Reg 122379-02_Supplmnt

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Federal Register / Vol. 68, No. 249 / Tuesday, December 30, 2003 / Proposed Rules

Dated: December 22, 2003.
Diane M. Stuart,
Director, Office on Violence Against Women.
[FR Doc. 03–32017 Filed 12–29–03; 8:45 am]
BILLING CODE 4410–18–P

DEPARTMENT OF THE TREASURY
Office of the Secretary
31 CFR Part 10
[REG–122379–02]
RIN 1545–BA70

Regulations Governing Practice Before
the Internal Revenue Service
AGENCY: Office of the Secretary,
Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
SUMMARY: This notice proposes
modifications of the regulations
governing practice before the Internal
Revenue Service (Circular 230). These
regulations affect individuals who are
eligible to practice before the IRS. The
proposed modifications set forth best
practices for tax advisors providing
advice to taxpayers relating to Federal
tax issues or submissions to the IRS and
modify the standards for certain tax
shelter opinions. This document also
provides notice of a public hearing
regarding the proposed regulations.
DATES: Comments: Written or
electronically generated comments must
be received by February 13, 2004.
Public Hearing: Outlines of topics to
be discussed at the public hearing
scheduled for February 18, 2004, in the
Auditorium of the Internal Revenue
Building at 1111 Constitution Avenue,
NW., Washington, DC 20224, must be
received by February 11, 2004.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–122379–02), room
5203, Internal Revenue Service, POB
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be hand
delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to: CC:PA:LPD:PR (REG–122379–02),
Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue,
NW., Washington, DC. Alternatively,
taxpayers may submit comments
electronically via the IRS Internet site
at: www.irs.gov/regs.
FOR FURTHER INFORMATION CONTACT:
Concerning issues for comment, Heather
L. Dostaler or Bridget E. Tombul at (202)
622–4940; concerning submissions of
comments, Guy Traynor of the
Publications and Regulations Branch at
(202) 622–7180 (not toll-free numbers).

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SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act
The collection of information
contained in this notice of proposed
rulemaking has been submitted to the
Office of Management and Budget for
review in accordance with the
Paperwork Reduction Act of 1995 (44
U.S.C. 3507). Comments on the
collection of information should be sent
to the Office of Management and
Budget, Attn: Desk Officer for the
Department of the Treasury, Office of
Information and Regulatory Affairs,
Washington, DC 20503, with copies to
the Internal Revenue Service, Attn: IRS
Reports Clearance Officer,
SE:W:CAR:MP:T:T:SP, Washington, DC
20224. Comments on the collection of
information should be received by
March 1, 2004. Comments are
specifically requested concerning:
Whether the proposed collection of
information is necessary for the proper
performance of the Office of
Professional Responsibility, including
whether the information will have
practical utility;
The accuracy of the estimated burden
associated with the proper collection of
information (see below);
How the quality, utility, and clarity of
the information to be collected may be
enhanced;
How the burden of complying with
the proposed collection of information
may be minimized, including through
the application of automated collection
techniques or other forms of information
technology; and
Estimates of capital or start-up costs
and costs of operation, maintenance,
and purchase of services to provide
information.
The collections of information
(disclosure requirements) in these
proposed regulations are in § 10.35(d).
Section 10.35(d) requires a practitioner
providing a tax shelter opinion to make
certain disclosures in the beginning of
marketed tax shelter opinions, limited
scope opinions and opinions that fail to
conclude at a confidence level of at least
more likely than not. In addition,
certain relationships between the
practitioner and a person promoting or
marketing a tax shelter must be
disclosed. A practitioner may be
required to make one or more disclosure
at the beginning of an opinion. The
collection of this material helps to
ensure that taxpayers who receive a tax
shelter opinion are informed of any facts
or circumstances that might limit the
taxpayer’s use of the opinion. The
collection of information is mandatory.
Estimated total annual disclosure
burden is 13,333 hours.

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Estimated annual burden per
disclosing practitioner varies from 5 to
10 minutes, depending on individual
circumstances, with an estimated
average of 8 minutes.
Estimated number of disclosing
practitioners is 100,000.
Estimated annual frequency of
responses is on occasion.
An agency may not conduct or
sponsor, and a person is not required to
respond to a collection of information
unless it displays a valid control
number assigned by the Office of
Management and Budget.
Books or records relating to a
collection of information must be
retained as long as their contents may
become material in the administration
of any internal revenue law. Generally,
tax returns and tax return information
are confidential, as required by section
6103 of the Internal Revenue Code.
Background
Section 330 of title 31 of the United
States Code authorizes the Secretary of
the Treasury to regulate the practice of
representatives before the Treasury
Department. The Secretary has
published the regulations in Circular
230 (31 CFR part 10). On February 23,
1984, the regulations were amended to
provide standards for tax shelter
opinions (49 FR 6719). On May 5, 2000,
an advance notice of proposed
rulemaking was published (65 FR
30375) which requested comments
regarding amendments to the standards
of practice governing tax shelters and
other general matters. On January 12,
2001, a notice of proposed rulemaking
(66 FR 3276) was published that
proposed amendments to the
regulations relating to practice before
the Internal Revenue Service in general
and addressing tax shelter opinions in
particular. On July 26, 2002, final
regulations (67 FR 48760) were issued
incorporating only the non-tax shelter
related matters. The IRS and the
Treasury Department announced that
regulations governing standards for tax
shelter opinions would be proposed
again at a later date.
This document proposes new
proposed amendments to the standards
governing tax shelter opinions and
withdraws proposed amendments to
§§ 10.33, 10.35 and 10.36 of the
regulations governing practice before
the IRS that were published in 2001. See
66 FR 3276 (Jan. 12, 2001).
Explanation of Provisions
Tax advisors play an increasingly
important role in the Federal tax system,
which is founded on principles of
voluntary compliance. The tax system is

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Federal Register / Vol. 68, No. 249 / Tuesday, December 30, 2003 / Proposed Rules
best served when the public has
confidence in the honesty and integrity
of the professionals providing tax
advice. To restore, promote, and
maintain the public’s confidence in
those individuals and firms, these
proposed regulations set forth best
practices applicable to all tax advisors.
These regulations also amend the
mandatory requirements for
practitioners who provide certain tax
shelter opinions. These regulations are
limited to practice before the IRS and do
not alter or supplant other ethical
standards applicable to practitioners.
The standards set forth in these
proposed regulations differ from the
January 12, 2001 proposed regulations
in several ways. First, § 10.33 prescribes
best practices for all tax advisors.
Second, § 10.35 combines and modifies
the standards applicable to marketed
and more likely than not tax shelter
opinions in former § 10.33 (tax shelter
opinions used to market tax shelters)
and former § 10.35 (more likely than not
tax shelter opinions) of the January 12,
2001 proposed regulations. Third, these
regulations revise proposed § 10.36,
which provides procedures for ensuring
compliance with §§ 10.33 and 10.35.
Finally, provisions relating to advisory
committees to the Office of Professional
Responsibility are provided in new
§ 10.37. The Treasury Department and
the IRS will publish conforming
amendments to §§ 10.22 and 10.52 in a
separate notice of proposed rulemaking.
Best Practices
To ensure the integrity of the tax
system, tax professionals should adhere
to best practices when providing advice
or assisting their clients in the
preparation of a submission to the IRS.
Section 10.33 describes the best
practices to be observed by all tax
advisors in providing clients with the
highest quality representation. These
best practices include: (1)
Communicating clearly with the client
regarding the terms of the engagement
and the form and scope of the advice or
assistance to be rendered; (2)
establishing the relevant facts, including
evaluating the reasonableness of any
assumptions or representations; (3)
relating applicable law, including
potentially applicable judicial doctrines,
to the relevant facts; (4) arriving at a
conclusion supported by the law and
the facts; (5) advising the client
regarding the import of the conclusions
reached; and (6) acting fairly and with
integrity in practice before the IRS.

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Standards for Certain Tax Shelter
Opinions
Section 10.35 prescribes requirements
for practitioners providing more likely
than not and marketed tax shelter
opinions. A more likely than not tax
shelter opinion is a tax shelter opinion
that reaches a conclusion of at least
more likely than not with respect to one
or more material Federal tax issue(s). A
marketed tax shelter opinion is a tax
shelter opinion, including a more likely
than not tax shelter opinion, that a
practitioner knows, or has reason to
know, will be used or referred to by a
person other than the practitioner (or a
person who is a member of, associated
with, or employed by the practitioner’s
firm) in promoting, marketing or
recommending a tax shelter to one or
more taxpayers.
Definition of Tax Shelter Opinion
These proposed regulations retain the
definition of tax shelter proposed in
January 2001 by applying the definition
found in section 6662 to all taxes under
the Internal Revenue Code. A number of
commentators expressed concern that
this definition is overly broad,
encompasses routine tax matters, and is
difficult to administer by practitioners
and the IRS. After careful consideration
of these issues, the Treasury Department
and the IRS have determined that the
definition in the proposed regulations
best defines the scope of these
regulations. Section 10.35 has been
modified, however, to address
commentators’ concerns by excluding
from the definition of a tax shelter
opinion preliminary advice provided
pursuant to an engagement in which the
practitioner is expected subsequently to
provide an opinion that satisfies the
requirements of this section. In
addition, under § 10.35(a)(3)(ii), a
practitioner may provide an opinion
that is limited to some, but not all,
material Federal tax issues that may be
relevant to the treatment of a tax shelter
item if the taxpayer and the practitioner
agree to limit the scope of the opinion.
Such a limited scope opinion cannot be
a marketed tax shelter opinion, and all
limited scope opinions must contain the
appropriate disclosures described
below.
Requirements for Tax Shelter Opinions
The requirements for all more likely
than not and marketed tax shelter
opinions include: (1) Identifying and
considering all relevant facts and not
relying on any unreasonable factual
assumptions or representations; (2)
relating the applicable law (including
potentially applicable judicial

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doctrines) to the relevant facts and not
relying on any unreasonable legal
assumptions, representations or
conclusions; (3) considering all material
Federal tax issues and reaching a
conclusion, supported by the facts and
the law, with respect to each material
Federal tax issue; and (4) providing an
overall conclusion as to the Federal tax
treatment of the tax shelter item or items
and the reasons for that conclusion.
In addition to the exception to the
requirements for limited scope opinions
discussed above, in the case of a
marketed tax shelter opinion, a
practitioner is not expected to identify
and ascertain facts peculiar to a
taxpayer to whom the transaction is
marketed, but the opinion must include
the appropriate disclosure described
below. Moreover, if a practitioner is
unable to reach a conclusion with
respect to one or more material Federal
tax issue(s) or to reach an overall
conclusion in a tax shelter opinion, the
opinion must state that the practitioner
is unable to reach a conclusion with
respect to those issues or to reach an
overall conclusion and describe the
reasons that the practitioner is unable to
reach such a conclusion. If the
practitioner fails to reach a conclusion
at a confidence level of at least more
likely than not with respect to one or
more material Federal tax issue(s), the
opinion must include the appropriate
disclosures described below.
Required Disclosures
Section 10.35(d) provides disclosures
that are required to be made in the
beginning of marketed tax shelter
opinions, limited scope opinions, and
opinions that fail to reach a conclusion
at a confidence level of at least more
likely than not. In addition, certain
relationships between the practitioner
and a person promoting or marketing a
tax shelter must be disclosed. A
practitioner may be required to make
more than one of the disclosures
described below.
1. Relationship Between Practitioner
and Promoter
Under § 10.35(d)(1), a practitioner
must disclose if the practitioner has a
compensation arrangement with any
person (other than the client for whom
the opinion is prepared) with respect to
the promoting, marketing or
recommending of a tax shelter discussed
in the opinion. A practitioner also must
disclose if there is any referral
agreement between the practitioner and
any person (other than the client for
whom the opinion is prepared) engaged
in the promoting, marketing or

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recommending of the tax shelter
discussed in the opinion.
2. Marketed Tax Shelter Opinion
Under § 10.35(d)(2), a practitioner
must disclose that a marketed opinion
may not be sufficient for a taxpayer to
use for the purpose of avoiding
penalties under section 6662(d) of the
Code. The practitioner also must state
that taxpayers should seek advice from
their own tax advisors.
3. Limited Scope Opinion
Under § 10.35(d)(3), a practitioner
must disclose in a limited scope opinion
that additional issue(s) may exist that
could affect the Federal tax treatment of
the tax shelter addressed in the opinion,
that the opinion does not consider or
reach a conclusion with respect to those
additional issues and that the opinion
was not written, and cannot be used by
the recipient, for the purpose of
avoiding penalties under section
6662(d) of the Code with respect to
those issues outside the scope of the
opinion.
4. Opinions That Fail To Reach a
Conclusion at a Confidence Level of at
Least More Likely Than Not
Under § 10.35(d)(4), a practitioner
must disclose that the opinion fails to
reach a conclusion at a confidence level
of at least more likely than not with
respect to one or more material Federal
tax issue(s) addressed by the opinion
and that the opinion was not written,
and cannot be used by the recipient, for
the purpose of avoiding penalties under
section 6662(d) of the Code with respect
to such issue(s).
Procedures To Ensure Compliance
Section 10.36 provides that tax
advisors with responsibility for
overseeing a firm’s practice before the
IRS should take reasonable steps to
ensure that the firm’s procedures for all
members, associates, and employees are
consistent with the best practices
described in § 10.33. In the case of tax
shelter opinions, a practitioner with this
oversight responsibility must take
reasonable steps to ensure that the firm
has adequate procedures in effect for
purposes of complying with § 10.35.
Advisory Committees on the Integrity of
Tax Professionals
Section 10.37 authorizes the Director
of the Office of Professional
Responsibility to establish one or more
advisory committees composed of at
least five individuals authorized to
practice before the IRS. Under
procedures prescribed by the Director
and at the request of the Director, an

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advisory committee may review and
make recommendations regarding
professional standards or best practices
for tax advisors or may advise the
Director whether a practitioner may
have violated §§ 10.35 or 10.36.
Proposed Effective Date
These regulations are proposed to
apply on the date that final regulations
are published in the Federal Register.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a
significant regulatory action as defined
in Executive Order 12866. Therefore, a
regulatory assessment is not required. It
is hereby certified that these regulations
will not have a significant economic
impact on a substantial number of small
entities. Persons authorized to practice
before the IRS have long been required
to comply with certain standards of
conduct. The added disclosure
requirements for tax shelter opinions
imposed by these regulations will not
have a significant economic impact on
a substantial number of small entities
because, as previously noted, the
estimated burden of disclosures is
minimal. This is because practitioners
have the information needed to
determine whether some of the
disclosures are required before the
opinion is prepared and for the other
disclosures the regulations provide
practitioners with the language to be
included in the opinion. Therefore, a
regulatory flexibility analysis under the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. Pursuant to
section 7805(f) of the Internal Revenue
Code, this notice of proposed
rulemaking will be submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment
on its impact on small businesses.
Comments and Public Hearing
Before the regulations are adopted as
final regulations, consideration will be
given to any written comments and
electronic comments that are submitted
timely to the IRS. The IRS and Treasury
Department specifically request
comments on the clarity of the proposed
regulations and how they can be made
easier to understand. All comments will
be available for public inspection and
copying.
The public hearing is scheduled for
February 18, 2004, at 10 a.m., and will
be held in the Auditorium, Internal
Revenue Building, 1111 Constitution
Avenue, NW., Washington, DC. Due to
building security procedures, visitors
must enter at the Constitution Avenue
entrance. All visitors must present

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photo identification to enter the
building. Visitors will not be admitted
beyond the immediate entrance area
more than 30 minutes before the hearing
starts. For information about having
your name placed on the building
access list to attend the hearing, see the
FOR FURTHER INFORMATION CONTACT

section of this preamble.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing. Persons who wish
to present oral comments at the hearing
must submit written or electronic
comments by February 13, 2004, and
submit an outline of the topics to be
discussed and the time to be devoted to
each topic by February 11, 2004. A
period of 10 minutes will be allocated
to each person for making comments.
An agenda showing the scheduling of
the speakers will be prepared after the
deadline for receiving outlines has
passed. Copies of the agenda will be
available free of charge at the hearing.
Drafting Information
The principal authors of the
regulations are Heather L. Dostaler,
Bridget E. Tombul, and Brinton T.
Warren of the Office of the Associate
Chief Counsel (Procedure and
Administration), Administrative
Provisions and Judicial Practice
Division, but other personnel from the
IRS and Treasury Department
participated in their development.
List of Subjects in 31 CFR Part 10
Accountants, Administrative practice
and procedure, Appraisers, Enrolled
actuaries, Lawyers, Reporting and
recordkeeping requirements, Taxes.
Proposed Amendments to the
Regulations
Accordingly, 31 CFR part 10 is
proposed to be amended as follows:
1. The authority citation for subtitle
A, part 10 continues to read as follows:
Authority: Sec. 3, 23 Stat. 258, secs. 2–12,
60 Stat. 237 et seq.; 5 U.S.C. 301, 500, 551–
559; 31 U.S.C. 330; Reorg. Plan No. 26 of
1950, 15 FR 4935, 64 Stat. 1280, 3 CFR,
1949–1953 Comp., P. 1017.

2. Section 10.33 is revised to read as
follows:
§ 10.33

Best practices for tax advisors.

(a) Best practices. Tax advisors should
provide clients with the highest quality
representation concerning Federal tax
issues by adhering to best practices in
providing advice and in preparing or
assisting in the preparation of a
submission to the Internal Revenue
Service. Best practices include the
following:
(1) Communicating clearly with the
client regarding the terms of the

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engagement. For example, the advisor
should determine the client’s expected
purpose for and use of the advice and
should have a clear understanding with
the client regarding the form and scope
of the advice or assistance to be
rendered.
(2) Establishing the facts, determining
which facts are relevant, and evaluating
the reasonableness of any assumptions
or representations.
(3) Relating the applicable law
(including potentially applicable
judicial doctrines) to the relevant facts.
(4) Arriving at a conclusion supported
by the law and the facts.
(5) Advising the client regarding the
import of the conclusions reached,
including, for example, whether a
taxpayer may avoid penalties for a
substantial understatement of income
tax under section 6662(d) of the Internal
Revenue Code if a taxpayer acts in
reliance on the advice.
(6) Acting fairly and with integrity in
practice before the Internal Revenue
Service.
(b) Effective date. This section is
effective on the date that final
regulations are published in the Federal
Register.
3. Section 10.35 is added to subpart
B to read as follows:
§ 10.35 Requirements for certain tax
shelter opinions.

(a) In general. A practitioner
providing a more likely than not tax
shelter opinion or a marketed tax shelter
opinion must comply with each of the
following requirements.
(1) Factual matters. (i) The
practitioner must use reasonable efforts
to identify and ascertain the facts,
which may relate to future events if a
transaction is prospective or proposed,
and determine which facts are relevant.
The opinion must identify and consider
all relevant facts.
(ii) The practitioner must not base the
opinion on any unreasonable factual
assumptions (including assumptions as
to future events), such as a factual
assumption that the practitioner knows
or should know is incorrect or
incomplete. For example, it is
unreasonable to assume that a
transaction has a business purpose or
that a transaction is potentially
profitable apart from tax benefits, or to
make an assumption with respect to a
material valuation issue. In the case of
any marketed tax shelter opinion, the
practitioner is not expected to identify
or ascertain facts peculiar to a taxpayer
to whom the transaction may be
marketed, but the opinion must include
the appropriate disclosure(s) required
under paragraph (d) of this section.

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(iii) The practitioner must not base
the opinion on any unreasonable factual
representations, statements or findings
of the taxpayer or any other person,
such as a factual representation that the
practitioner knows or should know is
incorrect or incomplete. For example, a
practitioner may not rely on a taxpayer’s
factual representation that a transaction
has a business purpose if the
representation fails to include a specific
description of the business purpose or
the practitioner knows or should know
that the representation is incorrect or
incomplete.
(2) Relate law to facts. (i) The
practitioner must relate the applicable
law (including potentially applicable
judicial doctrines) to the relevant facts.
(ii) The practitioner must not assume
the favorable resolution of any material
Federal tax issue except as provided in
paragraphs (a)(3)(ii) and (b) of this
section, or otherwise base an opinion on
any unreasonable legal assumptions,
representations, or conclusions.
(iii) The practitioner’s opinion must
not contain internally inconsistent legal
analyses or conclusions.
(3) Evaluation of material Federal tax
issues. (i) The practitioner must
consider all material Federal tax issues
except as provided in paragraphs
(a)(3)(ii) and (b) of this section.
(ii) The practitioner may provide an
opinion that considers less than all of
the material Federal tax issues if—
(A) The taxpayer and the practitioner
agree to limit the scope of the opinion
to one or more Federal tax issue(s);
(B) The opinion is not a marketed tax
shelter opinion; and
(C) The opinion includes the
appropriate disclosure(s) required under
paragraph (d) of this section.
(iii) The practitioner must provide his
or her conclusion as to the likelihood
that the taxpayer will prevail on the
merits with respect to each material
Federal tax issue. If the practitioner is
unable to reach a conclusion with
respect to one or more material Federal
tax issue(s), the opinion must state that
the practitioner is unable to reach a
conclusion with respect to those issues.
The practitioner must describe the
reasons for the conclusions, including
the facts and analysis supporting the
conclusions, or describe the reasons that
the practitioner is unable to reach a
conclusion as to one or more material
Federal tax issue(s). If the practitioner
fails to reach a conclusion at a
confidence level of at least more likely
than not with respect to one or more
material Federal tax issue(s), the
opinion must include the appropriate
disclosure(s) required under paragraph
(d) of this section.

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(iv) The practitioner must not take
into account the possibility that a tax
return will not be audited, that an issue
will not be raised on audit, or that an
issue will be settled.
(4) Overall conclusion. The
practitioner must provide an overall
conclusion as to the likelihood that the
Federal tax treatment of the tax shelter
item or items is the proper treatment
and the reasons for that conclusion. If
the practitioner is unable to reach an
overall conclusion, the opinion must
state that the practitioner is unable to
reach an overall conclusion and
describe the reasons for the
practitioner’s inability to reach a
conclusion.
(b) Competence to provide opinion;
reliance on opinions of others. (1) The
practitioner must be knowledgeable in
all of the aspects of Federal tax law
relevant to the opinion being rendered.
If the practitioner is not sufficiently
knowledgeable to render an informed
opinion with respect to particular
material Federal tax issues, the
practitioner may rely on the opinion of
another practitioner with respect to
these issues unless the practitioner
knows or should know that such
opinion should not be relied on. If a
practitioner relies on the opinion of
another practitioner, the relying
practitioner must identify the other
opinion and set forth the conclusions
reached in the other opinion.
(2) The practitioner must be satisfied
that the combined analysis of the
opinions, taken as a whole, satisfies the
requirements of this section.
(c) Definitions. For purposes of this
section—
(1) A practitioner includes any
individual described in § 10.2(e).
(2) The term tax shelter includes any
partnership or other entity, any
investment plan or arrangement, or any
other plan or arrangement, a significant
purpose of which is the avoidance or
evasion of any tax imposed by the
Internal Revenue Code. A tax shelter
may give rise to one or more tax shelter
items.
(3) A tax shelter item is, with respect
to a tax shelter, an item of income, gain,
loss, deduction, or credit, the existence
or absence of a taxable transfer of
property, or the value of property.
(4) Tax shelter opinion—(i) In general.
A tax shelter opinion is written advice
by a practitioner concerning the Federal
tax aspects of any Federal tax issue
relating to a tax shelter item or items.
(ii) Excluded advice. A tax shelter
opinion does not include written advice
provided to a client during the course of
an engagement pursuant to which the
practitioner is expected subsequently to

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provide written advice to the client that
satisfies the requirements of this
section, or written advice concerning
the qualification of a qualified plan.
(iii) Included advice. A tax shelter
opinion includes the Federal tax aspects
or tax risks portion of offering materials
prepared by or at the direction of a
practitioner. Similarly, a financial
forecast or projection prepared by or at
the direction of a practitioner is a tax
shelter opinion if it is predicated on
assumptions regarding Federal tax
aspects of the investment.
(5) A more likely than not tax shelter
opinion is a tax shelter opinion that
reaches a conclusion at a confidence
level of at least more likely than not
(that is, greater than 50 percent) that one
or more material Federal tax issues
would be resolved in the taxpayer’s
favor.
(6) A marketed tax shelter opinion is
a tax shelter opinion, including a more
likely than not tax shelter opinion, that
a practitioner knows or has reason to
know will be used or referred to by a
person other than the practitioner (or a
person who is a member of, associated
with, or employed by the practitioner’s
firm) in promoting, marketing or
recommending the tax shelter to one or
more taxpayers.
(7) A material Federal tax issue is any
Federal tax issue for which the Internal
Revenue Service has a reasonable basis
for a successful challenge and the
resolution of which could have a
significant impact, whether beneficial or
adverse and under any reasonably
foreseeable circumstance, on the Federal
tax treatment of a taxpayer’s tax shelter
item or items.
(d) Required disclosures. An opinion
must contain all of the following
disclosures that apply—(1) Relationship
between promoter and practitioner. A
practitioner must disclose in the
beginning of the opinion the existence
of—
(i) Any compensation arrangement,
such as a referral fee or a fee-sharing
arrangement, between the practitioner
(or the practitioner’s firm) and any
person (other than the client for whom
the opinion is prepared) with respect to
the promoting, marketing or
recommending of a tax shelter discussed
in the opinion; or
(ii) Any referral agreement between
the practitioner (or the practitioner’s
firm) and a person (other than the client
for whom the opinion is prepared)
engaged in the promoting, marketing or
recommending of the tax shelter
discussed in the opinion.
(2) Marketed tax shelter opinions. A
practitioner must disclose in the
beginning of a marketed tax shelter

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opinion that with respect to any
material Federal tax issue for which the
opinion reaches a conclusion at a
confidence level of at least more likely
than not—
(i) The opinion may not be sufficient
for a taxpayer to use for the purpose of
avoiding penalties relating to a
substantial understatement of income
tax under section 6662(d) of the Internal
Revenue Code; and
(ii) Taxpayers should seek advice
based on their individual circumstances
with respect to those material Federal
tax issues from their own tax advisor(s).
(3) Limited scope opinions. If a
practitioner provides an opinion that is
limited to one or more Federal tax
issue(s) agreed to by the taxpayer and
the practitioner, the practitioner must
disclose in the beginning of the opinion
that—
(i) The opinion is limited to the one
or more Federal tax issue(s) agreed to by
the taxpayer and the practitioner and
addressed in the opinion;
(ii) Additional issue(s) may exist that
could affect the Federal tax treatment of
the tax shelter addressed in the opinion
and the opinion does not consider or
provide a conclusion with respect to
any additional issue(s); and
(iii) With respect to any material
Federal tax issue(s) outside the limited
scope of the opinion, the opinion was
not written, and cannot be used by the
recipient, for the purpose of avoiding
penalties relating to a substantial
understatement of income tax under
section 6662(d) of the Internal Revenue
Code.
(4) Opinions that fail to reach a more
likely than not conclusion. If a
practitioner does not reach a conclusion
at a confidence level of at least more
likely than not with respect to a material
Federal tax issue addressed by the
opinion, the practitioner must disclose
in the beginning of the opinion that—
(i) The opinion does not reach a
conclusion at a confidence level of at
least more likely than not that with
respect to one or more material Federal
tax issues addressed by the opinion; and
(ii) With respect to those material
Federal tax issues, the opinion was not
written, and cannot be used by the
recipient, for the purpose of avoiding
penalties relating to a substantial
understatement of income tax under
section 6662(d) of the Internal Revenue
Code.
(e) Effect of opinion that meets these
standards. An opinion that meets these
requirements satisfies the practitioner’s
responsibilities under this section, but
the persuasiveness of the opinion with
regard to the tax issues in question and
the taxpayer’s good faith reliance on the

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opinion will be separately determined
under applicable provisions of the law
and regulations.
(f) Effective date. This section applies
to tax shelter opinions rendered after
the date that final regulations are
published in the Federal Register.
4. Section 10.36 is added to subpart
B read as follows:
§ 10.36

Procedures to ensure compliance.

(a) Best practices for tax advisors. Tax
advisors with responsibility for
overseeing a firm’s practice of providing
advice concerning Federal tax issues or
of preparing or assisting in the
preparation of submissions to the
Internal Revenue Service should take
reasonable steps to ensure that the
firm’s procedures for all members,
associates, and employees are consistent
with the best practices described in
§ 10.33.
(b) Requirements for certain tax
shelter opinions. Any practitioner who
has (or practitioners who have or share)
principal authority and responsibility
for overseeing a firm’s practice of
providing advice concerning Federal tax
issues must take reasonable steps to
ensure that the firm has adequate
procedures in effect for all members,
associates, and employees for purposes
of complying with § 10.35. A
practitioner will be subject to discipline
for failing to comply with the
requirements of this paragraph if—
(1) The practitioner through
willfulness, recklessness, or gross
incompetence does not take reasonable
steps to ensure that the firm has
adequate procedures to comply with
§ 10.35, and one or more individuals
who are members of, associated with, or
employed by, the firm are, or have,
engaged in a pattern or practice, in
connection with their practice with the
firm, of failing to comply with § 10.35;
or
(2) The practitioner knows or has
reason to know that one or more
individuals who are members of,
associated with, or employed by, the
firm are, or have, engaged in a practice,
in connection with their practice with
the firm, that does not comply with
§ 10.35 and the practitioner, through
willfulness, recklessness, or gross
incompetence fails to take prompt
action to correct the noncompliance.
(c) Effective date. Paragraph (a) of this
section is effective on the date that final
regulations are published in the Federal
Register. Paragraph (b) of this section
applies to tax shelter opinions rendered
after the date that final regulations are
published in the Federal Register.
5. Section 10.37 is added to read as
follows:

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Federal Register / Vol. 68, No. 249 / Tuesday, December 30, 2003 / Proposed Rules
§ 10.37 Establishment of Advisory
Committees.

(a) Advisory committees. To promote
and maintain the public’s confidence in
tax advisors, the Director of the Office
of Professional Responsibility is
authorized to establish one or more
advisory committees composed of at
least five individuals authorized to
practice before the Internal Revenue
Service. Under procedures prescribed
by the Director, an advisory committee
may review and make recommendations
regarding professional standards or best
practices for tax advisors, or more
particularly, whether a practitioner may
have violated §§ 10.35 or 10.36.
(b) Effective date. This section is
effective on the date that final
regulations are published in the Federal
Register.
6. Section 10.93 is revised to read as
follows:
§ 10.93

Effective date.

Except as otherwise provided in each
section and subject to § 10.91, Part 10 is
applicable on July 26, 2002.
Mark E. Matthews,
Deputy Commissioner for Services and
Enforcement.
Approved: December 19, 2003.
George B. Wolfe,
Deputy General Counsel, Office of the
Secretary.
[FR Doc. 03–31898 Filed 12–29–03; 8:45 am]
BILLING CODE 4830–01–P

ENVIRONMENTAL PROTECTION
AGENCY
40 CFR Part 52
[MD146–3106; FRL–7603–5]

Approval and Promulgation of Air
Quality Implementation Plans;
Maryland; The 2005 ROP Plan for the
Baltimore Severe One-Hour Ozone
Nonattainment Area: Revisions to the
Plan’s Emissions Inventories and
Motor Vehicle Emissions Budgets To
Reflect MOBILE6
AGENCY: Environmental Protection
Agency (EPA).
ACTION: Proposed rule.
SUMMARY: EPA is proposing to approve
State Implementation Plan (SIP)
revisions submitted by the State of
Maryland. These revisions amend the
Baltimore severe 1-hour ozone
nonattainment area’s (the Baltimore
area’s) rate-of-progress (ROP) plan for
the 2005 milestone year. The intent of
these revisions is to update the plan’s
emission inventories and motor vehicle

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emissions budgets (MVEBs) to reflect
the use of MOBILE6 while continuing to
demonstrate that the ROP requirement
for 2005 will be met. The State of
Maryland also submitted revisions
which amend the contingency measures
associated with the 2005 ROP plan.
These revisions are being proposed for
approval in accordance with the Clean
Air Act (the Act).
DATES: Written comments must be
received on or before January 29, 2004.
ADDRESSES: Comments may be
submitted either by mail or
electronically. Written comments
should be mailed to Martin T. Kotsch,
Mailcode 3AP23, U.S. Environmental
Protection Agency, Region III, 1650
Arch Street, Philadelphia, Pennsylvania
19103. Electronic comments should be
sent either to Kotsch.Martin@EPA.gov or
to http://www.regulations.gov, which is
an alternative method for submitting
electronic comments to EPA. To submit
comments, please follow the detailed
instructions described in Part 4 of the
SUPPLEMENTARY INFORMATION section.
Copies of the documents relevant to this
action are available for public
inspection during normal business
hours at the Air Protection Division,
U.S. Environmental Protection Agency,
Region III, 1650 Arch Street,
Philadelphia, Pennsylvania 19103;
Maryland Department of the
Environment, 1800 Washington
Boulevard, Suite 705, Baltimore,
Maryland 21230.
FOR FURTHER INFORMATION CONTACT:
Martin T. Kotsch, Energy, Radiation and
Indoor Environment Branch, U.S.
Environmental Protection Agency, 1650
Arch Street, Mail Code 3AP23,
Philadelphia Pennsylvania 19103–
20209, (215) 814–3335, or by e-mail at
Kotsch.Martin@epa.gov.
SUPPLEMENTARY INFORMATION:
I. Clean Air Act Requirements
The Clean Air Act (the Act) requires
that for certain ozone nonattainment
areas, states are to submit plans
demonstrating a reduction in volatile
organic compound (VOC) emissions of
at least three percent per year, grouped
in consecutive three year periods,
through the area’s designated attainment
date. This is known as the rate-ofprogress (ROP), also referred to as the
reasonable further progress (RFP),
requirement of the Act. The first ROP
requirement covers the period 1990–
1996 and is commonly known as the 15
Percent Plan. Subsequent reductions are
required by the end of serial three year
intervals beginning after the milestone
year 1996 (i.e., ROP milestone years for
the Baltimore area are 1999, 2002,

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75191

2005). Section 182(c)(2)(C) of the Act
allows states to substitute nitrogen
oxides (NOX) emission reductions for
VOC emission reductions in post-1996
ROP plans. To qualify for SIP credit in
ROP plans, emission reduction
measures, whether mandatory under the
Act or adopted at the state’s discretion,
must ensure real, permanent and
enforceable emission reductions.
Section 172(c)(9) of the Act requires
ozone nonattainment, areas, classified
as moderate or above nonattainment, to
adopt contingency measures to be
implemented should the area fail to
achieve ROP or to attain the National
Ambient Air Quality Standard (NAAQS)
for ozone by its statutory attainment
date. In addition, section 182(c)(9) of the
Act requires ozone nonattainment areas
classified as serious or above
nonattainment to adopt contingency
measures to be implemented if the area
fails to meet any applicable milestone.
Under EPA’s transportation
conformity rule, an ROP plan is a
‘‘control strategy’’ SIP (62 FR 43780,
August 15, 1997). Among other things,
a control strategy SIP identifies and
establishes the motor vehicle emissions
budgets (MVEBs) to which an area’s
transportation improvement program
and long range transportation plan must
conform. Conformity to a control
strategy SIP means that transportation
activities will not produce new air
quality violations, worsen existing
violations, or delay timely attainment of
the NAAQS. The State of Maryland is
required to identify MVEBs for both
NOX and VOCs in the Baltimore area’s
ROP plan for the 2005 milestone year.
EPA previously approved the 2005
ROP plan for the Baltimore area (66 FR
48209, September 19, 2001) which
included mobile emissions inventories
for the years 1990 and 2005 and
identified MVEBs for the milestone year
2005 based on the EPA emissions model
MOBILE5.
The attainment date for the Baltimore
severe ozone nonattainment area is
2005. This rulemaking addresses the SIP
revisions submitted by the Maryland
Department of the Environment (MDE)
to amend the Baltimore area’s 2005 ROP
plan to reflect the use of the new EPA
emissions model MOBILE6. In this
rulemaking, EPA is proposing to
approve these revisions to the Baltimore
area’s ROP plan for the 2005 attainment
year.
II. Maryland’s SIP Revisions
On November 3, 2003, MDE
submitted proposed SIP revisions, and
requested that EPA parallel process its
approval of those SIP revisions
concurrent with the State’s process for

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