New provision would change tax preparers' role and increase fees
"The new provision puts tax preparers in a position of supporting the IRS rather than their taxpayer clients," Tom Ochsenschlager, AICPA vice president - taxation, said.
He emphasized that the new law's requirement - increasing the tax return reporting standards applicable to tax return preparers for undisclosed non-tax shelter items from the "realistic possibility of success" standard to the "more likely than not" standard - is a major change in tax policy. He noted that the change was made without a Congressional hearing to study the full consequences of the provision.
"Because it also raises the standard for tax preparers to a level above the standard for taxpayers, it creates the potential for conflicts of interest between preparers and their clients, and consequently affects the nature of taxpayers' representation," he said.
Return preparation fees are likely to increase because more research will be required for tax preparers to feel secure that the "more likely than not" standard is satisfied, he said.
Furthermore, IRS administration could be overburdened by the provision, Ochsenschlager said, because preparers, in order to protect themselves from penalties, may feel they must ask their clients to include disclosures for virtually every item on their tax returns for which there is the slightest uncertainty regarding the proper treatment. Such excessive disclosures for routine tax return positions would defeat the purpose of the disclosure system and undermine the electronic filing initiative, which currently is not capable of processing a large number of disclosures in a return, he said.
Therefore, Ochsenschlager said the AICPA is recommending that Congress equalize the tax return reporting standards for preparers with the standards currently applicable to taxpayers. He noted that, given the complexity of the tax law, the lack of guidance from Treasury and the IRS on many issues, and the factual nature of many issues, the taxpayers' lower reporting standard of "substantial authority" is more appropriately applied to routine items. The "more likely than not standard" should be applied to taxpayers and preparers only with respect to tax avoidance items. This would be consistent with the approach that Congress and Treasury have taken in recent years to utilize directed disclosures that focus on potentially problematic transactions, without either overburdening the IRS with unnecessary disclosures or inhibiting the electronic filing system.