The Honorable Eric Solomon

Assistant Secretary (Tax Policy)
Department of the Treasury
1500 Pennsylvania Avenue, NW
Room 3120
Washington, DC 20220

The Honorable Douglas H. Shulman
Commissioner
Internal Revenue Service
1111 Constitution Avenue, N.W.
Washington, D.C. 20224

RE:      Comments on Proposed Regulations, REG-129243-07,

            Regarding Tax Return Preparer Penalties

Dear Assistant Secretary Solomon and Commissioner Shulman:

Enclosed for your consideration are the American Institute of Certified Public Accountants’ comments on the above-referenced proposed regulations. The comments were developed by the AICPA’s Preparer Penalty Task Force and approved by the Tax Practice Responsibilities Committee and the Tax Executive Committee.

The AICPA wishes to thank the Treasury Department and the Internal Revenue Service for your prompt and thoughtful guidance addressing the challenges posed to taxpayers, tax practitioners, and our tax system by the May 2007 changes to the tax return preparer penalty provisions in the Internal Revenue Code. The transitional relief (Notice 2007-54) you provided within approximately two weeks of the date of enactment was critical for many practitioners, particularly those working on returns due a few weeks after the legislation was enacted. 

Further, the notices issued on December 31, 2007 (Notices 2008-11, 2008-12, 2008-13) provided practical guidance that enabled the 2008 tax filing season to proceed without any serious disruption caused by the changes to the preparer penalty.  Issuance of the proposed regulations in just over one year after the legislative changes, with the declared intent to issue final regulations by year end, also helped to further meaningful discussion of the potentially broader impact of the legislative changes on the preparer penalty regime.

We also thank you for working with the practitioner community while you developed the interim guidance and proposed regulations. In particular, we believe your efforts to understand the practical problems created by the statutory changes have contributed to guidance that generally strikes an appropriate balance between the obligations of those persons striving to comply with the tax laws and those responsible for administering these laws.

The AICPA is generally highly supportive of the proposed regulations. We offer a few recommendations not as criticisms but rather as suggestions to enhance the guidance available to the tax community and facilitate administration of the proposed regulations.

Included in our comments are recommendations that the final regulations:

·         Clarify when a tax return preparer is required to sign a return;

·         Define a “return” in a manner consistent with the definition of “return”  for income tax purposes, as established by case law;

·         Clarify that, subject to the same limitations that apply in determining reasonable cause, a tax return preparer may rely on advice furnished by the taxpayer, an advisor, another tax return preparer, or other party in determining if the reasonable belief/more likely than not and the reasonable basis standards are satisfied;

·         Permit a tax return preparer to rely on a taxpayer’s legal conclusions regarding Federal tax issues that the tax return preparer had reason to believe the taxpayer was competent to provide;

·         Permit a tax return preparer to rely on estimates, under rules similar to those contained in the AICPA Statements on Standards for Tax Services No. 4, Use of Estimates;

·         Permit a tax return preparer to rely on generally accepted administrative or industry practice not just with respect to establishing reasonable cause, but also with respect to determining if the reasonable belief/more likely than not standard is satisfied;

·         Permit the amount of an item or position relative to the amount of other items or positions on the return to be a factor considered in assessing the appropriate level of due diligence; and

·         Provide a transition rule for the effective date of the final regulations that will allow tax return preparers a reasonable opportunity to adapt to the changes between Notice 2008-13 and the final regulations.

The AICPA is the national professional organization of certified public accountants comprised of approximately 350,000 members. Our members advise clients on federal, state and international tax matters, and prepare income and other tax returns for millions of Americans. Our members provide services to individuals, not-for-profit organizations, small and medium-sized business, as well as America's largest businesses.

We would be pleased to discuss the attached comments with Treasury and the IRS at any time. If you have any questions, please feel free to contact me at jeffrey.hoops@ey.com; Alan Einhorn, Co-Chair of the Task Force, at aeinhorn@deloitte.com; Ed Swails, Co-Chair of the Task Force, at ed.swails@ey.com; or Jean Trompeter, AICPA Technical Manager, at jtrompeter@aicpa.org.

Download document