Tax News

CCH (cch.taxgroup.com) reports:

  Equalizing the preparer and taxpayer penalty standards at substantial authority for undisclosed nonabusive return positions is the "top legislative priority" for the American Institute of Certified Public Accountants (AICPA), Barry C. Melancon, president and CEO of the 350,000 member organization, told CCH on July 23. However, AICPA supported legislation (the Renewable Energy and Job Creation Bill of 2008 (HR 6049)) appears stalled in the Senate. Melancon also called for the banning of tax strategy patents and greater certainty and stability in the Tax Code. Melancon spoke to reporters at the accounting/tax press in Washington, D.C.

Different Standards

  The AICPA has been working to equalize the preparer and taxpayer standards since Congress passed the Small Business and Work Opportunity Tax Act of 2007 (2007 Small Business Tax Act) (P.L. 110-28). The
2007 Small Business Tax Act replaced the old "realistic possibility of success" standard for undisclosed nonabusive positions with a reasonable belief that the position would more likely than not be sustained on its merits. However, the 2007 Small Business Tax Act did not change the taxpayer standard of substantial authority for undisclosed nonabusive positions. "The difference puts the preparer and the taxpayer at a different level of confidence," Melancon explained.

  "Our members are very worried about this (the difference between the preparer and taxpayer standards)," Melancon said. The AICPA has cautioned that the more-likely-than-not standard could require a preparer to disclose a return position that a taxpayer, under the substantial authority standard, might not be inclined to disclose, setting the stage for preparer/client conflict.

  The House has approved HR 6049, which equalizes the preparer and taxpayer standards for undisclosed nonabusive positions at substantial authority (TAXDAY, 2008/05/22, C.1). However, the bill has stalled in the Senate over offsets for unrelated tax incentives.

  Meanwhile, the IRS has issued proposed regulations on revised Code Sec. 6694 (NPRM REG-129243-07, I.R.B. 2008-27, 32; TAXDAY, 2008/06/17, I.1) The IRS has scheduled a hearing on the proposed regulations for August 18 in Washington, D.C. The AICPA will testify at the hearing.

Tax Strategy Patents

  Another legislative priority for the AICPA is the banning of tax strategy patents, Melancon explained. "Tax strategy patents are not good public policy." Prohibiting tax strategy patents will require legislation but the Patent Reform Bill (HR 1908) appears stalled in Congress (TAXDAY, 2008/02/04, M.3).

 
HR 1908 would prohibit the Patent Office from granting patents for any "tax-planning method" (TAXDAY, 2007/09/10, C.3). A tax-planning method is "a plan, strategy, technique, or scheme that is designed to reduce, minimize or defer, or has, when implemented, the effect of reducing, minimizing or deferring a taxpayer's liability." HR 1908 excludes return-preparation software from the ban.

  Besides banning the patenting of tax strategies, Congress could take away the incentive for securing a patent. An individual could patent a tax strategy, Melancon explained, but not be able to enforce it against alleged infringers.

  The IRS has proposed regulations governing tax strategy patents (NPRM REG-129916-07, I.R.B. 2007-43, 891; TAXDAY, 2007/09/26, I.1). The proposed regulations would add patented transactions to the roster of reportable transactions under Code Sec. 6011.

Need for Certainty

  Additionally, the AICPA is" always advocating for tax simplification and tax stability," Melancon said. Practitioners and their clients are often perplexed by the on-again/off-again nature of many tax incentives, such as the long list of so-called extenders (the state and local sales tax deduction, the higher education tuition deduction and many more). "Our members raise this issue (the need for certainty in the Tax Code and in tax planning) all the time."

Next Generation of CPAs

  Melancon predicted that the accounting profession is about to undergo one of its greatest changes as Baby Boomers retire and a new generation of CPAs fill their ranks. "Baby Boomer retirements will give the younger generation a quicker path to advancement," he said. At the same time, however, the next generation of CPAs will be creating firms that operate very differently from that of their predecessors.

  "There will be more emphasis on work-life balance," Melancon predicted. Firms are also creating alternative paths to partner-level positions. Firms that are not receptive to these changes will find talented professionals "running to other opportunities."

  By George L. Yaksick, Jr., CCH News Staff