The American Institute of CPAs wants Congress to modify a little-noticed provision in the recently passed Iraq war-funding bill that the institute fears may put tax preparers at odds with their clients.
The U.S. Troop Readiness, Veteran's Care, Katrina Recovery and Iraq Accountability Appropriations Act of 2007, enacted in May, contains a provision that increases tax preparers' tax return reporting standards for undisclosed, non-tax-shelter items, raising them from the "realistic possibility of success" standard to the "more likely than not" standard. The change subjects preparers to a more rigorous standard than taxpayers, and could force preparers to ask clients to disclose more information than they need to in order to protect the preparer from understatement penalties.
The AICPA contends that the provision constitutes a major change in tax policy and was inserted in the bill without any congressional hearing to weigh its impact. It pointed out that even the IRS Chief Counsel said the IRS had been "blindsided" by the provision. The institute said the provision could force CPAs to add more disclosures to tax returns than the electronic filing system could handle.
The AICPA wants Congress to again equalize the reporting standards for taxpayers and their clients, and only require the stiffer "more likely than not" standard for tax avoidance items like tax shelters. The institute said that would keep the IRS from being overburdened by excessive disclosures, many of which are disregarded anyway.
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