In response to Michael Franskoviak's letter, "The dark side of the IRS" (Accounting Today, June 6-19, 2005, page 6), I agree that the Internal Revenue Service does not hand out tax penalty abatements like candy.

Unless there is an undeniably good cause, such as the sample reasons pointed out in the article, the penalty will not be abated. However, I must object to the suggestion that the fact that the IRS is flexible in the area of penalty reduction is 100 percent incorrect, and to the recommendation that the next time I want an accurate opinion I ask an experienced tax professional.

First, I am an experienced tax professional, one who has worked for the tax department of a Big Four firm, a Top 10 regional firm, a small local firm and, most recently, as a self-employed, one-person tax practice. I learned my IRS negotiation skills from the best in the business at Deloitte, and have honed them over the years to the point where I have successfully negotiated penalty abatements for my own clients in 100 percent of my attempts.

Furthermore, I believe that the people I interviewed for the article will agree that they are not only "experienced tax professionals," but are among the most knowledgeable professionals in the country in the area of tax penalty abatement: Marvin Michelman is director of tax controversy services for Deloitte, and Dan Wilds is a director at PricewaterhouseCoopers' national tax practice. Ruth Perez is also with the PwC national tax practice, and Norman Neubauer is a manager of tax training for H&R Block.

The point made by Mr. Franskoviak that individuals negotiating with the agency are at a disadvantage and that they should seek the help of tax professionals is in exact agreement with the point I make in my article. Tax professionals do this for a living and know when there is enough ammunition to attempt a negotiation and when to take a pass.

As Mr. Franskoviak points out, not having the money to pay, unfortunately, is the most common excuse for wanting to request abatement, and that dog will never hunt.

Gail Perry, CPA

Independence: A standard all CPA firms should meet

The AICPA has released an exposure draft titled "Proposed Interpretation 101-15 under Rule 101, Independence." The proposed interpretation governs the independence of "covered members." Covered members are defined in ET 92.06, as follows:

A. An individual on the attest engagement team;

B. An individual in a position to influence the attest engagement;

C. A partner or manager who provides nonattest services to the attest client beginning once he or she provides ten hours of nonattest services to the client within any fiscal year and ending on the later of the date (i) the firm signs the report on the financial statements for the fiscal year during which those services were provided, or (ii) he or she no longer expects to provide ten or more hours of nonattest services to the attest client on a recurring basis;

D. A partner in the office in which the lead attest engagement partner primarily practices in connection with the attest engagement;

E. The firm, including the firm's employee benefit plans; or,

F. An entity whose operating, financial or accounting policies can be controlled (defined by generally accepted accounting principles for consolidation purposes) by any of the individuals or entities described in (a) through (e) or by two or more such individuals or entities if acting together. (Quoted from: http://www.aicpa.org/about/code/et_92.html#et_92.06.)

The proposed interpretation would permit covered members to own the following during the course of an auditing engagement:

1. A covered member's ownership of 5 percent or less of a diversified mutual fund would not be considered to result in the member owning a material indirect financial interest in any of the fund's underlying investments;

2. A limited exception for financial interests received through an unsolicited gift or inheritance, which in certain respects is more restrictive than a similar exception promulgated by the Securities and Exchange Commission; and,

3. In the case of Section 529 savings plans, in limited circumstances, certain covered members would have up to one year to move the funds or designate a different account owner without being considered to have impaired their independence. (Quoted from: http://www.aicpa.org/members/div/ethics/ethics_exposure_draft_financial_relationships.htm.)

When I was in college, I was taught that auditors had to be independent in fact and appearance. I worked for a firm that would not allow any firm member to have any ownership in any entity the firm audited.

Given the large size of some of today's CPA firms, while it may not be possible to keep every member of the firm from having any ownership interest in a client, it does seem reasonable that the members of the audit team, partners that could influence the audit team, the firm's employee benefit funds, and other covered members listed above should not have an ownership interest in the entity they are auditing.

I do not think that independence in fact and appearance is too high a standard for an auditor or a CPA firm to meet.

Furthermore, in light of the recent accounting scandals, I do not think that this is the time to be allowing any auditor ownership (whether direct or indirect) of the entities that are being audited.

Gary Konecky, CPA

Fair Lawn, N.J.

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