The Honorable Mark W. Everson

Commissioner, Internal Revenue Service

Room 5203, POB 7604

Ben Franklin Station

Washington, D.C. 20004

RE:      Comments on Proposed Regulations, REG-137243-02, Regarding Guidance to Facilitate Electronic Tax Administration–Updating of Section 7216 Regulations

Dear Commissioner Everson:

For your consideration, I have enclosed the American Institute of Certified Public Accountants’ comments on the above referenced regulations. The comments were developed by the AICPA’s Section 7216 Regulations Task Force and approved by the Tax Executive Committee. We hope these comments will be helpful and we offer our further assistance to provide any clarification of the comments or additional discussion.

In REG-137243-02, the Internal Revenue Service has proposed amendments to the regulations under Internal Revenue Code (IRC) section 7216; the criminal section involving the disclosure or use of tax information by preparers of returns. As stated in our comments, and as a broad theme for consideration, we urge the IRS to generally not attempt to regulate the disclosure or use of tax information by preparers in the context of a criminal statute. In addition to this suggestion, our comments offer a number of other suggestions we believe provide further clarity to the proposed regulations. This letter briefly highlights for you some of our concerns about the proposed regulations.

1.         Proposed Regulations Fashion an Entirely New Consent Regime

We are particularly concerned about the extent to which the proposed regulations fashion an entirely new consent regime for any return preparation activities that involve parties located outside the borders of the United States. The proposed regulations are drafted in a manner that adds unnecessary and extremely burdensome steps to the current tax return processes utilized by many professional service providers. It appears that at the very time the IRS is eliminating barriers to the achievement of its goal for increasing electronic filings and payments, the agency is incongruously making it more complex for its partners -- the professional providers of tax assistance and return preparation -- to sustain their current professional business processes.

The AICPA strongly encourages the IRS to adopt the various approaches suggested by our comments, as attached. If that is not acceptable, we urge the IRS to engage the professional service provider industry in a substantive discussion prior to issuing final regulations about how to best ensure the requisite security of tax information in the context of today’s modern (global) business practices.

2.  A Civil Penalty Is a More Practical Mechanism for Regulating the Everyday Disclosure and Use of Taxpayer Information

A civil penalty is a more practical mechanism for regulating a practitioner’s everyday disclosure and use of taxpayer information. Civil penalties have long been recognized as effective tools for encouraging compliance, modifying behavior and deterring unwanted behavior. One possible approach would be to prescribe primary regulations under Internal Revenue Code section 6713 while utilizing regulations under section 7216 to address the circumstances under which a preparer’s behavior would satisfy the “knowing or reckless” standard to justify criminal sanctions.

3.   Disclosures or Uses for Preparation of a Taxpayer’s Return—Tax Return Preparers Working for the Same Firm

It is very typical for a tax professional located in the U.S. and working on the tax return of a U.S. or non-U.S. multinational company with offices in the United States and overseas, to consult with a tax professional located overseas in order to properly complete the business’ tax return. The same circumstances exist with respect to the return preparation services provided to the thousands of U.S. citizens (expatriates) stationed around the world in the employment of U.S. and non-U.S. multinational companies. In the normal course of these engagements the client generally anticipates that the tax return preparer would disclose tax return information to an overseas office, consistent with the applicable legal and ethical responsibilities of the tax preparer unless the taxpayer directs otherwise.

We do not believe that these situations should require the tax preparer to obtain consent from the taxpayer in the specific format described in prop. reg. section 301.7216-3 and the proposed revenue procedure (set out in IRS Notice 2005-93) because these taxpayers anticipate that their tax information will be disclosed outside of the United States. We believe the AICPA ethics rules (regarding outsourcing services to third-party service providers) are more in line with modern business practices than what is provided for under the proposed regulations.

The AICPA would be pleased to discuss the attached comments with the IRS at any time. If you have any questions, please feel free to contact me at tpurcell@creighton.edu; Michael P. Dolan, Chair of the Section 7216 Regulations Task Force, at mpdolan@kpmg.com; or Benson S. Goldstein, AICPA Technical Manager at bgoldstein@aicpa.org.

Sincerely,

Thomas J. Purcell, III

Chair, AICPA Tax Executive Committee

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