IRS is driven in its desire to close the tax gap and views tax practitioners as being an obstacle in the middle, according to Charles Rettig with the law firm of Hochman, Salkin, Toscher & Perez, P.C.,in Beverly Hills, Calif.

Speaking at the recent SourceMedia “Tax Update: Using the Latest Technology for Profitable Results” conference, he points out that this mindset  was evident in a statement by former IRS Commissioner Mark Everson at his 2003 Senate Finance Committee nomination hearings. Everson said, “There are clear indications that professional standards have eroded in some corners of the practitioner community. Attorneys and accountants should be the pillars of our system of taxation, not the architects of its circumvention.”

Rettig and other conference speakers indicated that the Circular 230 and the new tax preparer penalty “more than likely” regulations are evidence that IRS is aggressively going after tax practitioners, and attempting to use them as “agents” to further tax compliance and to ensure practitioners will be more conservative when providing tax advice. 

According to Rettig, there is another not-so-obvious but very detrimental effect of the new tax preparer regulations. If a penalty is imposed, he indicates the Office of Professional Responsibility and state boards of accountancy will probably get involved and conduct an investigation of the tax practitioner’s actions.

Thus, “Fight, Fight, Fight” is his recommendation for any practitioner facing a preparer penalty.  He explains, “Although the economic penalty may be $1,000 (In 2008), the related investigation of the Office of Professional Responsibility and the state licensing authority may destroy your practice and reputation.” He also advises anticipating that if there is an adverse determination, those entities might require disclosure of the violations to the clients.

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