The House Ways and Means Committee has approved a bill that would equalize the disclosure standards of tax preparers and their clients.
The Taxpayer Assistance and Simplification Act of 2008, introduced by committee Chairman Charles Rangel, D-N.Y., and Oversight Committee Chairman John Lewis, D-Ga., passed by a vote of 23 to 17.
The bill equalizes the IRS disclosure and penalty standards between tax preparers and taxpayers. For undisclosed positions, the penalty standard for preparers is reduced to substantial authority. For disclosed positions, a return preparer generally must have a reasonable basis for the position. For positions involving tax shelters and certain reportable transactions, a return preparer must have a reasonable belief that the position would more likely than not be sustained on the merits.
"The AICPA believes legislation is necessary to correct the flaw in the law that was passed by Congress in May of 2007 that tightened the disclosure requirements for tax preparers under the section of the Tax Code [Section 6694] that spells out what must be disclosed on tax returns in order to avoid having a penalty imposed," said Tom Ochsenschlager (pictured), AICPA vice president for taxation, in a statement.
Under the 2007 law, in order to protect themselves from a potential penalty, preparers would have to ask the taxpayer to disclose to the IRS any tax positions taken by a taxpayer that didn't meet the Tax Code's "more likely than not" standard. In general, the "more likely than not" standard requires a reasonable belief that the position has a greater than 50 percent chance of being accepted by the IRS or a court.
The law would also eliminate the special requirements for individuals to keep detailed records of calls made on employer-provided cell phones. The bill repeals the IRS's authority to use private debt collection companies to collect federal taxes. It delays for one year the imposition of a 3 percent withholding requirement on government payments for goods and services made after Dec. 31, 2010.
The bill also stops federal contractors from using foreign subsidiaries to evade Social Security and other employment taxes. It makes the administrators of state and local government programs liable for paying the employment taxes on amounts paid by government programs to in-home care workers provided to elderly and disabled persons.
In addition, it prohibits the misuse of Department of the Treasury names and symbols in misleading websites and "phishing" schemes. The bill would also protect low-income taxpayers by prohibiting IRS debt indicators for predatory refund anticipation loans, allowing IRS employees to refer taxpayers to qualified low-income taxpayer clinics, and authorizing funding for Volunteer Income Tax Assistance programs. In addition the bill requires the IRS to notify taxpayers if it suspects theft of a taxpayer's identity.
