appli-cant must have been regularly engaged inapplying and interpreting the provisionsof the Internal Revenue Code and the reg-

ulations relating to income, estate, gift,employment, or excise taxes.

(6) An applicant for enrollment as anenrolled retirement plan agent who is re-questing such enrollment based on formeremployment with the Internal RevenueService must have had a minimum of fiveyears continuous employment with theInternal Revenue Service during whichthe applicant must have been regularlyengaged in applying and interpreting theprovisions of the Internal Revenue Codeand the regulations relating to qualifiedretirement plan matters.

(7) For the purposes of paragraphs(d)(5) and (6) of this section, an aggregateof 10 or more years of employment inpositions involving the application and in-terpretation of the provisions of the Inter-nal Revenue Code, at least three of whichoccurred within the five years precedingthe date of application, is the equivalent offive years continuous employment.

(e) Natural persons. Enrollment or au-thorization to practice may be granted onlyto natural persons.

(f) Effective/applicability date. Thissection is applicable beginning August 2,2011.

Par. 7. Section 10.5 is revised to readas follows:

§10.5 Application to become an enrolledagent, enrolled retirement plan agent, orregistered tax return preparer.

(a) Form; address. An applicant to be-come an enrolled agent, enrolled retire-ment plan agent, or registered tax returnpreparer must apply as required by formsor procedures established and publishedby the Internal Revenue Service, includingproper execution of required forms underoath or affirmation. The address on the ap-plication will be the address under whicha successful applicant is enrolled or regis-tered and is the address to which all corre-spondence concerning enrollment or regis-tration will be sent.

(b) Fee. A reasonable nonrefundablefee may be charged for each application tobecome an enrolled agent, enrolled retire-ment plan agent, or registered tax returnpreparer. See 26 CFR part 300.

(c) Additional information; examina-tion. The Internal Revenue Service mayrequire the applicant, as a condition to con-sideration of an application, to file addi-

2011–27 I.R.B. 19 July 5, 2011

tional information and to submit to anywritten or oral examination under oath orotherwise. Upon the applicant’s writtenrequest, the Internal Revenue Service willafford the applicant the opportunity to beheard with respect to the application.

(d) Compliance and suitability checks.(1) As a condition to consideration of anapplication, the Internal Revenue Servicemay conduct a Federal tax compliancecheck and suitability check. The tax com-pliance check will be limited to an inquiryregarding whether an applicant has filedall required individual or business tax re-turns and whether the applicant has failedto pay, or make proper arrangements withthe Internal Revenue Service for paymentof, any Federal tax debts. The suitabilitycheck will be limited to an inquiry regard-ing whether an applicant has engaged inany conduct that would justify suspensionor disbarment of any practitioner under theprovisions of this part on the date the ap-plication is submitted, including whetherthe applicant has engaged in disreputableconduct as defined in §10.51. The appli-cation will be denied only if the resultsof the compliance or suitability check aresufficient to establish that the practitionerengaged in conduct subject to sanctionsunder §§10.51 and 10.52.

(2) If the applicant does not pass the taxcompliance or suitability check, the appli-cant will not be issued an enrollment orregistration card or certificate pursuant to§10.6(b) of this part. An applicant who isinitially denied enrollment or registrationfor failure to pass a tax compliance checkmay reapply after the initial denial if theapplicant becomes current with respect tothe applicant’s tax liabilities.

(e) Temporary recognition. On receiptof a properly executed application, theCommissioner, or delegate, may grant theapplicant temporary recognition to prac-tice pending a determination as to whetherstatus as an enrolled agent, enrolled retire-ment plan agent, or registered tax returnpreparer should be granted. Temporaryrecognition will be granted only in unusualcircumstances and it will not be granted,in any circumstance, if the application isnot regular on its face, if the informationstated in the application, if true, is not suf-ficient to warrant granting the applicationto practice, or the Commissioner, or del-egate, has information indicating that thestatements in the application are untrue

or that the applicant would not otherwisequalify to become an enrolled agent, en-rolled retirement plan agent, or registeredtax return preparer. Issuance of temporaryrecognition does not constitute either adesignation or a finding of eligibility asan enrolled agent, enrolled retirement planagent, or registered tax return preparer,and the temporary recognition may bewithdrawn at any time.

(f) Protest of application denial. Theapplicant will be informed in writing as tothe reason(s) for any denial of an applica-tion. The applicant may, within 30 daysafter receipt of the notice of denial of theapplication, file a written protest of the de-nial as prescribed by the Internal RevenueService in forms, guidance, or other appro-priate guidance. A protest under this sec-tion is not governed by subpart D of thispart.

(g) Effective/applicability date. Thissection is applicable to applications re-ceived August 2, 2011.

Par. 8. Section 10.6 is revised to readas follows:

§10.6 Term and renewal of status as anenrolled agent, enrolled retirement planagent, or registered tax return preparer.

(a) Term. Each individual authorized topractice before the Internal Revenue Ser-vice as an enrolled agent, enrolled retire-ment plan agent, or registered tax returnpreparer will be accorded active enroll-ment or registration status subject to re-newal of enrollment or registration as pro-vided in this part.

(b) Enrollment or registration card orcertificate. The Internal Revenue Servicewill issue an enrollment or registrationcard or certificate to each individual whoseapplication to practice before the Inter-nal Revenue Service is approved. Eachcard or certificate will be valid for theperiod stated on the card or certificate. Anenrolled agent, enrolled retirement planagent, or registered tax return preparermay not practice before the Internal Rev-enue Service if the card or certificate isnot current or otherwise valid. The card orcertificate is in addition to any notificationthat may be provided to each individualwho obtains a preparer tax identificationnumber.

(c) Change of address. An enrolledagent, enrolled retirement plan agent, or

registered tax return preparer must sendnotification of any change of address tothe address specified by the Internal Rev-enue Service within 60 days of the changeof address. This notification must includethe enrolled agent’s, enrolled retirementplan agent’s, or registered tax return pre-parer’s name, prior address, new address,tax identification number(s) (includingpreparer tax identification number), andthe date the change of address is effective.Unless this notification is sent, the addressfor purposes of any correspondence fromthe appropriate Internal Revenue Serviceoffice responsible for administering thispart shall be the address reflected on thepractitioner’s most recent application forenrollment or registration, or applicationfor renewal of enrollment or registration.A practitioner’s change of address notifi-cation under this part will not constitutea change of the practitioner’s last knownaddress for purposes of section 6212 ofthe Internal Revenue Code and regulationsthereunder.

(d) Renewal—(1) In general. Enrolledagents, enrolled retirement plan agents,and registered tax return preparers mustrenew their status with the Internal Rev-enue Service to maintain eligibility topractice before the Internal Revenue Ser-vice. Failure to receive notification fromthe Internal Revenue Service of the re-newal requirement will not be justificationfor the individual’s failure to satisfy thisrequirement.

(2) Renewal period for enrolled agents.(i) All enrolled agents must renew theirpreparer tax identification number as pre-scribed by forms, instructions, or other ap-propriate guidance.

(ii) Enrolled agents who have a so-cial security number or tax identificationnumber that ends with the numbers 0,1, 2, or 3, except for those individualswho received their initial enrollment af-ter November 1, 2003, must apply forrenewal between November 1, 2003, andJanuary 31, 2004. The renewal will beeffective April 1, 2004.

(iii) Enrolled agents who have a so-cial security number or tax identifica-tion number that ends with the numbers4, 5, or 6, except for those individualswho received their initial enrollment af-ter November 1, 2004, must apply forrenewal between November 1, 2004, and

July 5, 2011 20 2011–27 I.R.B.

January 31, 2005. The renewal will beeffective April 1, 2005.

(iv) Enrolled agents who have a so-cial security number or tax identifica-tion number that ends with the numbers7, 8, or 9, except for those individualswho received their initial enrollment af-ter November 1, 2005, must apply forrenewal between November 1, 2005, andJanuary 31, 2006. The renewal will beeffective April 1, 2006.

(v) Thereafter, applications for renewalas an enrolled agent will be required be-tween November 1 and January 31 of ev-ery subsequent third year as specified inparagraph (d)(2)(i), (d)(2)(ii), or (d)(2)(iii)of this section according to the last numberof the individual’s social security numberor tax identification number. Those indi-viduals who receive initial enrollment asan enrolled agent after November 1 and be-fore April 2 of the applicable renewal pe-riod will not be required to renew their en-rollment before the first full renewal pe-riod following the receipt of their initialenrollment.

(3) Renewal period for enrolled retire-ment plan agents. (i) All enrolled retire-ment plan agents must renew their preparertax identification number as prescribed bythe Internal Revenue Service in forms, in-structions, or other appropriate guidance.

(ii) Enrolled retirement plan agentswill be required to renew their status asenrolled retirement plan agents betweenApril 1 and June 30 of every third yearsubsequent to their initial enrollment.

(4) Renewal period for registered tax re-turn preparers. Registered tax return pre-parers must renew their preparer tax iden-tification number and their status as a reg-istered tax return preparer as prescribed bythe Internal Revenue Service in forms, in-structions, or other appropriate guidance.

(5) Notification of renewal. After re-view and approval, the Internal RevenueService will notify the individual of the re-newal and will issue the individual a cardor certificate evidencing current status asan enrolled agent, enrolled retirement planagent, or registered tax return preparer.

(6) Fee. A reasonable nonrefundablefee may be charged for each application forrenewal filed. See 26 CFR part 300.

(7) Forms. Forms required for renewalmay be obtained by sending a writtenrequest to the address specified by theInternal Revenue Service or from such

other source as the Internal Revenue Ser-vice will publish in the Internal RevenueBulletin (see 26 CFR 601.601(d)(2)(ii)(b))and on the Internal Revenue Service web-page (www.irs.gov).

(e) Condition for renewal: continuingeducation. In order to qualify for renewalas an enrolled agent, enrolled retirementplan agent, or registered tax return pre-parer, an individual must certify, in themanner prescribed by the Internal RevenueService, that the individual has satisfiedthe requisite number of continuing educa-tion hours.

(1) Definitions. For purposes of thissection—

(i) Enrollment year means January 1 toDecember 31 of each year of an enrollmentcycle.

(ii) Enrollment cycle means the threesuccessive enrollment years preceding theeffective date of renewal.

(iii) Registration year means each12-month period the registered tax returnpreparer is authorized to practice beforethe Internal Revenue Service.

(iv) The effective date of renewal is thefirst day of the fourth month following theclose of the period for renewal describedin paragraph (d) of this section.

(2) For renewed enrollment as an en-rolled agent or enrolled retirement planagent—(i) Requirements for enrollmentcycle. A minimum of 72 hours of contin-uing education credit, including six hoursof ethics or professional conduct, must becompleted during each enrollment cycle.

(ii) Requirements for enrollment year.A minimum of 16 hours of continuingeducation credit, including two hours ofethics or professional conduct, must becompleted during each enrollment year ofan enrollment cycle.

(iii) Enrollment during enrollment cy-cle—(A) In general. Subject to paragraph(e)(2)(iii)(B) of this section, an individualwho receives initial enrollment during anenrollment cycle must complete two hoursof qualifying continuing education creditfor each month enrolled during the enroll-ment cycle. Enrollment for any part of amonth is considered enrollment for the en-tire month.

(B) Ethics. An individual who receivesinitial enrollment during an enrollment cy-cle must complete two hours of ethics orprofessional conduct for each enrollmentyear during the enrollment cycle. Enroll-

ment for any part of an enrollment year isconsidered enrollment for the entire year.

(3) Requirements for renewal as a reg-istered tax return preparer. A minimum of15 hours of continuing education credit, in-cluding two hours of ethics or professionalconduct, three hours of Federal tax law up-dates, and 10 hours of Federal tax law top-ics, must be completed during each regis-tration year.

(f) Qualifying continuing educa-tion—(1) General—(i) Enrolled agents.To qualify for continuing education creditfor an enrolled agent, a course of learningmust—

(A) Be a qualifying continuing edu-cation program designed to enhance pro-fessional knowledge in Federal taxationor Federal tax related matters (programscomprised of current subject matter inFederal taxation or Federal tax relatedmatters, including accounting, tax returnpreparation software, taxation, or ethics);and

(B) Be a qualifying continuing educa-tion program consistent with the InternalRevenue Code and effective tax adminis-tration.

(ii) Enrolled retirement plan agents. Toqualify for continuing education credit foran enrolled retirement plan agent, a courseof learning must—

(A) Be a qualifying continuing educa-tion program designed to enhance profes-sional knowledge in qualified retirementplan matters; and

(B) Be a qualifying continuing educa-tion program consistent with the InternalRevenue Code and effective tax adminis-tration.

(iii) Registered tax return preparers. Toqualify for continuing education credit fora registered tax return preparer, a course oflearning must—

(A) Be a qualifying continuing edu-cation program designed to enhance pro-fessional knowledge in Federal taxationor Federal tax related matters (programscomprised of current subject matter inFederal taxation or Federal tax relatedmatters, including accounting, tax returnpreparation software, taxation, or ethics);and

(B) Be a qualifying continuing educa-tion program consistent with the InternalRevenue Code and effective tax adminis-tration.

2011–27 I.R.B. 21 July 5, 2011

(2) Qualifying programs—(i) Formalprograms. A formal program qualifies asa continuing education program if it—

(A) Requires attendance and provideseach attendee with a certificate of atten-dance;

(B) Is conducted by a qualified instruc-tor, discussion leader, or speaker (in otherwords, a person whose background, train-ing, education, and experience is appropri-ate for instructing or leading a discussionon the subject matter of the particular pro-gram);

(C) Provides or requires a written out-line, textbook, or suitable electronic edu-cational materials; and

(D) Satisfies the requirements estab-lished for a qualified continuing educationprogram pursuant to §10.9.

(ii) Correspondence or individual studyprograms (including taped programs).Qualifying continuing education programsinclude correspondence or individualstudy programs that are conducted by con-tinuing education providers and completedon an individual basis by the enrolled in-dividual. The allowable credit hours forsuch programs will be measured on a basiscomparable to the measurement of a sem-inar or course for credit in an accreditededucational institution. Such programsqualify as continuing education programsonly if they—

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

(B) Provide a means for measuring suc-cessful completion by the participants (forexample, a written examination), includ-ing the issuance of a certificate of comple-tion by the continuing education provider;

(C) Provide a written outline, textbook,or suitable electronic educational materi-als; and

(D) Satisfy the requirements estab-lished for a qualified continuing educationprogram pursuant to §10.9.

(iii) Serving as an instructor, discussionleader or speaker. (A) One hour of contin-uing education credit will be awarded foreach contact hour completed as an instruc-tor, discussion leader, or speaker at an edu-cational program that meets the continuingeducation requirements of paragraph (f) ofthis section.

(B) A maximum of two hours of con-tinuing education credit will be awardedfor actual subject preparation time for each

contact hour completed as an instructor,discussion leader, or speaker at such pro-grams. It is the responsibility of the in-dividual claiming such credit to maintainrecords to verify preparation time.

(C) The maximum continuing educa-tion credit for instruction and preparationmay not exceed four hours annually forregistered tax return preparers and sixhours annually for enrolled agents andenrolled retirement plan agents.

(D) An instructor, discussion leader, orspeaker who makes more than one pre-sentation on the same subject matter dur-ing an enrollment cycle or registration yearwill receive continuing education creditfor only one such presentation for the en-rollment cycle or registration year.

(3) Periodic examination. EnrolledAgents and Enrolled Retirement PlanAgents may establish eligibility for re-newal of enrollment for any enrollmentcycle by—

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

(ii) Completing a minimum of 16 hoursof qualifying continuing education duringthe last year of an enrollment cycle.

(g) Measurement of continuing educa-tion coursework. (1) All continuing edu-cation programs will be measured in termsof contact hours. The shortest recognizedprogram will be one contact hour.

(2) A contact hour is 50 minutes of con-tinuous participation in a program. Creditis granted only for a full contact hour,which is 50 minutes or multiples thereof.For example, a program lasting more than50 minutes but less than 100 minutes willcount as only one contact hour.

(3) Individual segments at continuousconferences, conventions and the like willbe considered one total program. For ex-ample, two 90-minute segments (180 min-utes) at a continuous conference will countas three contact hours.

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

(h) Recordkeeping requirements. (1)Each individual applying for renewal mustretain for a period of four years follow-ing the date of renewal the information re-quired with regard to qualifying continu-

ing education credit hours. Such informa-tion includes—

(i) The name of the sponsoring organi-zation;

(ii) The location of the program;(iii) The title of the program, quali-

fied program number, and description ofits content;

(iv) Written outlines, course syllibi,textbook, and/or electronic materials pro-vided or required for the course;

(v) The dates attended;(vi) The credit hours claimed;(vii) The name(s) of the instructor(s),

discussion leader(s), or speaker(s), if ap-propriate; and

(viii) The certificate of completionand/or signed statement of the hours ofattendance obtained from the continuingeducation provider.

(2) To receive continuing educationcredit for service completed as an in-structor, discussion leader, or speaker, thefollowing information must be maintainedfor a period of four years following thedate of renewal—

(i) The name of the sponsoring organi-zation;

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

of its content;(iv) The dates of the program; and(v) The credit hours claimed.(i) Waivers. (1) Waiver from the con-

tinuing education requirements for a givenperiod may be granted for the followingreasons—

(i) Health, which prevented compliancewith the continuing education require-ments;

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

an extended period of time due to employ-ment or other reasons, provided the indi-vidual does not practice before the InternalRevenue Service during such absence; and

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

(2) A request for waiver must be ac-companied by appropriate documentation.The individual is required to furnish anyadditional documentation or explanationdeemed necessary. Examples of appropri-ate documentation could be a medical cer-tificate or military orders.

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

July 5, 2011 22 2011–27 I.R.B.

(4) If a request for waiver is not ap-proved, the individual will be placed in in-active status. The individual will be noti-fied that the waiver was not approved andthat the individual has been placed on aroster of inactive enrolled agents, enrolledretirement plan agents, or registered tax re-turn preparers.

(5) If the request for waiver is not ap-proved, the individual may file a protest asprescribed by the Internal Revenue Servicein forms, instructions, or other appropriateguidance. A protest filed under this sectionis not governed by subpart D of this part.

(6) If a request for waiver is approved,the individual will be notified and issued acard or certificate evidencing renewal.

(7) Those who are granted waivers arerequired to file timely applications for re-newal of enrollment or registration.

(j) Failure to comply. (1) Complianceby an individual with the requirements ofthis part is determined by the Internal Rev-enue Service. The Internal Revenue Ser-vice will provide notice to any individ-ual who fails to meet the continuing edu-cation and fee requirements of eligibilityfor renewal. The notice will state the ba-sis for the determination of noncomplianceand will provide the individual an oppor-tunity to furnish the requested informationin writing relating to the matter within 60days of the date of the notice. Such in-formation will be considered in making afinal determination as to eligibility for re-newal. The individual must be informed ofthe reason(s) for any denial of a renewal.The individual may, within 30 days afterreceipt of the notice of denial of renewal,file a written protest of the denial as pre-scribed by the Internal Revenue Servicein forms, instructions, or other appropriateguidance. A protest under this section isnot governed by subpart D of this part.

(2) The continuing education records ofan enrolled agent, enrolled retirement planagent, or registered tax return preparer maybe reviewed to determine compliance withthe requirements and standards for renewalas provided in paragraph (f) of this sec-tion. As part of this review, the enrolledagent, enrolled retirement plan agent orregistered tax return preparer may be re-quired to provide the Internal Revenue Ser-vice with copies of any continuing educa-tion records required to be maintained un-der this part. If the enrolled agent, enrolledretirement plan agent or registered tax re-

turn preparer fails to comply with this re-quirement, any continuing education hoursclaimed may be disallowed.

(3) An individual who has not filed atimely application for renewal, who hasnot made a timely response to the notice ofnoncompliance with the renewal require-ments, or who has not satisfied the re-quirements of eligibility for renewal willbe placed on a roster of inactive enrolledindividuals or inactive registered individ-uals. During this time, the individual willbe ineligible to practice before the InternalRevenue Service.

(4) Individuals placed in inactive sta-tus and individuals ineligible to practicebefore the Internal Revenue Service maynot state or imply that they are eligible topractice before the Internal Revenue Ser-vice, or use the terms enrolled agent, en-rolled retirement plan agent, or registeredtax return preparer, the designations “EA”or “ERPA” or other form of reference toeligibility to practice before the InternalRevenue Service.

(5) An individual placed in inactive sta-tus may be reinstated to an active status byfiling an application for renewal and pro-viding evidence of the completion of all re-quired continuing education hours for theenrollment cycle or registration year. Con-tinuing education credit under this para-graph (j)(5) may not be used to satisfy therequirements of the enrollment cycle orregistration year in which the individualhas been placed back on the active roster.

(6) An individual placed in inactive sta-tus must file an application for renewaland satisfy the requirements for renewal asset forth in this section within three yearsof being placed in inactive status. Oth-erwise, the name of such individual willbe removed from the inactive status rosterand the individual’s status as an enrolledagent, enrolled retirement plan agent, orregistered tax return preparer will termi-nate. Future eligibility for active statusmust then be reestablished by the individ-ual as provided in this section.

(7) Inactive status is not available to anindividual who is the subject of a pend-ing disciplinary matter before the InternalRevenue Service.

(k) Inactive retirement status. An indi-vidual who no longer practices before theInternal Revenue Service may request tobe placed in an inactive retirement status atany time and such individual will be placed

in an inactive retirement status. The in-dividual will be ineligible to practice be-fore the Internal Revenue Service. An in-dividual who is placed in an inactive re-tirement status may be reinstated to an ac-tive status by filing an application for re-newal and providing evidence of the com-pletion of the required continuing educa-tion hours for the enrollment cycle or reg-istration year. Inactive retirement status isnot available to an individual who is inel-igible to practice before the Internal Rev-enue Service or an individual who is thesubject of a pending disciplinary matterunder this part.

(l) Renewal while under suspension ordisbarment. An individual who is ineli-gible to practice before the Internal Rev-enue Service by virtue of disciplinary ac-tion under this part is required to conformto the requirements for renewal of enroll-ment or registration before the individual’seligibility is restored.

(m) Enrolled actuaries. The enrollmentand renewal of enrollment of actuaries au-thorized to practice under paragraph (d) of§10.3 are governed by the regulations ofthe Joint Board for the Enrollment of Ac-tuaries at 20 CFR 901.1 through 901.72.

(n) Effective/applicability date. Thissection is applicable to enrollment or regis-tration effective beginning August 2, 2011.

Par. 9. Section 10.7 is amended by:1. Revising the section heading.2. Removing paragraph (c)(1)(viii).3. Revising paragraph (c)(2), and (d).4. Removing paragraph (e)5. Redesignating paragraphs (f) and (g)

as paragraphs (e) and (f) and revising them.The revisions read as follows:

§10.7 Representing oneself; participatingin rulemaking; limited practice; andspecial appearances.

* * * * *(c) * * *(2) Limitations. (i) An individual who

is under suspension or disbarment frompractice before the Internal Revenue Ser-vice may not engage in limited practicebefore the Internal Revenue Service underparagraph (c)(1) of this section.

(ii) The Commissioner, or delegate,may, after notice and opportunity for aconference, deny eligibility to engage inlimited practice before the Internal Rev-enue Service under paragraph (c)(1) of this

2011–27 I.R.B. 23 July 5, 2011

section to any individual who has engagedin conduct that would justify a sanctionunder §10.50.

(iii) An individual who represents ataxpayer under the authority of paragraph(c)(1) of this section is subject, to the ex-tent of his or her authority, to such rules ofgeneral applicability regarding standardsof conduct and other matters as prescribedby the Internal Revenue Service.

(d) Special appearances. The Commis-sioner, or delegate, may, subject to condi-tions deemed appropriate, authorize an in-dividual who is not otherwise eligible topractice before the Internal Revenue Ser-vice to represent another person in a par-ticular matter.

(e) Fiduciaries. For purposes of thispart, a fiduciary (for example, a trustee, re-ceiver, guardian, personal representative,administrator, or executor) is considered tobe the taxpayer and not a representative ofthe taxpayer.

(f) Effective/applicability date. Thissection is applicable beginning August 2,2011.

Par. 10. Section 10.8 is revised to readas follows:

§10.8 Return preparation and applicationof rules to other individuals.

(a) Preparing all or substantially allof a tax return. Any individual who forcompensation prepares or assists with thepreparation of all or substantially all of atax return or claim for refund must havea preparer tax identification number. Ex-cept as otherwise prescribed in forms, in-structions, or other appropriate guidance,an individual must be an attorney, certifiedpublic accountant, enrolled agent, or reg-istered tax return preparer to obtain a pre-parer tax identification number. Any indi-vidual who for compensation prepares orassists with the preparation of all or sub-stantially all of a tax return or claim for re-fund is subject to the duties and restrictionsrelating to practice in subpart B, as well assubject to the sanctions for violation of theregulations in subpart C.

(b) Preparing a tax return and furnish-ing information. Any individual may forcompensation prepare or assist with thepreparation of a tax return or claim for re-fund (provided the individual prepares lessthan substantially all of the tax return orclaim for refund), appear as a witness for

the taxpayer before the Internal RevenueService, or furnish information at the re-quest of the Internal Revenue Service orany of its officers or employees.

(c) Application of rules to other individ-uals. Any individual who for compensa-tion prepares, or assists in the preparationof, all or a substantial portion of a doc-ument pertaining to any taxpayer’s taxliability for submission to the InternalRevenue Service is subject to the dutiesand restrictions relating to practice in sub-part B, as well as subject to the sanctionsfor violation of the regulations in subpartC. Unless otherwise a practitioner, how-ever, an individual may not for compen-sation prepare, or assist in the preparationof, all or substantially all of a tax returnor claim for refund, or sign tax returnsand claims for refund. For purposes ofthis paragraph, an individual describedin 26 CFR 301.7701–15(f) is not treatedas having prepared all or a substantialportion of the document by reason of suchassistance.

(d) Effective/applicability date. Thissection is applicable beginning August 2,2011.

Par. 11. Section 10.9 is added to sub-part A to read as follows:

§10.9 Continuing education providersand continuing education programs.

(a) Continuing educationproviders—(1) In general. Continuingeducation providers are those responsiblefor presenting continuing education pro-grams. A continuing education providermust—

(i) Be an accredited educational institu-tion;

(ii) Be recognized for continuing educa-tion purposes by the licensing body of anyState, territory, or possession of the UnitedStates, including a Commonwealth, or theDistrict of Columbia;

(iii) Be recognized and approved by aqualifying organization as a provider ofcontinuing education on subject matterswithin §10.6(f) of this part. The Inter-nal Revenue Service may, at its discretion,identify a professional organization, soci-ety or business entity that maintains min-imum education standards comparable tothose set forth in this part as a qualifyingorganization for purposes of this part in ap-

propriate forms, instructions, and other ap-propriate guidance; or

(iv) Be recognized by the Internal Rev-enue Service as a professional organiza-tion, society, or business whose programsinclude offering continuing professionaleducation opportunities in subject matterswithin §10.6(f) of this part. The Inter-nal Revenue Service, at its discretion,may require such professional organiza-tions, societies, or businesses to file anagreement and/or obtain Internal RevenueService approval of each program as aqualified continuing education programin appropriate forms, instructions or otherappropriate guidance.

(2) Continuing education providernumbers—(i) In general. A continuingeducation provider is required to obtaina continuing education provider numberand pay any applicable user fee.

(ii) Renewal. A continuing educationprovider maintains its status as a continu-ing education provider during the contin-uing education provider cycle by renew-ing its continuing education provider num-ber as prescribed by forms, instructions orother appropriate guidance and paying anyapplicable user fee.

(3) Requirements for qualified contin-uing education programs. A continuingeducation provider must ensure the qual-ified continuing education program com-plies with all the following requirements—

(i) Programs must be developed by in-dividual(s) qualified in the subject matter;

(ii) Program subject matter must be cur-rent;

(iii) Instructors, discussion leaders, andspeakers must be qualified with respect toprogram content;

(iv) Programs must include some meansfor evaluation of the technical content andpresentation to be evaluated;

(v) Certificates of completion bearinga current qualified continuing educationprogram number issued by the InternalRevenue Service must be provided to theparticipants who successfully completethe program; and

(vi) Records must be maintained by thecontinuing education provider to verify theparticipants who attended and completedthe program for a period of four years fol-lowing completion of the program. In thecase of continuous conferences, conven-tions, and the like, records must be main-tained to verify completion of the program

July 5, 2011 24 2011–27 I.R.B.

and attendance by each participant at eachsegment of the program.

(4) Program numbers— (i) In general.Every continuing education provider isrequired to obtain a continuing educationprovider program number and pay anyapplicable user fee for each program of-fered. Program numbers shall be obtainedas prescribed by forms, instructions orother appropriate guidance. Although,at the discretion of the Internal RevenueService, a continuing education providermay be required to demonstrate that theprogram is designed to enhance profes-sional knowledge in Federal taxation orFederal tax related matters (programscomprised of current subject matter inFederal taxation or Federal tax relatedmatters, including accounting, tax returnpreparation software, taxation, or ethics)and complies with the requirements inparagraph (a)(2)of this section before aprogram number is issued.

(ii) Update programs. Update pro-grams may use the same number as theprogram subject to update. An updateprogram is a program that instructs on achange of existing law occurring withinone year of the update program offer-ing. The qualifying education programsubject to update must have been offeredwithin the two year time period prior tothe change in existing law.

(iii) Change in existing law. A changein existing law means the effective date ofthe statute or regulation, or date of entry ofjudicial decision, that is the subject of theupdate.

(b) Failure to comply. Compliance bya continuing education provider with therequirements of this part is determined bythe Internal Revenue Service. A continu-ing education provider who fails to meetthe requirements of this part will be noti-fied by the Internal Revenue Service. Thenotice will state the basis for the determi-nation of noncompliance and will providethe continuing education provider an op-portunity to furnish the requested informa-tion in writing relating to the matter within60 days of the date of the notice. The con-tinuing education provider may, within 30days after receipt of the notice of denial,file a written protest as prescribed by theInternal Revenue Service in forms, instruc-tions, or other appropriate guidance. Aprotest under this section is not governedby subpart D of this part.

(c) Effective/applicability date. Thissection is applicable beginning August 2,2011.

Par. 12. Section 10.20 is amended by1. Redesignating paragraphs (b) and (c)

as (a)(3) and (b).2. Revising newly designated paragraphs

(a)(3) and (b).3. Adding paragraph (c).The revisions and additions read as fol-

lows:

§10.20 Information to be furnished.

(a) * * *(3) When a proper and lawful request

is made by a duly authorized officer oremployee of the Internal Revenue Service,concerning an inquiry into an alleged vi-olation of the regulations in this part, apractitioner must provide any informationthe practitioner has concerning the allegedviolation and testify regarding this infor-mation in any proceeding instituted underthis part, unless the practitioner believes ingood faith and on reasonable grounds thatthe information is privileged.

(b) Interference with a proper and law-ful request for records or information. Apractitioner may not interfere, or attemptto interfere, with any proper and lawfuleffort by the Internal Revenue Service, itsofficers or employees, to obtain any recordor information unless the practitioner be-lieves in good faith and on reasonablegrounds that the record or information isprivileged.

(c) Effective/applicability date. Thissection is applicable beginning August 2,2011.

Par. 13. Section 10.25 is amended byrevising paragraphs (c)(2) and (e) to readas follows:

§10.25 Practice by former governmentemployees, their partners and theirassociates.

* * * * *(c) * * *(2) When isolation of a former Gov-

ernment employee is required under para-graph (c)(1) of this section, a statement af-firming the fact of such isolation must beexecuted under oath by the former Gov-ernment employee and by another memberof the firm acting on behalf of the firm.The statement must clearly identify thefirm, the former Government employee,

and the particular matter(s) requiring iso-lation. The statement must be retained bythe firm and, upon request, provided to theoffice(s) of the Internal Revenue Serviceadministering or enforcing this part.

* * * * *(e) Effective/applicability date. This

section is applicable beginning August 2,2011.

Par. 14. Section 10.30 is amended byrevising paragraphs (a)(1) and (e) to readas follows:

§10.30 Solicitation.

(a) Advertising and solicitation restric-tions. (1) A practitioner may not, with re-spect to any Internal Revenue Service mat-ter, in any way use or participate in theuse of any form of public communicationor private solicitation containing a false,fraudulent, or coercive statement or claim;or a misleading or deceptive statement orclaim. Enrolled agents, enrolled retire-ment plan agents, or registered tax returnpreparers, in describing their professionaldesignation, may not utilize the term “cer-tified” or imply an employer/employee re-lationship with the Internal Revenue Ser-vice. Examples of acceptable descriptionsfor enrolled agents are “enrolled to rep-resent taxpayers before the Internal Rev-enue Service,” “enrolled to practice beforethe Internal Revenue Service,” and “admit-ted to practice before the Internal RevenueService.” Similarly, examples of accept-able descriptions for enrolled retirementplan agents are “enrolled to represent tax-payers before the Internal Revenue Serviceas a retirement plan agent” and “enrolled topractice before the Internal Revenue Ser-vice as a retirement plan agent.” An exam-ple of an acceptable description for regis-tered tax return preparers is “designated asa registered tax return preparer by the In-ternal Revenue Service.”

* * * * *(e) Effective/applicability date. This

section is applicable beginning August 2,2011.

* * * * *Par. 15. Section 10.34 is amended by:1. Adding paragraph (a).2. Redesignating paragraph (f) as para-

graph (e).3. Revising newly designated paragraph

(e).

2011–27 I.R.B. 25 July 5, 2011

The revision and addition read as fol-lows:

§10.34 Standards with respect to taxreturns and documents, affidavits andother papers.

(a) Tax returns. (1) A practitioner maynot willfully, recklessly, or through grossincompetence—

(i) Sign a tax return or claim for refundthat the practitioner knows or reasonablyshould know contains a position that—

(A) Lacks a reasonable basis;(B) Is an unreasonable position as

described in section 6694(a)(2) of the In-ternal Revenue Code (Code) (includingthe related regulations and other publishedguidance); or

(C) Is a willful attempt by the practi-tioner to understate the liability for tax or areckless or intentional disregard of rules orregulations by the practitioner as describedin section 6694(b)(2) of the Code (includ-ing the related regulations and other pub-lished guidance).

(ii) Advise a client to take a position ona tax return or claim for refund, or preparea portion of a tax return or claim for refundcontaining a position, that—

(A) Lacks a reasonable basis;(B) Is an unreasonable position as de-

scribed in section 6694(a)(2) of the Code(including the related regulations and otherpublished guidance); or

(C) Is a willful attempt by the practi-tioner to understate the liability for tax or areckless or intentional disregard of rules orregulations by the practitioner as describedin section 6694(b)(2) of the Code (includ-ing the related regulations and other pub-lished guidance).

(2) A pattern of conduct is a factor thatwill be taken into account in determin-ing whether a practitioner acted willfully,recklessly, or through gross incompetence.

* * * * *(e) Effective/applicability date. Para-

graph (a) of this section is applicable forreturns or claims for refund filed, or adviceprovided, beginning August 2, 2011. Para-graphs (b) through (d) of this section areapplicable to tax returns, documents, affi-davits, and other papers filed on or afterSeptember 26, 2007.

Par. 16. Section 10.36 is amended by:1. Redesignating paragraph (b) as para-

graph (c).

2. Adding new paragraph (b).3. Revising newly designated paragraph

(c).The addition and revisions read as fol-

lows:

§10.36 Procedures to ensure compliance.

* * * * *(b) Requirements for tax returns and

other documents. Any practitioner whohas (or practitioners who have or share)principal authority and responsibility foroverseeing a firm’s practice of preparingtax returns, claims for refunds, or otherdocuments for submission to the InternalRevenue Service must take reasonablesteps to ensure that the firm has adequateprocedures in effect for all members, as-sociates, and employees for purposes ofcomplying with Circular 230. Any practi-tioner who has (or practitioners who haveor share) this principal authority will besubject to discipline for failing to complywith the requirements of this paragraphif—

(1) The practitioner through willful-ness, recklessness, or gross incompetencedoes not take reasonable steps to ensurethat the firm has adequate procedures tocomply with Circular 230, and one or moreindividuals who are members of, associ-ated with, or employed by, the firm are,or have, engaged in a pattern or practice,in connection with their practice with thefirm, of failing to comply with Circular230; or

(2) The practitioner knows or shouldknow that one or more individuals who aremembers of, associated with, or employedby, the firm are, or have, engaged in a pat-tern or practice, in connection with theirpractice with the firm, that does not com-ply with Circular 230, and the practitioner,through willfulness, recklessness, or grossincompetence fails to take prompt action tocorrect the noncompliance.

(c) Effective/applicability date. Thissection is applicable beginning August 2,2011.

Par. 17. Section 10.38 is revised to readas follows:

§10.38 Establishment of advisory com-mittees.

(a) Advisory committees. To promoteand maintain the public’s confidence in taxadvisors, the Internal Revenue Service isauthorized to establish one or more ad-

visory committees composed of at leastsix individuals authorized to practice be-fore the Internal Revenue Service. Mem-bership of an advisory committee must bebalanced among those who practice as at-torneys, accountants, enrolled agents, en-rolled actuaries, enrolled retirement planagents, and registered tax return preparers.Under procedures prescribed by the Inter-nal Revenue Service, an advisory commit-tee may review and make general recom-mendations regarding the practices, proce-dures, and policies of the offices describedin §10.1.

(b) Effective/applicability date. Thissection is applicable beginning August 2,2011.

Par. 18. Section 10.50 is amended by1. Revising paragraph (b)(1).2. Redesignating paragraphs (d) and (e)

as paragraphs (e) and (f).3. Adding new paragraph (d).4. Revising newly redesignated para-

graph (f).The revisions and addition read as fol-

lows:

§10.50 Sanctions.

* * * * *(b) * * *(1) If any appraiser is disqualified pur-

suant to this subpart C, the appraiser isbarred from presenting evidence or testi-mony in any administrative proceeding be-fore the Department of Treasury or the In-ternal Revenue Service, unless and untilauthorized to do so by the Internal Rev-enue Service pursuant to §10.81, regard-less of whether the evidence or testimonywould pertain to an appraisal made priorto or after the effective date of disqualifi-cation.

* * * * *(d) Authority to accept a practitioner’s

consent to sanction. The Internal RevenueService may accept a practitioner’s offer ofconsent to be sanctioned under §10.50 inlieu of instituting or continuing a proceed-ing under §10.60(a).

* * * * *(f) Effective/applicability date. This

section is applicable to conduct occurringon or after August 2, 2011, except thatparagraphs (a), (b)(2), and (e) apply to con-duct occurring on or after September 26,2007, and paragraph (c) applies to prohib-

July 5, 2011 26 2011–27 I.R.B.

ited conduct that occurs after October 22,2004.

Par. 19. Section 10.51 is amended byadding paragraphs (a)(16), (17), and (18)and revising paragraph (b) to read as fol-lows:

§10.51 Incompetence and disreputableconduct.

(a) * * *(16) Willfully failing to file on mag-

netic or other electronic media a tax returnprepared by the practitioner when the prac-titioner is required to do so by the Federaltax laws unless the failure is due to reason-able cause and not due to willful neglect.

(17) Willfully preparing all or substan-tially all of, or signing, a tax return or claimfor refund when the practitioner does notpossess a current or otherwise valid pre-parer tax identification number or otherprescribed identifying number.

(18) Willfully representing a taxpayerbefore an officer or employee of the In-ternal Revenue Service unless the practi-tioner is authorized to do so pursuant tothis part.

(b) Effective/applicability date. Thissection is applicable beginning August 2,2011.

Par. 20. Section 10.53 is revised to readas follows:

§10.53 Receipt of informationconcerning practitioner.

(a) Officer or employee of the InternalRevenue Service. If an officer or employeeof the Internal Revenue Service has reasonto believe a practitioner has violated anyprovision of this part, the officer or em-ployee will promptly make a written reportof the suspected violation. The report willexplain the facts and reasons upon whichthe officer’s or employee’s belief rests andmust be submitted to the office(s) of the In-ternal Revenue Service responsible for ad-ministering or enforcing this part.

(b) Other persons. Any person otherthan an officer or employee of the InternalRevenue Service having information of aviolation of any provision of this part maymake an oral or written report of the al-leged violation to the office(s) of the In-ternal Revenue Service responsible for ad-ministering or enforcing this part or any of-ficer or employee of the Internal Revenue

Service. If the report is made to an offi-cer or employee of the Internal RevenueService, the officer or employee will makea written report of the suspected violationand submit the report to the office(s) of theInternal Revenue Service responsible foradministering or enforcing this part.

(c) Destruction of report. No reportmade under paragraph (a) or (b) of this sec-tion shall be maintained unless retention ofthe report is permissible under the applica-ble records control schedule as approvedby the National Archives and Records Ad-ministration and designated in the Inter-nal Revenue Manual. Reports must be de-stroyed as soon as permissible under theapplicable records control schedule.

(d) Effect on proceedings under subpartD. The destruction of any report will notbar any proceeding under subpart D of thispart, but will preclude the use of a copy ofthe report in a proceeding under subpart Dof this part.

(e) Effective/applicability date. Thissection is applicable beginning August 2,2011.

Par. 21. Section 10.60 is amended byrevising paragraphs (a), (b), and (d) to readas follows:

§10.60 Institution of proceeding.

(a) Whenever it is determined that apractitioner (or employer, firm or other en-tity, if applicable) violated any provision ofthe laws governing practice before the In-ternal Revenue Service or the regulationsin this part, the practitioner may be repri-manded in accordance with §10.62, or sub-ject to a proceeding for sanctions describedin §10.50.

(b) Whenever a penalty has been as-sessed against an appraiser under theInternal Revenue Code and an appropriateofficer or employee in an office estab-lished to enforce this part determines thatthe appraiser acted willfully, recklessly, orthrough gross incompetence with respectto the proscribed conduct, the appraisermay be reprimanded in accordance with§10.62 or subject to a proceeding fordisqualification. A proceeding for dis-qualification of an appraiser is institutedby the filing of a complaint, the contents ofwhich are more fully described in §10.62.

* * * * *

(d) Effective/applicability date. Thissection is applicable beginning August 2,2011.

Par. 22. Section 10.61 is amended byrevising paragraphs (a), (b)(2), and (c) toread as follows:

§10.61 Conferences.

(a) In general. The Commissioner, ordelegate, may confer with a practitioner,employer, firm or other entity, or an ap-praiser concerning allegations of miscon-duct irrespective of whether a proceedinghas been instituted. If the conference re-sults in a stipulation in connection with anongoing proceeding in which the practi-tioner, employer, firm or other entity, orappraiser is the respondent, the stipulationmay be entered in the record by either partyto the proceeding.

(b) * * *(2) Discretion; acceptance or declina-

tion. The Commissioner, or delegate, mayaccept or decline the offer described inparagraph (b)(1) of this section. When thedecision is to decline the offer, the writ-ten notice of declination may state that theoffer described in paragraph (b)(1) of thissection would be accepted if it containeddifferent terms. The Commissioner, or del-egate, has the discretion to accept or re-ject a revised offer submitted in responseto the declination or may counteroffer andact upon any accepted counteroffer.

(c) Effective/applicability date. Thissection is applicable beginning August 2,2011.

Par. 23. Section 10.62 is revised to readas follows:

§10.62 Contents of complaint.

(a) Charges. A complaint must namethe respondent, provide a clear and con-cise description of the facts and law thatconstitute the basis for the proceeding, andbe signed by an authorized representativeof the Internal Revenue Service under§10.69(a)(1). A complaint is sufficientif it fairly informs the respondent of thecharges brought so that the respondent isable to prepare a defense.

(b) Specification of sanction. The com-plaint must specify the sanction soughtagainst the practitioner or appraiser. If thesanction sought is a suspension, the dura-tion of the suspension sought must be spec-ified.

2011–27 I.R.B. 27 July 5, 2011

(c) Demand for answer. The respon-dent must be notified in the complaint or ina separate paper attached to the complaintof the time for answering the complaint,which may not be less than 30 days fromthe date of service of the complaint, thename and address of the AdministrativeLaw Judge with whom the answer mustbe filed, the name and address of the per-son representing the Internal Revenue Ser-vice to whom a copy of the answer must beserved, and that a decision by default maybe rendered against the respondent in theevent an answer is not filed as required.

(d) Effective/applicability date. Thissection is applicable beginning August 2,2011.

Par. 24. Section 10.63 is amended byrevising paragraphs (c) and (f) to read asfollows:

§10.63 Service of complaint; serviceof other papers; service of evidence insupport of complaint; filing of papers.

* * * * *(c) Service of papers on the Internal

Revenue Service. Whenever a paper is re-quired or permitted to be served on the In-ternal Revenue Service in connection witha proceeding under this part, the paperwill be served on the Internal RevenueService’s authorized representative under§10.69(a)(1) at the address designated inthe complaint, or at an address providedin a notice of appearance. If no addressis designated in the complaint or providedin a notice of appearance, service will bemade on the office(s) established to en-force this part under the authority of §10.1,Internal Revenue Service, 1111 Constitu-tion Avenue, NW, Washington, DC 20224.

* * * * *(f) Effective/applicability date. This

section is applicable beginning August 2,2011.

Par. 25. Section 10.64 is amended byrevising paragraph (a) and adding para-graph (f) to read as follows:

§10.64 Answer; default.

(a) Filing. The respondent’s answermust be filed with the Administrative LawJudge, and served on the Internal RevenueService, within the time specified in thecomplaint unless, on request or application

of the respondent, the time is extended bythe Administrative Law Judge.

* * * * *(f) Effective/applicability date. This

section is applicable beginning August 2,2011.

Par. 26. Section 10.65 is amended byrevising paragraphs (a) and (c) to read:

§10.65 Supplemental charges.

(a) In general. Supplemental chargesmay be filed against the respondent byamending the complaint with the permis-sion of the Administrative Law Judge if,for example—

(1) It appears that the respondent, in theanswer, falsely and in bad faith, denies amaterial allegation of fact in the complaintor states that the respondent has insuffi-cient knowledge to form a belief, when therespondent possesses such information; or

(2) It appears that the respondent hasknowingly introduced false testimony dur-ing the proceedings against the respondent.

* * * * *(c) Effective/applicability date. This

section is applicable beginning August 2,2011.

Par. 27. Section 10.66 is revised to readas follows:

§10.66 Reply to answer.

(a) The Internal Revenue Service mayfile a reply to the respondent’s answer, butunless otherwise ordered by the Adminis-trative Law Judge, no reply to the respon-dent’s answer is required. If a reply is notfiled, new matter in the answer is deemeddenied.

(b) Effective/applicability date. Thissection is applicable beginning August 2,2011.

Par. 28. Section 10.69 is revised to readas follows:

§10.69 Representation; ex partecommunication.

(a) Representation. The Internal Rev-enue Service may be represented in pro-ceedings under this part by an attorney orother employee of the Internal RevenueService. An attorney or an employee of theInternal Revenue Service representing theInternal Revenue Service in a proceeding

under this part may sign the complaint orany document required to be filed in theproceeding on behalf of the Internal Rev-enue Service.

(b) Ex parte communication. The Inter-nal Revenue Service, the respondent, andany representatives of either party, maynot attempt to initiate or participate in exparte discussions concerning a proceedingor potential proceeding with the Admin-istrative Law Judge (or any person whois likely to advise the Administrative LawJudge on a ruling or decision) in the pro-ceeding before or during the pendency ofthe proceeding. Any memorandum, let-ter or other communication concerning themerits of the proceeding, addressed to theAdministrative Law Judge, by or on behalfof any party shall be regarded as an argu-ment in the proceeding and shall be servedon the other party.

(c) Effective/applicability date. Thissection is applicable beginning August 2,2011.

Par. 29. Section 10.72 is amended byrevising paragraphs (a)(3)(iv)(A), (d)(1),and (g) to read as follows:

§10.72 Hearings.

(a) * * *(3) * * *(iv) * * *(A) The Internal Revenue Service with-

draws the complaint;

* * * * *(d) Publicity—(1) In general. All re-

ports and decisions of the Secretary of theTreasury, or delegate, including any re-ports and decisions of the AdministrativeLaw Judge, under this subpart D are, sub-ject to the protective measures in para-graph (d)(4) of this section, public andopen to inspection within 30 days after theagency’s decision becomes final.

* * * * *(g) Effective/applicability date. This

section is applicable beginning August 2,2011.

Par. 30. Section 10.76 is amended byrevising paragraphs (c), and (e) to read asfollows:

§10.76 Decision of Administrative LawJudge.

* * * * *

July 5, 2011 28 2011–27 I.R.B.

(c) Copy of decision. The Administra-tive Law Judge will provide the decision tothe Internal Revenue Service’s authorizedrepresentative, and a copy of the decisionto the respondent or the respondent’s au-thorized representative.

* * * * *(e) Effective/applicability date. This

section is applicable beginning August 2,2011.

Par. 31. Section 10.77 is revised to readas follows:

§10.77 Appeal of decision ofAdministrative Law Judge.

(a) Appeal. Any party to the proceedingunder this subpart D may appeal the deci-sion of the Administrative Law Judge byfiling a notice of appeal with the Secretaryof the Treasury, or delegate deciding ap-peals. The notice of appeal must include abrief that states exceptions to the decisionof Administrative Law Judge and support-ing reasons for such exceptions.

(b) Time and place for filing of appeal.The notice of appeal and brief must befiled, in duplicate, with the Secretary of theTreasury, or delegate deciding appeals, atan address for appeals that is identified tothe parties with the decision of the Admin-istrative Law Judge. The notice of appealand brief must be filed within 30 days ofthe date that the decision of the Adminis-trative Law Judge is served on the parties.The appealing party must serve a copy ofthe notice of appeal and the brief to anynon-appealing party or, if the party is rep-resented, the non-appealing party’s repre-sentative.

(c) Response. Within 30 days of receiv-ing the copy of the appellant’s brief, theother party may file a response brief withthe Secretary of the Treasury, or delegatedeciding appeals, using the address iden-tified for appeals. A copy of the responsebrief must be served at the same time onthe opposing party or, if the party is rep-resented, the opposing party’s representa-tive.

(d) No other briefs, responses or mo-tions as of right. Other than the appealbrief and response brief, the parties are notpermitted to file any other briefs, responsesor motions, except on a grant of leave to doso after a motion demonstrating sufficientcause, or unless otherwise ordered by the

Secretary of the Treasury, or delegate de-ciding appeals.

(e) Additional time for briefs and re-sponses. Notwithstanding the time for fil-ing briefs and responses provided in para-graphs (b) and (c) of this section, the Sec-retary of the Treasury, or delegate decidingappeals, may, for good cause, authorize ad-ditional time for filing briefs and responsesupon a motion of a party or upon the ini-tiative of the Secretary of the Treasury, ordelegate deciding appeals.

(f) Effective/applicability date. Thissection is applicable beginning August 2,2011.

Par. 32. Section 10.78 is amended byrevising paragraphs (c) and (d) to read asfollows:

§10.78 Decision on review.

* * * * *(c) Copy of decision on review. The

Secretary of the Treasury, or delegate, willprovide copies of the agency decision tothe authorized representative of the Inter-nal Revenue Service and the respondent orthe respondent’s authorized representative.

(d) Effective/applicability date. Thissection is applicable beginning August 2,2011.

Par. 33. Section 10.79 is revised to readas follows:

§10.79 Effect of disbarment, suspension,or censure.

(a) Disbarment. When the final deci-sion in a case is against the respondent (orthe respondent has offered his or her con-sent and such consent has been acceptedby the Internal Revenue Service) and suchdecision is for disbarment, the respondentwill not be permitted to practice before theInternal Revenue Service unless and untilauthorized to do so by the Internal Rev-enue Service pursuant to §10.81.

(b) Suspension. When the final decisionin a case is against the respondent (or therespondent has offered his or her consentand such consent has been accepted by theInternal Revenue Service) and such deci-sion is for suspension, the respondent willnot be permitted to practice before the In-ternal Revenue Service during the periodof suspension. For periods after the sus-pension, the practitioner’s future represen-tations may be subject to conditions as au-thorized by paragraph (d) of this section.

(c) Censure. When the final decision inthe case is against the respondent (or theInternal Revenue Service has accepted therespondent’s offer to consent, if such offerwas made) and such decision is for cen-sure, the respondent will be permitted topractice before the Internal Revenue Ser-vice, but the respondent’s future represen-tations may be subject to conditions as au-thorized by paragraph (d) of this section.

(d) Conditions. After being subject tothe sanction of either suspension or cen-sure, the future representations of a prac-titioner so sanctioned shall be subject tospecified conditions designed to promotehigh standards of conduct. These condi-tions can be imposed for a reasonable pe-riod in light of the gravity of the practi-tioner’s violations. For example, where apractitioner is censured because the prac-titioner failed to advise the practitioner’sclients about a potential conflict of interestor failed to obtain the clients’ written con-sents, the practitioner may be required toprovide the Internal Revenue Service witha copy of all consents obtained by the prac-titioner for an appropriate period followingcensure, whether or not such consents arespecifically requested.

(e) Effective/applicability date. Thissection is applicable beginning August 2,2011.

Par. 34. Section 10.80 is revised to readas follows:

§10.80 Notice of disbarment, suspension,censure, or disqualification.

(a) In general. On the issuance of a finalorder censuring, suspending, or disbarringa practitioner or a final order disqualifyingan appraiser, notification of the censure,suspension, disbarment or disqualificationwill be given to appropriate officers andemployees of the Internal Revenue Serviceand interested departments and agencies ofthe Federal government. The Internal Rev-enue Service may determine the mannerof giving notice to the proper authoritiesof the State by which the censured, sus-pended, or disbarred person was licensedto practice.

(b) Effective/applicability date. Thissection is applicable beginning August 2,2011.

Par. 35. Section 10.81 is revised to readas follows:

2011–27 I.R.B. 29 July 5, 2011

§10.81 Petition for reinstatement.

(a) In general. A disbarred practitioneror a disqualified appraiser may petitionfor reinstatement before the Internal Rev-enue Service after the expiration of 5 yearsfollowing such disbarment or disqualifica-tion. Reinstatement will not be granted un-less the Internal Revenue Service is sat-isfied that the petitioner is not likely toconduct himself, thereafter, contrary to theregulations in this part, and that grantingsuch reinstatement would not be contraryto the public interest.

(b) Effective/applicability date. Thissection is applicable beginning August 2,2011.

Par. 36. Section 10.82 is amended byrevising paragraphs (a), (c) introductorytext, (c)(3), (d), (e), (f), (g), and (h) to readas follows:

§10.82 Expedited suspension.

(a) When applicable. Whenever theCommissioner, or delegate, determinesthat a practitioner is described in para-graph (b) of this section, proceedings maybe instituted under this section to suspendthe practitioner from practice before theInternal Revenue Service.

* * * * *(c) Instituting a proceeding. A pro-

ceeding under this section will be insti-tuted by a complaint that names the re-spondent, is signed by an authorized rep-resentative of the Internal Revenue Serviceunder §10.69(a)(1), and is filed and servedaccording to the rules set forth in para-graph (a) of §10.63. The complaint mustgive a plain and concise description of theallegations that constitute the basis for theproceeding. The complaint must notify therespondent —

* * * * *(3) That the respondent may request a

conference to address the merits of thecomplaint and that any such request mustbe made in the answer; and

* * * * *(d) Answer. The answer to a complaint

described in this section must be filed nolater than 30 calendar days following thedate the complaint is served, unless thetime for filing is extended. The answermust be filed in accordance with the rules

set forth in §10.64, except as otherwiseprovided in this section. A respondent isentitled to a conference only if the con-ference is requested in a timely filed an-swer. If a request for a conference is notmade in the answer or the answer is nottimely filed, the respondent will be deemedto have waived the right to a conferenceand may be suspended at any time follow-ing the date on which the answer was due.

(e) Conference. An authorized repre-sentative of the Internal Revenue Servicewill preside at a conference described inthis section. The conference will be heldat a place and time selected by the Inter-nal Revenue Service, but no sooner than 14calendar days after the date by which theanswer must be filed with the Internal Rev-enue Service, unless the respondent agreesto an earlier date. An authorized repre-sentative may represent the respondent atthe conference. Following the conference,upon a finding that the respondent is de-scribed in paragraph (b) of this section, orupon the respondent’s failure to appear atthe conference either personally or throughan authorized representative, the respon-dent may be immediately suspended frompractice before the Internal Revenue Ser-vice.

(f) Duration of suspension. A suspen-sion under this section will commence onthe date that written notice of the suspen-sion is issued. The suspension will remaineffective until the earlier of the following:

(1) The Internal Revenue Service liftsthe suspension after determining that thepractitioner is no longer described in para-graph (b) of this section or for any otherreason; or

(2) The suspension is lifted by an Ad-ministrative Law Judge or the Secretary ofthe Treasury in a proceeding referred to inparagraph (g) of this section and institutedunder §10.60.

(g) Proceeding instituted under §10.60.If the Internal Revenue Service suspendeda practitioner under this section, the prac-titioner may ask the Internal RevenueService to issue a complaint under §10.60.The request must be made in writingwithin 2 years from the date on whichthe practitioner’s suspension commences.The Internal Revenue Service must issue acomplaint requested under this paragraphwithin 30 calendar days of receiving therequest.

(h) Effective/applicability date. Thissection is applicable beginning August 2,2011.

Par. 37. Section 10.90 is amended by:1. Revising paragraph (a).2. Redesignating the second paragraph

(b) as paragraph (c).3. Revising newly designated paragraph

(c).The revisions read as follows:

§10.90 Records

(a) Roster. The Internal Revenue Ser-vice will maintain and make available forpublic inspection in the time and mannerprescribed by the Secretary, or delegate,the following rosters —

(1) Individuals (and employers, firms,or other entities, if applicable) censured,suspended, or disbarred from practice be-fore the Internal Revenue Service or uponwhom a monetary penalty was imposed.

(2) Enrolled agents, including individu-als—

(i) Granted active enrollment to prac-tice;

(ii) Whose enrollment has been placedin inactive status for failure to meet therequirements for renewal of enrollment;

(iii) Whose enrollment has been placedin inactive retirement status; and

(iv) Whose offer of consent to resignfrom enrollment has been accepted by theInternal Revenue Service under §10.61.

(3) Enrolled retirement plan agents, in-cluding individuals—

(i) Granted active enrollment to prac-tice;

(ii) Whose enrollment has been placedin inactive status for failure to meet therequirements for renewal of enrollment;

(iii) Whose enrollment has been placedin inactive retirement status; and

(iv) Whose offer of consent to resignfrom enrollment has been accepted under§10.61.

(4) Registered tax return preparers, in-cluding individuals—

(i) Authorized to prepare all or substan-tially all of a tax return or claim for refund;

(ii) Who have been placed in inactivestatus for failure to meet the requirementsfor renewal;

(iii) Who have been placed in inactiveretirement status; and

(iv) Whose offer of consent to resignfrom their status as a registered tax return

July 5, 2011 30 2011–27 I.R.B.

preparer has been accepted by the InternalRevenue Service under §10.61.

(5) Disqualified appraisers.(6) Qualified continuing education

providers, including providers—(i) Who have obtain a qualifying con-

tinuing education provider number(ii) Whose qualifying continuing edu-

cation number has been revoked for fail-ure to comply with the requirements of thispart.

* * * * *(c) Effective/applicability date. This

section is applicable beginning August 2,2011.

Steven T. Miller,Deputy Commissioner forServices and Enforcement.

Approved May 20, 2011.

George Madison,General Counsel,

Office of the Secretary.

(Filed by the Office of the Federal Register on May 31, 2011,8:45 a.m., and published in the issue of the Federal Registerfor June 3, 2011, 76 F.R. 32286)

Section 382.—Limitationon Net Operating LossCarrryforwards and CertainBuilt-In Losses FollowingOwnership Change

The adjusted applicable federal long-term rate isset forth for the month of July 2011. See Rev. Rul.2011-14, page 31.

Section 412.—MinimumFunding Standards

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof July 2011. See Rev. Rul. 2011-14, page 31.

Section 467.—CertainPayments for the Use ofProperty or Services

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof July 2011. See Rev. Rul. 2011-14, page 31.

Section 468.—SpecialRules for Mining and SolidWaste Reclamation andClosing Costs

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof July 2011. See Rev. Rul. 2011-14, page 31.

Section 482.—Allocationof Income and DeductionsAmong Taxpayers

Federal short-term, mid-term, and long-term ratesare set forth for the month of July 2011. See Rev. Rul.2011-14, page 31.

Section 483.—Interest onCertain Deferred Payments

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof July 2011. See Rev. Rul. 2011-14, page 31.

Section 642.—SpecialRules for Credits andDeductions

Federal short-term, mid-term, and long-term ratesare set forth for the month of July 2011. See Rev. Rul.2011-14, page 31.

Section 807.—Rules forCertain Reserves

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof July 2011. See Rev. Rul. 2011-14, page 31.

Section 846.—DiscountedUnpaid Losses Defined

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof July 2011. See Rev. Rul. 2011-14, page 31.

Section 1274.—Determi-nation of Issue Price in theCase of Certain Debt Instru-ments Issued for Property(Also Sections 42, 280G, 382, 412, 467, 468, 482,483, 642, 807, 846, 1288, 7520, 7872.)

Federal rates; adjusted federal rates;adjusted federal long-term rate and the

long-term exempt rate. For purposes ofsections 382, 642, 1274, 1288, and othersections of the Code, tables set forth therates for July 2011.

Rev. Rul. 2011–14

This revenue ruling provides variousprescribed rates for federal income tax pur-poses for July 2011 (the current month).Table 1 contains the short-term, mid-term,and long-term applicable federal rates(AFR) for the current month for purposesof section 1274(d) of the Internal RevenueCode. Table 2 contains the short-term,mid-term, and long-term adjusted appli-cable federal rates (adjusted AFR) forthe current month for purposes of section1288(b). Table 3 sets forth the adjustedfederal long-term rate and the long-termtax-exempt rate described in section382(f). Table 4 contains the appropriatepercentages for determining the low-in-come housing credit described in section42(b)(1) for buildings placed in serviceduring the current month. However, undersection 42(b)(2), the applicable percentagefor non-federally subsidized new build-ings placed in service after July 30, 2008,and before December 31, 2013, shall notbe less than 9%. Table 5 contains thefederal rate for determining the presentvalue of an annuity, an interest for lifeor for a term of years, or a remainder ora reversionary interest for purposes ofsection 7520. Finally, Table 6 contains theblended annual rate for 2011 for purposesof section 7872.

2011–27 I.R.B. 31 July 5, 2011

REV. RUL. 2011–14 TABLE 1

Applicable Federal Rates (AFR) for July 2011

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term

AFR .37% .37% .37% .37%110% AFR .41% .41% .41% .41%120% AFR .44% .44% .44% .44%130% AFR .48% .48% .48% .48%

Mid-term

AFR 2.00% 1.99% 1.99% 1.98%110% AFR 2.20% 2.19% 2.18% 2.18%120% AFR 2.40% 2.39% 2.38% 2.38%130% AFR 2.61% 2.59% 2.58% 2.58%150% AFR 3.01% 2.99% 2.98% 2.97%175% AFR 3.51% 3.48% 3.46% 3.46%

Long-term

AFR 3.86% 3.82% 3.80% 3.79%110% AFR 4.24% 4.20% 4.18% 4.16%120% AFR 4.63% 4.58% 4.55% 4.54%130% AFR 5.03% 4.97% 4.94% 4.92%

REV. RUL. 2011–14 TABLE 2

Adjusted AFR for July 2011

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term adjustedAFR

.53% .53% .53% .53%

Mid-term adjusted AFR 1.57% 1.56% 1.56% 1.55%

Long-term adjustedAFR

3.86% 3.82% 3.80% 3.79%

REV. RUL. 2011–14 TABLE 3

Rates Under Section 382 for July 2011

Adjusted federal long-term rate for the current month 3.86%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjustedfederal long-term rates for the current month and the prior two months.) 4.30%

REV. RUL. 2011–14 TABLE 4

Appropriate Percentages Under Section 42(b)(1) for July 2011

Note: Under Section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service afterJuly 30, 2008, and before December 31, 2013, shall not be less than 9%.

Appropriate percentage for the 70% present value low-income housing credit 7.68%

Appropriate percentage for the 30% present value low-income housing credit 3.29%

July 5, 2011 32 2011–27 I.R.B.

REV. RUL. 2011–14 TABLE 5

Rate Under Section 7520 for July 2011

Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,or a remainder or reversionary interest 2.4%

REV. RUL. 2011–14 TABLE 6

Blended Annual Rate for 2011

Section 7872(e)(2) blended annual rate for 2011 .40%

Section 1288.—Treatmentof Original Issue Discounton Tax-Exempt Obligations

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof July 2011. See Rev. Rul. 2011-14, page 31.

Section 7520.—ValuationTables

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof July 2011. See Rev. Rul. 2011-14, page 31.

Section 7872.—Treatmentof Loans With Below-MarketInterest Rates

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof July 2011. See Rev. Rul. 2011-14, page 31.

2011–27 I.R.B. 33 July 5, 2011

Part III. Administrative, Procedural, and MiscellaneousRelief from CertainLow-Income Housing CreditRequirements Due to SevereStorms, Tornadoes, andFlooding in Missouri

Notice 2011–47

The Internal Revenue Service is sus-pending certain requirements under § 42of the Internal Revenue Code for low-in-come housing credit projects in the UnitedStates to provide emergency housing reliefneeded as a result of the devastation causedby severe storms, tornadoes, and floodingin Missouri beginning on April 19, 2011.This relief is being granted pursuant tothe Service’s authority under § 42(n) and§ 1.42–13(a) of the Income Tax Regula-tions.

BACKGROUND

On May 9, 2011, the President de-clared a major disaster for the State ofMissouri. This declaration was made un-der the Robert T. Stafford Disaster Reliefand Emergency Assistance Act, 42 U.S.C.5121 et seq. Subsequently, the FederalEmergency Management Agency (FEMA)designated jurisdictions for IndividualAssistance. The State of Missouri hasrequested that the Service allow ownersof low-income housing credit projects toprovide temporary housing in vacant unitsto individuals who resided in jurisdictionsdesignated for Individual Assistance inMissouri and who have been displacedbecause their residences were destroyedor damaged as a result of the devastationcaused by the severe storms, tornadoes,and flooding. Based upon this requestand because of the widespread damageto housing caused by the severe storms,tornadoes, and flooding, the Service hasdetermined that the Missouri HousingDevelopment Commission (Commission)may provide approval to project owners toprovide temporary emergency housing fordisplaced individuals in accordance withthis notice.

I. SUSPENSION OF INCOMELIMITATIONS

The Service has determined that it isappropriate to temporarily suspend certainincome limitation requirements under § 42for certain qualified low-income projects.The suspension will apply to low-incomehousing projects approved by the Commis-sion, in which vacant units are rented todisplaced individuals. The Commissionwill determine the appropriate period oftemporary housing for each project, not toextend beyond June 30, 2012 (temporaryhousing period).

II. STATUS OF UNITS

A. Units in the first year of the creditperiod

A displaced individual temporarilyoccupying a unit during the first year ofthe credit period under § 42(f)(1) will bedeemed a qualified low-income tenantfor purposes of determining the project’squalified basis under § 42(c)(1), andfor meeting the project’s 20-50 test or40-60 test as elected by the project ownerunder § 42(g)(1). After the end of thetemporary housing period established bythe Commission (not to extend beyondJune 30, 2012), a displaced individualwill no longer be deemed a qualifiedlow-income tenant.

B. Vacant units after the first year of thecredit period

During the temporary housing periodestablished by the Commission, the statusof a vacant unit (that is, market-rate or low-income for purposes of § 42 or never pre-viously occupied) after the first year of thecredit period that becomes temporarily oc-cupied by a displaced individual remainsthe same as the unit’s status before thedisplaced individual moves in. Displacedindividuals temporarily occupying vacantunits will not be treated as low-incometenants under § 42(i)(3)(A)(ii). However,even if it houses a displaced individual, alow-income or market rate unit that wasvacant before the effective date of this no-tice will continue to be treated as a va-cant low-income or market rate unit. Sim-ilarly, a unit that was never previously oc-

cupied before the effective date of this no-tice will continue to be treated as a unitthat has never been previously occupiedeven if it houses a displaced individual.Thus, the fact that a vacant unit becomesoccupied by a displaced individual willnot affect the building’s applicable frac-tion under § 42(c)(1)(B) for purposes ofdetermining the building’s qualified basis,nor will it affect the 20–50 test or 40–60test of § 42(g)(1). If the income of oc-cupants in low-income units exceeds 140percent of the applicable income limita-tion, the temporary occupancy of a unit bya displaced individual will not cause ap-plication of the available unit rule under§ 42(g)(2)(D)(ii). In addition, the projectowner is not required during the temporaryhousing period to make attempts to rentto low-income individuals the low-incomeunits that house displaced individuals.

III. SUSPENSION OFNON-TRANSIENT REQUIREMENTS

The non-transient use requirement of§ 42(i)(3)(B)(i) shall not apply to anyunit providing temporary housing to adisplaced individual during the temporaryhousing period determined by the Com-mission in accordance with section I ofthis notice.

IV. OTHER REQUIREMENTS

All other rules and requirements of§ 42 will continue to apply during thetemporary housing period establishedby the Commission. After the end ofthe temporary housing period, the ap-plicable income limitations contained in§ 42(g)(1), the available unit rule un-der § 42(g)(2)(D)(ii), the nontransientrequirement of § 42(i)(3)(B)(i), and therequirement to make reasonable attemptsto rent vacant units to low-income individ-uals shall resume. If a project owner offersto rent a unit to a displaced individual afterthe end of the temporary housing period,the displaced individual must be certifiedunder the requirements of § 42(i)(3)(A)(ii)and § 1.42–5(b) and (c) to be a qualifiedlow-income tenant. To qualify for the re-lief in this notice, the project owner mustadditionally meet all of the following re-quirements:

July 5, 2011 34 2011–27 I.R.B.

(1) Major Disaster Area

The displaced individual must haveresided in a Missouri jurisdiction desig-nated for Individual Assistance by FEMAas a result of the severe storms, tornadoes,and flooding in Missouri beginning onApril 19, 2011.

(2) Approval of the Missouri HousingDevelopment Commission

The project owner must obtain approvalfrom the Commission for the relief de-scribed in this notice. The Commissionwill determine the appropriate period oftemporary housing for each project, not toextend beyond June 30, 2012.

(3) Certifications and Recordkeeping

To comply with the requirements of§ 1.42–5, project owners are required tomaintain and certify certain informationconcerning each displaced individual tem-porarily housed in the project, specifically:name, address of damaged residence,social security number, and a statementsigned under penalties of perjury by thedisplaced individual that, because of dam-age to the individual’s residence in a Mis-souri jurisdiction designated for IndividualAssistance by FEMA as a result of thesevere storms, tornadoes, and flooding be-ginning on April 19, 2011, the individualrequires temporary housing. The ownermust notify the Commission that vacantunits are available for rent to displacedindividuals.

The owner must also certify the date thedisplaced individual began temporary oc-cupancy and the date the project will dis-continue providing temporary housing asestablished by the Commission. The certi-fications and recordkeeping for displacedindividuals must be maintained as part ofthe annual compliance monitoring processwith the Commission.

(4) Rent Restrictions

Rents for the low-income units thathouse displaced individuals must not ex-ceed the existing rent-restricted rates forthe low-income units established under§ 42(g)(2).

(5) Protection of Existing Tenants

Existing tenants in occupied low-in-come units cannot be evicted or have theirtenancy terminated as a result of efforts toprovide temporary housing for displacedindividuals.

EFFECTIVE DATE

This notice is effective May 9, 2011 (thedate of the President’s major disaster dec-larations as a result of the severe storms,tornadoes, and flooding in Missouri begin-ning on April 19, 2011).

PAPERWORK REDUCTION ACT

The collection of information containedin this notice has been reviewed and ap-proved by the Office of Management andBudget in accordance with the PaperworkReduction Act (44 U.S.C. 3507) undercontrol number 1545–2210.

An Agency may not conduct or sponsor,and a person is not required to respondto, a collection of information unless thecollection of information displays a validOMB control number.

The collection of information in this no-tice is in the section titled “OTHER RE-QUIREMENTS” under “(3) Certificationsand Recordkeeping.” This information isrequired to enable the Service to verifywhether individuals are displaced as a re-sult of the devastation caused by severestorms, tornadoes, and flooding in Mis-souri beginning on April 19, 2011, andthus warrant temporary housing in vacantlow-income housing units. The collectionof information is required to obtain a bene-fit. The likely respondents are individualsand businesses.

The estimated total annual recordkeep-ing burden is 125 hours.

The estimated annual burden perrecordkeeper is approximately 15 minutes.The estimated number of recordkeepers is500.

Books or records relating to a collectionof information must be retained as longas their contents may become material tothe administration of the internal revenuelaw. Generally, tax returns and tax returninformation are confidential, as requiredby 26 U.S.C. 6103.

DRAFTING INFORMATION

The principal author of this notice isDavid Selig of the Office of the AssociateChief Counsel (Passthroughs and SpecialIndustries). For further information re-garding this notice, contact Mr. Selig at(202) 622–3040 (not a toll-free call).

Credit for Carbon DioxideSequestration 2011 Section45Q Inflation AdjustmentFactor

Notice 2011–50

SECTION 1. PURPOSE

This notice publishes the inflation ad-justment factor for the credit for carbondioxide (CO2) sequestration under § 45Qof the Internal Revenue Code (§ 45Qcredit) for calendar year 2011. The infla-tion adjustment factor is used to determinethe amount of the credit allowable under§ 45Q. The calendar year 2011 infla-tion-adjusted credit applies to the amountof qualified CO2 captured by a taxpayerat a qualified facility and disposed of insecure geological storage.

SECTION 2. BACKGROUND

Section 45Q(a)(1) allows a credit of $20per metric ton of qualified CO2 that is cap-tured by the taxpayer at a qualified facil-ity, disposed of by the taxpayer in securegeological storage, and not used by thetaxpayer as a tertiary injectant. Section45Q(a)(2) allows a credit of $10 per metricton of qualified CO2 that is captured by thetaxpayer at a qualified facility, used by thetaxpayer as a tertiary injectant in a quali-fied enhanced oil or natural gas recoveryproject (EOR project), and disposed of bythe taxpayer in secure geological storage.

Section 45Q(b)(1) defines the term“qualified carbon dioxide” as CO2 cap-tured from an industrial source that wouldotherwise be released into the atmosphereas industrial emission of greenhouse gas(GHG), and that is measured at the sourceof capture and verified at the point of dis-posal or injection. Qualified CO2 includes

2011–27 I.R.B. 35 July 5, 2011

the initial deposit of captured CO2 usedas a tertiary injectant but does not includeCO2 that is re-captured, recycled, or oth-erwise re-injected as part of the enhancedoil and natural gas recovery process.

Section 45Q(c) defines the term “qual-ified facility” as an industrial facility thatis owned by the taxpayer, where carboncapture equipment is placed in service, andwhere at least 500,000 metric tons of CO2is captured during the taxable year.

Section 45Q(d)(2) provides that theSecretary, in consultation with the Admin-istrator of the Environmental ProtectionAgency (EPA), the Secretary of Energy,and the Secretary of the Interior, shallestablish regulations for determining ade-quate security measures for the geologicalstorage of CO2 under paragraph (1)(B)or (2)(C) of subsection (a) such that theCO2 does not escape into the atmosphere.See section 5 of Notice 2009–83, 2009–44I.R.B. 588, for procedures regarding se-cure geological storage.

Section 45Q(d)(5) allows the § 45Qcredit to the person that captures andphysically or contractually ensures thedisposal of or the use as a tertiary injectantof the qualified CO2, except to the extentprovided in regulations prescribed by theSecretary.

Under § 45Q(d)(7), for taxable yearsbeginning in a calendar year after 2009,the dollar amount contained in § 45Q(a)must be adjusted for inflation by multiply-ing such dollar amount by the inflation ad-justment factor for such calendar year de-termined under § 43(b)(3)(B), determinedby substituting “2008” for “1990.”

Section 43(b)(3)(B) defines “inflationadjustment factor” as, with respect to anycalendar year, a fraction the numerator ofwhich is the GNP implicit price deflatorfor the preceding calendar year and the de-nominator of which is the GNP implicitprice deflator for 1990. For purposes of§ 45Q(d)(7), with respect to 2011 calen-dar year, the inflation adjustment factor is afraction the numerator of which is the GNPimplicit price deflator for 2010 (110.654)and the denominator of which is the GNPimplicit price deflator for 2008 (108.626).

Section 45Q(e) provides that the § 45Qcredit will apply with respect to qualified

CO2 before the end of the calendar year inwhich the Secretary, in consultation withthe EPA, certifies that 75,000,000 metrictons of qualified CO2 have been taken intoaccount in accordance with § 45Q(a).

SECTION 3. INFLATIONADJUSTMENT FACTOR

The inflation adjustment factor for cal-endar year 2011 is 1.0187. The 45Q creditfor calendar year 2011 is $20.37 per met-ric ton of qualified CO2 under § 45Q(a)(1)and $10.19 per metric ton of qualified CO2under § 45Q(a)(2).

SECTION 4. DRAFTINGINFORMATION

The principal author of this notice isJennifer C. Bernardini of the Office ofAssociate Chief Counsel (Passthroughs& Special Industries). For furtherinformation regarding this notice, contactJennifer C. Bernardini at (202) 622–3110(not a toll-free call).

Extension of Interim Guidanceon Modification of Section833 Treatment of CertainHealth Organizations

Notice 2011–51

PURPOSE

This notice extends the interimguidance provided in Notice 2010–79,2010–49 I.R.B. 809, as clarified and modi-fied by Notice 2011–4, 2011–2 I.R.B. 282,and Rev. Proc. 2011–14, 2011–4 I.R.B.330, on the interpretation and applicationof § 833(c)(5) of the Internal RevenueCode (Code).

BACKGROUND

Section 9016 of the Patient Protectionsand Affordable Care Act, Pub. L. No.111–148, 124 Stat. 119 (2010), (Afford-able Care Act) added § 833(c)(5) to theCode, effective for taxable years begin-

ning after December 31, 2009. Section833(c)(5) provides that § 833 does not ap-ply to an otherwise-eligible organizationunless the organization’s medical loss ratio(MLR) during the taxable year is not lessthan 85 percent. For this purpose, an or-ganization’s MLR is equal to the fractionof the organization’s total premium rev-enue that is expended on reimbursementfor clinical services provided to enrolleesunder its policies during the taxable year(as reported under § 2718 of the PublicHealth Service Act).

In 2010, the Department of Health andHuman Services issued interim final regu-lations implementing § 2718 of the PublicHealth Service Act, 75 Fed. Reg. 74864(December 1, 2010) (to be codified at45 C.F.R. pt. 158).

Also in 2010, Treasury and the IRS is-sued Notice 2010–79, 2010–49 I.R.B. 809,providing transitional relief and interimguidance on the computation of a tax-payer’s MLR for purposes of § 833(c)(5),the consequences of nonapplication of§ 833 by reason of § 833(c)(5), andchanges in accounting method. The reliefapplied to the first taxable year beginningafter December 31, 2009.

EXTENSION OF INTERIM GUIDANCE

To provide affected taxpayers with suf-ficient time to adapt to the reporting re-quirements under § 2718 of the PublicHealth Service Act that bear on data usedto compute the MLR under § 833(c)(5) andto make any administrative or other adjust-ments that may be necessary in light of thepossible nonapplication of § 833 to suchtaxpayers, the interim guidance providedin Notice 2010–79 is extended to any tax-able year beginning in 2010 and the firsttaxable year beginning after December 31,2010.

CONTACT INFORMATION

The principal author of this noticeis Rebecca L. Baxter of the Office ofAssociate Chief Counsel (FinancialInstitutions & Products). For furtherinformation regarding this notice, contactRebecca L. Baxter at (202) 622–7117 (nota toll-free call).

July 5, 2011 36 2011–27 I.R.B.

Part IV. Items of General InterestPortion of Form 990 ScheduleH Optional for Tax-ExemptHospitals for Tax Year 2010

Announcement 2011–37

This announcement advises tax-ex-empt organizations that operate one ormore hospital facilities (“hospital orga-nizations”) that Part V, Section B (“PartV.B”) of Schedule H, Hospitals, of the2010 Form 990, Return of OrganizationExempt From Income Tax, is optional forthe 2010 tax year. Hospital organizationsthat are required to file the 2010 Form990 are not required to complete Part V.B,but they are required to complete all othersections of the 2010 Schedule H, includingSections A and C of Part V. In addition,a hospital organization must attach itsmost recent audited financial statementsto its 2010 Form 990 if its tax year be-gan after March 23, 2010, regardless ofwhether it completes Part V.B. See I.R.C.§ 6033(b)(15)(B); Instructions for Form990, Part IV, line 20b.

The Internal Revenue Service (IRS) hasdecided to make the entire Part V.B op-tional for the 2010 tax year to give thehospital community more time to familiar-

ize itself with the types of information theIRS will be collecting related to compli-ance with section 9007 of the Patient Pro-tection and Affordable Care Act (“Afford-able Care Act”), Pub. L. No. 111–148,124 Stat. 119 (March 23, 2010) and toaddress any ambiguities arising from theextensive revisions of the form and in-structions. Part V.B includes questionsrelated to the additional requirements en-acted by Section 9007 of the AffordableCare Act, such as questions regarding ahospital facility’s community health needsassessment (Lines 1 through 7, optional fortax years beginning on or before March 23,2012), financial assistance policy (Lines 8through 13), billing and collections (Lines14 through 18) and charges for medicalcare (lines 19 through 21). The IRS contin-ues to invite comments on how to improvethe clarity and reduce the burden of report-ing the information related to these addi-tional requirements on the Form 990 andSchedule H. (For details on how to submitcomments regarding the Form 990, see In-structions for 2010 Form 990, p. 46.)

No penalties under section6652(c)(1)(A)(ii) of the Internal RevenueCode (Code) will be assessed for failure toinclude information required to be shown

on a Form 990 because any line or lines ofPart V.B is left incomplete. If an affectedhospital organization receives a section6652(c)(1)(A)(ii) penalty notice from theIRS solely for not completing any line orlines of Part V.B for the tax year 2010,the hospital organization should call thetelephone number on the penalty noticeto request that the IRS abate the penalty.Section 6652(c)(1)(A)(ii) penalties stillapply to the failure to complete the othersections of the Schedule H or the Form990.

This announcement does not affect theeffective dates of section 501(r) or anyother provision added to the Code by sec-tion 9007 of the Affordable Care Act.

Announcement 2011–20, which directshospital organizations not to file the 2010Form 990 before July 1, 2011, and grantshospital organizations with return duedates prior to August 15, 2011, an auto-matic three-month extension of time tofile a Form 990 for 2010, is still in effect.

For further information regard-ing this announcement, please contactSteve Clarke at (202) 283–9474 (not atoll-free number).

2011–27 I.R.B. 37 July 5, 2011

Definition of TermsRevenue rulings and revenue procedures(hereinafter referred to as “rulings”) thathave an effect on previous rulings use thefollowing defined terms to describe the ef-fect:

Amplified describes a situation whereno change is being made in a prior pub-lished position, but the prior position is be-ing extended to apply to a variation of thefact situation set forth therein. Thus, ifan earlier ruling held that a principle ap-plied to A, and the new ruling holds that thesame principle also applies to B, the earlierruling is amplified. (Compare with modi-fied, below).

Clarified is used in those instanceswhere the language in a prior ruling is be-ing made clear because the language hascaused, or may cause, some confusion.It is not used where a position in a priorruling is being changed.

Distinguished describes a situationwhere a ruling mentions a previously pub-lished ruling and points out an essentialdifference between them.

Modified is used where the substanceof a previously published position is beingchanged. Thus, if a prior ruling held that aprinciple applied to A but not to B, and thenew ruling holds that it applies to both A

and B, the prior ruling is modified becauseit corrects a published position. (Comparewith amplified and clarified, above).

Obsoleted describes a previously pub-lished ruling that is not considered deter-minative with respect to future transac-tions. This term is most commonly used ina ruling that lists previously published rul-ings that are obsoleted because of changesin laws or regulations. A ruling may alsobe obsoleted because the substance hasbeen included in regulations subsequentlyadopted.

Revoked describes situations where theposition in the previously published rulingis not correct and the correct position isbeing stated in a new ruling.

Superseded describes a situation wherethe new ruling does nothing more than re-state the substance and situation of a previ-ously published ruling (or rulings). Thus,the term is used to republish under the1986 Code and regulations the same po-sition published under the 1939 Code andregulations. The term is also used whenit is desired to republish in a single rul-ing a series of situations, names, etc., thatwere previously published over a period oftime in separate rulings. If the new rul-ing does more than restate the substance

of a prior ruling, a combination of termsis used. For example, modified and su-perseded describes a situation where thesubstance of a previously published rulingis being changed in part and is continuedwithout change in part and it is desired torestate the valid portion of the previouslypublished ruling in a new ruling that is selfcontained. In this case, the previously pub-lished ruling is first modified and then, asmodified, is superseded.

Supplemented is used in situations inwhich a list, such as a list of the names ofcountries, is published in a ruling and thatlist is expanded by adding further names insubsequent rulings. After the original rul-ing has been supplemented several times, anew ruling may be published that includesthe list in the original ruling and the ad-ditions, and supersedes all prior rulings inthe series.

Suspended is used in rare situations toshow that the previous published rulingswill not be applied pending some futureaction such as the issuance of new oramended regulations, the outcome of casesin litigation, or the outcome of a Servicestudy.

AbbreviationsThe following abbreviations in current useand formerly used will appear in materialpublished in the Bulletin.

A—Individual.Acq.—Acquiescence.B—Individual.BE—Beneficiary.BK—Bank.B.T.A.—Board of Tax Appeals.C—Individual.C.B.—Cumulative Bulletin.CFR—Code of Federal Regulations.CI—City.COOP—Cooperative.Ct.D.—Court Decision.CY—County.D—Decedent.DC—Dummy Corporation.DE—Donee.Del. Order—Delegation Order.DISC—Domestic International Sales Corporation.DR—Donor.E—Estate.EE—Employee.E.O.—Executive Order.

ER—Employer.ERISA—Employee Retirement Income Security Act.EX—Executor.F—Fiduciary.FC—Foreign Country.FICA—Federal Insurance Contributions Act.FISC—Foreign International Sales Company.FPH—Foreign Personal Holding Company.F.R.—Federal Register.FUTA—Federal Unemployment Tax Act.FX—Foreign corporation.G.C.M.—Chief Counsel’s Memorandum.GE—Grantee.GP—General Partner.GR—Grantor.IC—Insurance Company.I.R.B.—Internal Revenue Bulletin.LE—Lessee.LP—Limited Partner.LR—Lessor.M—Minor.Nonacq.—Nonacquiescence.O—Organization.P—Parent Corporation.PHC—Personal Holding Company.PO—Possession of the U.S.PR—Partner.

PRS—Partnership.PTE—Prohibited Transaction Exemption.Pub. L.—Public Law.REIT—Real Estate Investment Trust.Rev. Proc.—Revenue Procedure.Rev. Rul.—Revenue Ruling.S—Subsidiary.S.P.R.—Statement of Procedural Rules.Stat.—Statutes at Large.T—Target Corporation.T.C.—Tax Court.T.D. —Treasury Decision.TFE—Transferee.TFR—Transferor.T.I.R.—Technical Information Release.TP—Taxpayer.TR—Trust.TT—Trustee.U.S.C.—United States Code.X—Corporation.Y—Corporation.Z —Corporation.

July 5, 2011 i 2011–27 I.R.B.

Numerical Finding List1

Bulletin 2011–27

Announcements:

2011-37, 2011-27 I.R.B. 37

Notices:

2011-47, 2011-27 I.R.B. 34

2011-50, 2011-27 I.R.B. 35

2011-51, 2011-27 I.R.B. 36

Revenue Rulings:

2011-14, 2011-27 I.R.B. 31

Treasury Decisions:

9527, 2011-27 I.R.B. 1

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2011–1 through 2011–26 is in Internal Revenue Bulletin2011–26, dated June 27, 2011.

2011–27 I.R.B. ii July 5, 2011

Finding List of Current Actions onPreviously Published Items1

Bulletin 2011–27

1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2011–1 through 2011–26 is in Internal Revenue Bulletin 2011–26, dated June 27, 2011.

July 5, 2011 iii 2011–27 I.R.B.

INTERNAL REVENUE BULLETINThe Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue

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