Final Regs on Quality and Peer Reviews

 [4830-01]

 ACTION: Final regulations.

 SUMMARY: This document provides final regulations under section 7216 relating to the circumstances under which tax return information may be disclosed for purposes of conducting quality or peer reviews. The regulations affect tax return preparers and are necessary to permit tax return information to be disclosed and used for purposes of a quality or peer review of a tax return preparer's accounting or auditing practice.

 EFFECTIVE DATE: These regulations are effective December 28, 1990.

 FOR FURTHER INFORMATION CONTACT: David L. Meyer, Office of the Assistant Chief Counsel (Income Tax and Accounting), Internal Revenue Service, 1111 Constitution Avenue, N.W., Washington, D.C. 20224 (Attention: CC:CORP:T:R), or by telephone at 202-622-6232 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

BACKGROUND

On December 27, 1991, the Service published in the Federal Register, a proposed amendment to the Regulations on Procedure and Administration (26 CFR Part 301) under section 7216(b)(3) of the Internal Revenue Code of 1986 (56 FR 67024). A public hearing was held on June 3, 1992. After consideration of all comments regarding the proposed amendment, the amendment is adopted as revised by this Treasury decision.

EXPLANATION OF PROVISIONS

 Section 7216(b)(3) of the Internal Revenue Code of 1986 permits tax return information to be disclosed and used for purposes of conducting a quality or peer review. Existing regulations under section 7216 (section 301.7216-2(o)) define a quality or peer review as a review that is undertaken to evaluate, monitor, and improve the quality and accuracy of a tax return preparer's tax preparation services.

 The proposed regulations would permit a preparer's auditing and accounting services to be included within the scope of this definition and therefore be eligible for a review. The proposed regulations state that a quality or peer review is a review of a preparer's "tax preparation, accounting AND auditing services" (emph. added).

 One commentator expressed concern that the proposed regulations could be interpreted as permitting a review only of preparers who offer each of these three types of services. The commentator noted that some preparers offer less than all of these services and suggested replacing the word "and" with the word "or". To clarify that individuals who offer less than all of these services may be reviewed, the Service adopts the commentator's suggestion. Accordingly, this change is reflected in the final regulations.

 Some commentators suggested that including accounting or auditing services within the definition of a quality or peer review would unnecessarily expand the scope of the regulation. They noted that accounting or auditing services may not be related to tax return preparation and recommended that the proposed regulations not be adopted.

 This suggestion was not adopted because some preparers must undergo a review of their auditing or accounting services to comply with requirements of government agencies, and in order to be properly completed, these reviews may require disclosure of tax return information. For example, an audit peer review may require an examination of how the auditor treated prepaid or accrued, but unpaid, income taxes.

 The Service also received comments stating that section 301.7216-2(o) should be revoked and comments suggesting that the classes of persons permitted to conduct a quality or peer review should be expanded to include non-certified, licensed public accountants ("LPAs") who are neither enrolled agents, nor otherwise eligible to practice before the Service. Because these comments are not within the scope of the proposed regulations they are not considered in this document.

SPECIAL ANALYSES

 It has been determined that these regulations are not major rules as defined in Executive Order 12291. Therefore, a Regulatory Impact Analysis is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to these regulations, and, therefore, a final Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking for the regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

DRAFTING INFORMATION

 The principal author of these regulations is David L. Meyer, Office of Assistant Chief Counsel, Income Tax and Accounting, Internal Revenue Service. However, personnel from other offices of the IRS and Treasury Department participated in their development.

LIST OF SUBJECTS 26 CFR PART 301

 Administrative practice and procedure, Alimony, Bankruptcy, Child support, Continental shelf, Courts, Crime, Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes, Investigations, Law enforcement, Oil pollution, Penalties, Pensions, Reporting and recordkeeping requirements, Statistics, Taxes.

Treasury Decision 8427

AMENDMENTS TO THE REGULATIONS

Accordingly, 26 CFR part 301 is amended as follows.

PART 301 -- PROCEDURE AND ADMINISTRATION

Paragraph 1. The authority citation for part 301 continues to read in part:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 301.7216-2(o) is amended by revising the third sentence to read as follows:

SECTION 301.7216-2 DISCLOSURE OR USE WITHOUT FORMAL CONSENT OF TAXPAYER.

* * * * *

(o) DISCLOSURE OR USE OF INFORMATION FOR QUALITY OR PEER REVIEWS. * * * A quality or peer review is a review that is undertaken to evaluate, monitor, and improve the quality and accuracy of a tax return preparer's tax preparation, accounting or auditing services. * * *