Rev. Proc. 2012-12

ruling or determination letter. The collections of information are required to obtain
a letter ruling or determination letter. The
likely respondents are tax-exempt organizations.
DRAFTING INFORMATION
The principal authors of this revenue procedure are Mr. Dave Rifkin
and Mr. Matt Perdoni of the Exempt
Organizations,
Tax
Exempt
and
Government Entities Division.
For
further information about this revenue
procedure, contact Customer Account
Services at 877–829–5500. Dave Rifkin
or Matt Perdoni can be reached by
e-mail at [email protected]. Please include
“Question about Rev. Proc. 2012–10” in
the subject line.

26 CFR 601.601: Rules and regulations.
(Also: 31 USC 330, 31 CFR 10.6, 31 CFR 10.9.)

Rev. Proc. 2012–12
SECTION 1. PURPOSE
The purpose of this revenue procedure
is to describe the procedures and standards
that organizations must follow to be identified by the Internal Revenue Service as a
qualifying organization that may accredit
continuing education providers under section 10.9(a)(1)(iii) of Circular 230. This
revenue procedure also describes the standards for a continuing education provider
under section 10.9(a)(1) and the procedures that individuals and entities must follow to be approved by the Internal Revenue Service as a continuing education
provider under section 10.9(a)(1)(iv).
SECTION 2. BACKGROUND
.01 On June 3, 2011, the Treasury Department and the Internal Revenue Service published final regulations in the Federal Register (T.D. 9527, 2011–28 I.R.B.
38 [76 FR 32286]) under 31 CFR Part 10
(reprinted as Treasury Department Circular 230) that require registered tax return
preparers to complete continuing education offered by qualified continuing education providers. Enrolled agents and enrolled retirement plan agents also are required to complete continuing education

January 9, 2012

under Circular 230. Section 10.9(a)(1) of
Circular 230 provides that continuing education providers must be:
(i) An accredited educational institution;
(ii) Recognized for continuing education purposes by the licensing body of any
State, territory, or possession of the United
States, including a Commonwealth, or the
District of Columbia;
(iii) Recognized and approved by a
qualifying organization as a provider of
continuing education on subject matters
within section 10.6(f) of Circular 230; or
(iv) Recognized by the IRS as a professional organization, society, or business
whose programs include offering continuing professional education opportunities in
subject matters within section 10.6(f).
For purposes of this revenue procedure,
an entity referred to as a “qualifying organization” in section 10.9(a)(1)(iii) will be
referred to as an “accrediting organization”
and an individual or entity approved by the
IRS as a continuing education provider under section 10.9(a)(1)(iv) will be referred
to as a “section iv CE provider.”
.02 Section 10.9(a)(1)(iii) provides that
the IRS, at its discretion, may identify the
accrediting organizations that maintain
minimum education standards comparable to those set forth in Circular 230 in
appropriate forms, instructions, and other
appropriate guidance.
.03 Section 10.9(a)(1)(iv) provides that
the IRS, at its discretion, may require section iv CE providers to file an agreement
and/or obtain IRS approval of each program as a qualified continuing education
program in appropriate forms, instructions, or other appropriate guidance.
.04 Under section 10.9(a)(2), a continuing education provider must obtain a
continuing education provider number and
pay any applicable user fee. A continuing
education provider also must maintain its
status as a continuing education provider
during each continuing education provider
cycle by renewing its continuing education
provider number as prescribed by forms,
instructions, or other appropriate guidance
and paying any applicable user fee.
.05 Sections 10.6(f) and 10.9(a)(3)
provide initial criteria that continuing education programs must meet to qualify
for continuing education credit for enrolled agents, enrolled retirement plan
agents, and registered tax return preparers.

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A qualifying continuing education program generally must enhance professional
knowledge in Federal taxation or Federal
tax related matters, including ethics, must
be consistent with the Internal Revenue
Code and effective tax administration, and
must be conducted by a qualified instructor.
.06 On July 18, 2011, Treasury and the
IRS published Notice 2011–61 soliciting
the feedback of education providers, tax
return preparers, the associated industry
and consumer groups, and taxpayers on
the procedures and standards that will govern the process for identifying accrediting
organizations or for those individuals and
entities seeking approval as section iv CE
providers. Numerous comments were received and were taken into account in the
development of the standards and procedures prescribed in this revenue procedure.
SECTION 3. SCOPE
This revenue procedure applies to any
organization seeking to be identified as an
accrediting organization or any individual
or entity seeking approval as a section iv
CE provider; and applies to any continuing
education provider seeking to obtain continuing education provider and program
numbers under section 10.9. This revenue procedure supplements sections 10.6
and 10.9 by describing the specific standards and procedures that those organizations, individuals, and entities must follow
to be identified as an accrediting organization or accepted as a continuing education
provider.
SECTION 4. ACCREDITING
ORGANIZATIONS
.01 Standards. Any organization seeking to be identified as an accrediting organization that may approve individuals and
entities as continuing education providers
under section 10.9(a)(1)(iii) must:
(1) Have an established framework and
effective means of review and approval for
continuing education providers.
(2) Publish requirements for continuing
education provider approval.
(3) Have written procedures sufficient
to ensure that the continuing education
providers it accredits comply with any
standards set forth in Circular 230, the
requirements described in section 5.02

2012–2 I.R.B.

below, and any other standards prescribed
by the IRS in other appropriate guidance.
(4) Have experience evaluating continuing education providers in Federal taxation or Federal tax related matters, including ethics. The minimum level of experience required typically will be two years.
(5) Have an established process for annually auditing or reviewing selected programs of selected approved continuing education providers. Reviews of selected
programs must be performed periodically,
at least annually.
(6) Maintain records for each approved
continuing education provider for four
years and submit reports to the IRS periodically on the individuals and entities applying for continuing education provider
status.
(7) Maintain an internet listing of all
continuing education providers approved
by the accrediting organization.
(8) Employ at least one full-time staff
member with subject-matter expertise in
Federal taxation or Federal tax related matters, including ethics. That staff member
must be qualified to evaluate continuing
education provider programs as outlined in
Circular 230.
.02 Requirements. Any organization
identified as an accrediting organization
must:
(1) Comply with all IRS guidance and
requirements, including Circular 230. The
IRS may require an accrediting organization to provide additional information regarding such compliance. The IRS may
revoke an organization’s status as an accrediting organization if the organization
fails to adequately and timely respond to
the IRS’s request for information.
(2) Have an established process for
in-depth reviews of selected approved
continuing education providers on an annual basis.
(3) Act only as an approver of continuing education providers, and not offer Federal tax related continuing education commercially.
(4) Respond to IRS requests for information regarding the individuals or entities approved or not approved as continuing education providers.
.03 How to Apply. An organization
seeking to be identified as an accrediting
organization authorized to approve individuals and entities as continuing education providers may apply by providing the

2012–2 I.R.B.

information set forth in section 4.04 below. The applicant must include all relevant information required by this revenue
procedure, including how the organization
meets the standards described in section
4.01 above, in the application. Completed
applications must be sent to:
Internal Revenue Service
Attention: RPO Continuing
Education Program
Rm. 7238 IR
1111 Constitution Ave., NW
Washington, DC 20224
Applicants will be notified, in writing, whether the application has been
approved. Only after an applicant has
received written notification of approval
from the IRS may the accrediting organization begin accepting applications
from individuals or entities seeking to
become a continuing education provider
under section 10.9(a)(1)(iii). Individuals
or entities approved by the accrediting
organization as a continuing education
provider under section 10.9(a)(1)(iii) must
obtain a provider number and program
number(s) from the IRS by filing a completed Form 8498, Continuing Education
Provider Application and Request for
Provider Number, (and pay any applicable fee) online at www.irs.gov/taxpros/ce
or they may request a paper application by calling the IRS Continuing Education Provider Processing Center at
1–855–296–3150 (toll-free) in the United
States or 202–499–5606 (not a toll-free
call) outside the United States. The processing time for a paper application will
be six to eight weeks. Continuing education providers who have been approved
by an accrediting organization may offer continuing education for purposes of
section 10.6 only after they have received
a continuing education provider number
and program number(s) from the IRS, and
followed all applicable procedures prescribed by the IRS.
An accrediting organization must renew its status as an accrediting organization every three calendar years as prescribed in forms, instructions, or other appropriate guidance. The renewal period
will be from July through September of the
applicable renewal year.
.04 Required Information. Any organization seeking to be identified as

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an accrediting organization that may approve individuals and entities as continuing education providers under section
10.9(a)(1)(iii) must provide the following information, including any supporting
documentation, in its application to be
identified as an accrediting organization:
(1) Full name, mailing address, telephone number, and web address (URL) of
the organization.
(2) Tax identification number of the organization.
(3) Name and contact information of the
organization’s point of contact, including
mailing address, telephone number, and
e-mail address.
(4) Description of the requirements an
individual or entity must meet to obtain the
organization’s approval as a continuing education provider. Supporting documentation must be attached.
(5) Description of the organization’s
experience and qualifications evaluating
continuing education providers.
(6) Description of the process the organization uses to review applications
it receives from continuing education
providers and to ensure that continuing
education providers will comply with the
standards set forth in Circular 230, requirements described in section 5.02 below, and
any other standards prescribed by the IRS
in other appropriate guidance. Supporting
documentation must be attached.
(7) Statement that the organization will
not directly or indirectly offer continuing
education in Federal tax matters or ethics
commercially during any period that the
organization is operating as an accrediting
organization.
(8) Statement that the organization
agrees to comply with all IRS guidance
and requirements, including Circular 230.
(9) Statement that the organization acknowledges that its status as an IRS accrediting organization is subject to review
at any time by the IRS, including but not
limited to, IRS requests for information
about the organization’s review and approval process, interviews, and site visitations (including site visitations of the
organization’s approved continuing education providers). Statement also must
acknowledge that the organization’s failure to provide any data or information requested by the IRS or its denial of an IRS
site visitation may result in suspension or

January 9, 2012

revocation of its accrediting organization
status.
(10) Signed and dated statement by the
organization’s point of contact (see section
4.04(3)) or an officer, partner, member, or
owner of the organization providing that
the individual has examined and read the
application and all accompanying information and to the best of the individual’s
knowledge and belief, the information provided is true, correct, and complete. The
statement must be made under penalties of
perjury and acknowledge that any false or
misleading information may result in criminal penalties and/or the denial or termination of the organization’s status as an accrediting organization.
SECTION 5. CONTINUING
EDUCATION PROVIDERS
.01 General. Individuals or entities approved as a continuing education provider
under section 10.9(a)(1)(i), (ii), or (iii)
are required to obtain and renew annually a continuing education provider
number.
These continuing education
providers also are required to obtain continuing education program numbers for
each qualifying program they intend to
offer. Continuing education providers
may obtain and renew their continuing
education provider numbers and program
numbers by submitting a completed Form
8498, Continuing Education Provider
Application and Request for Provider
Number, online at www.irs.gov/taxpros/ce
or they may request a paper application by calling the IRS Continuing Education Provider Processing Center at
1–855–296–3150 (toll-free) in the United
States or 202–499–5606 (not a toll-free
call) outside the United States. The processing time for a paper application will
be six to eight weeks. Continuing education providers may be required to pay
a reasonable annual fee to the third-party
vendor who administers this program for
the IRS. The third-party vendor will not
charge an additional fee if a continuing
education provider adds programs during
a calendar year.
Individuals or entities approved as a
continuing education provider may be required, as prescribed by the IRS and the
third-party vendor, to provide identifying
information of preparer tax identification number holders who successfully

January 9, 2012

complete programs with IRS program
numbers.
Continuing education providers must
have a current or otherwise valid continuing education provider number prior
to advertising that programs offered by
the provider may be used to meet any
IRS continuing education requirements.
Additionally, any program offered by a
continuing education provider must have a
current or otherwise valid program number
before the continuing education provider
advertises that the program meets IRS
requirements for continuing education.
.02 Requirements. Any individual or
organization approved as a continuing education provider must:
(1) Offer continuing education programs designed to enhance professional
knowledge in Federal taxation or Federal
tax related matters, including ethics, consistent with the Internal Revenue Code and
principles of effective tax administration.
a) If the continuing education program
will be offered for the purpose of qualifying for continuing education credit for registered tax return preparers, the program
must directly relate to the preparation of
Federal tax returns or Federal tax ethics.
b) If the continuing education program will be offered for the purpose of
qualifying for continuing education credit
for enrolled retirement plan agents, the
program must enhance the participant’s
professional knowledge in qualified retirement plan matters, including ethics.
Continuing education programs focused primarily on state tax related matters generally will not be eligible for
continuing education credit unless the instructional material demonstrates that the
program is designed to illustrate the difference between state law and Federal law in
the same tax related matter. Providers offering continuing education programs with
only limited professional benefit not designed to improve skills related to Federal
tax related matters will not be approved.
(2) Provide continuing education program content that is accurate, current, and
effectively designed to communicate content through program materials, activities,
and delivery systems, whether classroombased, computer-based, or for self-study.
(3) Use continuing education program
presenters, instructors, discussion leaders,
and speakers who have subject-matter expertise in Federal taxation or Federal tax

277

related matters, including ethics, as well
as demonstrable teaching and communication skills.
(4) Comply with any standards set forth
in Circular 230 and any other standards
prescribed by the IRS in other appropriate
guidance.
(5) Ensure that all continuing education
programs are developed and written by individual(s) with expertise in Federal tax related matters, or ethics in the case of an
ethics program.
(6) Provide continuing education programs that utilize materials specifically developed for instructional use. General professional literature or IRS publications and
reference manuals may be used only to
supplement specific program materials.
(7) Review and update programs periodically, at least annually, to ensure accuracy and consistency with currently accepted standards relating to the program’s
subject matter. This review must be conducted by a qualified individual to ensure
that the program is current, technically accurate, and addresses the stated learning
objectives.
(8) Provide a means for evaluation
of attendees’ successful completion of
the program. Providers must ensure that
self-study programs include verification
of completion of required material and
demonstrated mastery of program content.
(9) Develop programs that meet the
standards of Circular 230 for continuing
education credit earned upon completion,
based upon the standard of 50 minutes
of contact time required for 1 continuing
education credit earned. Credit is granted
only for a full contact hour of 50 minutes, or multiples thereof; no credit will
be awarded for partial continuing education consisting of less than 50 minutes of
contact time.
(10) Collect and maintain reliable
records to document participation and attendance, and issue certificates with IRS
program numbers to students upon successful completion.
(11) Provide for voluntary program
evaluations by individuals who have completed the program. The provider must
ensure that participants have an opportunity to provide feedback concerning the
quality and knowledge of the speaker/instructor, the quality of program materials,
and whether the program met stated objectives.
Any participant evaluations

2012–2 I.R.B.

received by the provider must be made
available to the IRS on request.
.03 How to Apply to Become a Section
IV CE Provider. Individuals or entities
that do not meet the requirements of section 10.9(a)(1)(i), (ii), or (iii) may apply
to the IRS for approval as a section iv
CE provider. An applicant under section 10.9(a)(1)(iv) must apply for status
as a section iv CE provider by submitting a completed Form 8498, Continuing
Education Provider Application and Request for Provider Number, online at
www.irs.gov/taxpros/ce or these individuals or entities may request a paper application by calling the IRS Continuing
Education Provider Processing Center at
1–855–296–3150 (toll-free) in the United
States or 202–499–5606 (not a toll-free
call) outside the United States. The processing time for a paper application will
be six to eight weeks. The applicant also
must pay any applicable third-party vendor fee with the application and include
all relevant information required in the application, including how the section iv CE
provider meets the requirements described
in section 5.02 above. Approved applicants will receive a continuing education
provider number and program numbers
and must renew their status annually in
accordance with section 5.01 above.

2012–2 I.R.B.

SECTION 6. PAPERWORK
REDUCTION ACT
The collection of information contained in this revenue procedure has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act of 1995
(44 U.S.C. 3507(d)) under control number
1545–1726.
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.
The collection of information in this
revenue procedure is in sections 4 and 5.
This information is required in order for
the IRS to ensure that individuals and organizations permitted to provide continuing education or accredit others to provide
continuing education meet all of the appropriate procedures and standards for education in Federal tax practice. The likely
respondents are individuals and organizations that want to provide continuing education or accredit others to provide continuing education.
The estimated total annual reporting or
recordkeeping burden is 2,750 hours.
The estimated annual burden per respondent/recordkeeper varies from .6
hours to 1 hour, depending on individual

278

circumstances, with an estimated average
of .75 hours. The estimated number of
respondents or recordkeepers is 3,000.
The estimated frequency of responses
(used for reporting requirements only) under section 4 is once every three years;
the estimated frequency of responses under section 5 is twice annually.
Books or records relating to a collection
of information must be retained as long
as their contents might become material in
the administration of any internal revenue
law.
SECTION 7. EFFECTIVE DATE
This revenue procedure is effective December 6, 2011.
SECTION 8. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Janet Engel Kidd of the Office
of Associate Chief Counsel (Procedure &
Administration). For further information
regarding this revenue procedure, contact
Janet Engel Kidd at (202) 622–4940 (not
a toll-free call).

January 9, 2012

Part IV. Items of General Interest
Notice of Proposed
Rulemaking

SUPPLEMENTARY INFORMATION:
Background

Application of the Segregation
Rules to Small Shareholders
REG–149625–10
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains proposed regulations under section 382 of
the Internal Revenue Code (Code). These
proposed regulations provide guidance
regarding the application of the segregation rules to public groups under section
382 of the Code. These regulations affect
corporations.
DATE: Written or electronic comments
and requests for a public hearing must be
received by February 21, 2012.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–149625–10), room
5203, Internal Revenue Service, PO Box
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–149625–10),
Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW,
Washington, DC, or sent electronically via the Federal eRulemaking Portal at http://www.regulations.gov/ (IRS
REG–149625–10).
INFORMATION
FOR
FURTHER
CONTACT: Concerning the proposed
regulations, Stephen R. Cleary, (202)
622–7750; concerning submission of
comments or to request a public hearing,
Oluwafunmilayo (Funmi) P. Taylor, (202)
622–7180 (not toll-free numbers).

January 9, 2012

1. Segregation and Aggregation —
Statute, Legislative History, and Current
Regulations
Section 382 imposes a limitation on a
corporation’s use of net operating loss carryovers following a change in ownership.
The legislative history explains that a limitation is necessary following a change in
ownership because new shareholders otherwise would have an opportunity to contribute income-producing assets (or divert
income opportunities) to the corporation,
thus inappropriately accelerating the use
of net operating loss carryovers. The section 382 limitation is intended to prevent
a corporation from obtaining greater loss
utilization than it could have achieved absent a change in ownership. S. Rep. No.
99–313 at 232 (1986).
A loss corporation has an ownership
change if the percentage of stock of a loss
corporation that is owned by one or more
5-percent shareholders has increased by
more than 50 percentage points over the
lowest percentage of stock of the loss corporation owned by such shareholders at
any time during the testing period (generally, a three-year period). For purposes
of section 382, the attribution rules of
section 318(a)(2) apply, without limitation, to treat individuals as the owners of
loss corporation stock. Pursuant to section 382(g)(4)(A), individual shareholders
who own less than five percent of a loss
corporation are aggregated and treated as
a single 5-percent shareholder (a public
group).
The regulations extend the public group
concept to situations in which a loss corporation is owned by one or more entities,
as defined in §1.382–3(a) (generally, partnerships, corporations, estates, and trusts).
If an entity directly or indirectly owns five
percent or more of the loss corporation,
that entity has its own public group if its
owners who are not 5-percent shareholders own, in the aggregate, five percent or
more of the loss corporation. (Such an entity is referred to as a 5-Percent Entity in
this preamble.)

279

The segregation rules, which are generally contained in §1.382–2T(j), and the
exceptions thereto, which are generally
contained in §1.382–3(j), apply to certain
transactions affecting ownership by the
loss corporation’s direct public group and
by the public groups of a 5-Percent Entity.
The application of the segregation rules
results in the creation of a new public
group in addition to the one (or more)
that existed previously. That new group
is treated as a new 5-percent shareholder
that increases its ownership interest in the
loss corporation.
Section 382(g)(4)(B) mandates application of the segregation rules to transactions
constituting equity structure shifts of the
loss corporation. Generally, equity structure shifts are acquisitive asset reorganizations and recapitalizations under section
368. Section 382(g)(3)(B) provides regulatory authority to treat public offerings
and similar transactions as equity structure shifts. Pursuant to that authority, the
current segregation rules, subject to the
cash issuance and small issuance exceptions (described in this preamble), treat issuances of stock under section 1032, redemptions, and redemption-like transactions as segregation events. The segregation rules also apply to transfers of loss corporation stock by an individual 5-percent
shareholder to public shareholders and a
5-Percent Entity’s transfer of loss corporation stock to public shareholders.
The small issuance and cash issuance
exceptions exempt certain amounts of
stock issuances from the segregation rules.
Generally, the small issuance exception
exempts the total amount of stock issued
during a taxable year to the extent it does
not exceed 10 percent of the total value of
the corporation’s outstanding stock at the
beginning of the taxable year or 10 percent
of the class of stock issued and outstanding
at the beginning of the taxable year (the
small issuance limitation). However, the
small issuance exception does not apply
to any issuance of stock that, by itself,
exceeds the small issuance limitation. If
stock is issued solely for cash, the cash issuance exception exempts a percentage of
the total stock issued equal to 50 percent
of the aggregate percentage ownership
interest of the public groups of the cor-

2012–2 I.R.B.