The year 2007 was a busy one for the AICPA Tax Section and the tax team. The Tax Section serves the public interest by helping AICPA members to be the most trusted professional providers of tax services, advocating sound tax policy and effective tax administration. As chair of the Tax Executive Committee, I am pleased to report that we made great progress in fulfilling our mission and delivering on all elements of our strategic plan. Here are some of the highlights.
Tax Policy Advocacy
The first part of the year was dominated by discussions about closing the tax gap. The tax gap, which is estimated to be more than $345 billion, is the difference between what taxpayers should pay each year in taxes and what they actually pay. Many factors contribute to the tax gap, including income under-reporting by individuals and small businesses, the use of aggressive tax shelters, and improper basis calculations when reporting gains and losses.
Members of the Tax Division participated in several panel discussions organized by the IRS and Treasury on the causes of the tax gap and potential ways to close it. The AICPA surveyed the entire Tax Section membership after the tax filing season to get a practitioner perspective on the issue. The survey results were shared with the IRS and Treasury and were summarized in this column in the November 2007 issue of The Tax Adviser. In June, the AICPA joined the American Bar Association Tax Section, the Tax Executives Institute, and other groups in sponsoring a two-day conference on the tax gap.
Another issue that grabbed significant attention in 2007 was the patenting of tax strategies. The U.S. Patent and Trademark Office has issued more than 60 tax-strategy patents, and more than 100 are pending. The AICPA is opposed to tax-strategy patents and wrote a white paper discussing the problems associated with issuing them. The institute was instrumental in bringing this issue to the attention of Congress and actively supported several legislative proposals to ban tax-strategy patents, including H.R. 1908, Patent Reform Act of 2007, a comprehensive patent reform bill passed by the House of Representatives, and S. 2369, a bill providing that certain tax planning inventions are not patentable, introduced by Senators Max Baucus (D-MT) and Chuck Grassley (R-IA).
In May, much to the surprise of the entire tax community, Congress passed changes to the tax preparer penalties contained in Sec. 6694. These changes significantly increase the types of tax returns that are subject to the preparer penalties as well as the amount of the penalties. More dramatically, the changes increased the threshold for avoiding the penalty for undisclosed positions to “more likely than not” and for disclosed positions to “reasonable basis.” This change makes the threshold for preparers higher than the comparable standard for taxpayers. Taxpayers are subject to a penalty for substantial tax understatement if they take an undisclosed position that does not meet a lower “substantial authority” threshold.
The AICPA worked diligently with the IRS and Treasury to get a workable extension for enforcing the new law. In addition, an AICPA task force has been meeting regularly with IRS and Treasury officials to help them find reasonable and practical ways to administer and enforce the new law.
At the same time, the AICPA has been very active in Congress, pointing out the difficult position in which the law places preparers. Our key efforts resulted in a bill (H.R. 4318) introduced by Representatives Joseph Crowley (D-NY) and James Ramstad (R-MN) that would equalize the preparer threshold for avoiding a penalty for undisclosed positions at the taxpayer level, which is generally “substantial authority.” We continue to pursue this as a priority.
In addition to these important topics, the AICPA wrote over 25 comment letters to federal and state government officials on a wide range of proposed laws, regulations, and rules. AICPA comment letters cover almost every area from effective administration to interpreting the law itself. All of the comment letters can be found on the AICPA website (www.aicpa.org).
Professional Ethics and Integrity
The AICPA continues to be active in ensuring that our members follow the highest ethical standards of tax practice. Members of the AICPA tax team made numerous presentations to member groups on current developments in professional ethics related to Circular 230 and our enforceable Statements on Standards for Tax Services. The AICPA submitted several comment letters on Circular 230 revisions and continues to communicate with the IRS Office of Professional Responsibility.
The AICPA Tax Executive Committee worked in cooperation with the Professional Ethics Executive Committee to submit comments to the exposure draft released by the International Ethics Standards Board for Accountants (a standard-setting body with the International Federation of Accountants (IFAC)) revising the independence provisions of the Code of Professional Ethics. These provisions discuss the threats to independence that may result from performing certain tax services for attest clients and the safeguards that may mitigate or eliminate those threats. As a member of IFAC, the AICPA is obligated to follow this code of ethics, so having reasonable guidelines on tax services for attest clients is important.
We also worked with the Professional Ethics Executive Committee on revisions to the AICPA Code of Conduct regarding the performance of tax services for attest clients, including an interpretation specifically targeting services in connection with FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes.
Service to Members
During 2007, the AICPA tax team wrote over 20 e-alerts covering new tax-related developments. E-alerts contain concise news on tax regulations, court decisions, legislation, and practice management. More in-depth analysis is regularly provided here in The Tax Adviser, the AICPA’s monthly magazine of tax articles and planning ideas.
Members of the Tax Division and the tax team also reviewed and updated more than 600 pages of practice guides, checklists, and organizers. These valuable member services are all available on the AICPA website.
The Tax Section continues to grow and now has almost 24,000 members. There is significant ongoing activity, and there is always a need for help. Anyone who would like to get involved with this important work should consider volunteering to serve on a committee or a technical resource panel (see http://volunteers.aicpa.org for volunteer opportunities). You will get a lot out of it, and so will your fellow members.
Mr. Hoops chairs the AICPA Tax Division’s Tax Executive Committee. DC Currents heightens awareness of the Tax Division’s activities and apprises readers of tax policy, technical issues, and other practice support matters.