Contact: Nicole M. Emard, CMP

            Executive Director

            American Association of Attorney-CPAs

            3921 Old Lee Highways, Suite 71A

            Fairfax, VA 22030

Phone: (888) 288-9272 main

                          (703) 352-8064 direct

Fax: (703) 352-8073

Email:  nemard@attorney-cpa.com 

For Immediate Release

Fairfax, VA –August 29, 2008, The Internal Revenue Service’s proposed regulations related to tax return preparer penalties are applauded by the American Association of Attorney-Certified Public Accountants as constructive changes which provide excellent guidance for tax practitioners.

 “These well-constructed proposals will positively impact the tax profession,” said David F. Golden, Esq., CPA, chairperson of the Preparer Penalties Subcommittee of the Association’s IRS Tax Liaison Committee.  The group recently issued comments recommending minor improvements prior to issuance of the final regulations.  “We are exceptionally pleased with the proposals, but would like to see further clarification and more situational examples .” he added.

In its comment letter, the Association says issuing and implementing the new regulations by December 31, 2008 as planned may create unnecessary confusion and transitional problems.  According to AAA-CPA President E. Martin Davidoff, CPA, Esq., “We believe there should be a period of time between the release of the final regulations and when they become effective.  The IRS has provided adequate interim guidance, therefore we strongly recommend that the effective date should be postponed until after April 15, 2009.”

The proposed regulations relate to the identification of  tax return preparers and assessment of penalties for improper positions asserted on tax returns.  The greatest change   broadens of the definition of an “income tax return preparer” to include preparers of all tax returns including employment, excise, exempt organization, and estate and gift tax returns

Under current rules, “one preparer per firm” applies to each tax return, but the proposals would allow “one preparer per position,” reflecting the fact that various professionals within the firm may comment and provide advice related to the client’s situation.   This modification is a positive improvement says the Association, but it could potentially pit members of a firm against each other in determining preparer status.  To avoid such conflicts, the Association plans to advise its members to establish an internal procedure to identify the preparer of each position prior to the return being released.

The proposals also address non-signing preparers, stating that a practitioner who renders advice on a position that totals less than five percent of the aggregate advice time will not be considered a preparer.  “We applaud the IRS for establishing a de minimus rule, but we believe a ten percent threshold would be more appropriate,” said Breslin.  Also, the proposal does not address negative advice, so the group would like the rules to specifically state that rendering negative advice would not result in preparer status.

A vital part of the proposed regulations consists of examples describing specific situations a practitioner may encounter and how those situations should be handled under the proposed rules.  “One of our greatest concerns is that the lack of examples will require practitioners to interpret the rules instead of being clearly guided by the IRS,” Davidoff said.  A critical area where he sees the need is with information gathering and the IRS standards relating to disclosure.  If a position is taken on a tax return without reasonable or substantial support, practitioners and taxpayers could be assessed penalties for inaccuracy, understatement of tax, unreasonable positions or intentional disregard of IRS rules. Davidoff says the final regulations should explain “how proactive a practitioner needs to be when extracting information from a taxpayer.  What kind of questions should be asked and when can we accept as fact the information presented by the client?”

Other issues raised by the Association include:

• The requirement for a preparer to furnish a copy of the tax return should specifically state that the copy may be provided either on paper or electronically.  “We think it’s acceptable to give the client a disk, but the IRS should say so to avoid any doubt,” said Davidoff.

• Penalty “stacking” must be avoided.  Internal Revenue Code Section 6694 and Circular 230 both allow penalties to be assessed for similar violations, but the new rules should clearly state that both penalties will not be imposed  for the same item.

• IRS employees should not be permitted to threaten penalties as leverage to force tax return preparers to accept their adjustments. 

#  #  #

The American Association of Attorney-Certified Public Accountants, based in Fairfax, VA, was founded in 1964 to protect the rights of individuals qualified as both attorneys and certified public accountants and to advance the professions of law and accountancy.  The Association has over 1,300 members and 14 state associations and local chapters nationwide.  Its website is www.attorney-cpa.com.