August 22, 2007

The Honorable Kevin M. Brown

Acting Commissioner

Internal Revenue Service

CC:PA:LPD:PR (Notice 2007-39)

1111 Constitution Avenue, NW

Washington, DC 20224

Dear Acting Commissioner Brown:

The American Institute of Certified Public Accountants (“AICPA”) submits for your consideration the attached comments on Notice 2007-39 (“Notice”), which provides preliminary guidance regarding monetary penalties under 31 U.S.C. section 330 (as amended by Section 822 of the American Jobs Creation Act of 2004) and the regulations thereunder, referred to as “Circular 230.”

We recognize that the guidance contained in the Notice is part of ongoing efforts by the Treasury Department and the IRS to enhance standards of federal tax practice for all tax practitioners. We support those efforts and goals; nevertheless, we believe that certain aspects of the Notice’s guidance need to be modified or clarified.

For example, we recommend that:

• A number of additional factors be considered in determining whether a monetary penalty is appropriate in a given situation;  
• The IRS decline to impose monetary penalties against a firm for conduct of a practitioner acting outside the scope of his or her agency relationship with the firm; and  
• The IRS decline to impose a monetary penalty under Circular 230 when another monetary penalty already has been imposed on the same behavior under the authority of another penalty provision, e.g., section 6694 of the Internal Revenue Code.

We ask you to reconsider the special rule for determining the amount of a monetary sanction in the case of a “larger engagement.” We also ask for clarification regarding the aggregate monetary penalty when both a practitioner and his or her firm are penalized with respect to the same misconduct, as well as how to determine the maximum penalty on the practitioner in such a case, taking into account whether the practitioner is an employee or a partner.

We believe monetary penalties reinforce the need for strong procedural safeguards under Circular 230. In particular, we believe that before any final decision to impose monetary penalties is made, the affected practitioners and firms should have access to a meaningful and independent review of OPR's decision to impose such penalties.

Further, the additional sanctions on practitioners and firms under Circular 230 reinforce the need for the IRS to have well-targeted and consistent guidance regarding when IRS professionals are to make referrals to OPR.

The AICPA is the national, professional association of CPAs, with approximately 330,000 members, including CPAs in business and industry, public practice, government, and education; student affiliates; and international associates. Our members advise clients on federal, state, and international tax matters and prepare income and other tax returns for millions of taxpayers. They provide services to individuals, not-for-profit organizations, small and medium-sized businesses, as well as America’s largest businesses. It is from this broad perspective that we offer our thoughts today.

We would be pleased to discuss this matter with you or others at any time. If you have any questions about this matter, please feel free to contact me at jeffrey.hoops@ey.com; Evelyn Elgin, Chair of the AICPA Tax Practice Responsibilities Committee, at eelgin@kpmg.com; Gregory M. Fowler, principal author of the comments, at greg.fowler@us.pwc.com; or Jean E. Trompeter at jtrompeter@aicpa.org.

Sincerely,

Jeffrey R. Hoops

Chair, Tax Executive Committee

Download comments