AICPA Submits US Civil Tax Penalty Reform Proposals
Tuesday, April 16, 2013
The American Institute of Certified Public Accountants (AICPA) has sent its
legislative proposals to the United States Congress for reforming the civil
tax penalty provisions of the Internal Revenue Code at the same as comprehensive
tax reform proposals are developed in the coming months.
In a letter sent on April 11 to the bipartisan Chairmen and Ranking Members
of the House of Representatives Ways and Means Committee and the Senate Finance
Committee, the AICPA looked for tax penalties that are clearer and fairer and,
consequently, do a better job of encouraging voluntary compliance with the nation's
Jeffrey Porter, Chair of the AICPA Tax Executive Committee, said: "There
are many aspects of the civil tax penalty regime that concern our members. Our
highest priorities are to ensure that the penalties are sufficiently calibrated
to the level of noncompliance, address the inconsistent application of reasonable
cause in civil penalty administration, and minimize the presence of strict liability
penalties in the Code."
"As comprehensive tax reform proposals are developed in the coming months,"
he added, "we encourage Congress to consider and include in such legislation
the points covered in our attached Report and Proposals to revise elements of
statutory penalty provisions relating to reportable avoidance transactions,
reasonable cause exception, foreign information reporting for certain foreign
trusts, and tax shelters."
Porter pointed out that the AICPA letter, report and legislative proposals
were submitted "with an eye toward improving overall tax policy and administration.
To that end, we strongly encourage an inclusive and transparent framework for
approaching this difficult task, similar to the collaborative efforts that culminated
in the 1989 penalty reform legislation."
The specific issues addressed by the AICPA include the trend away from voluntary
compliance as the primary purpose of civil tax penalties; the lack of clear
standards in some penalties; the fact that some penalties are disproportionate
both in amount and severity; the fact that some penalties are overbroad, deter
remedial and other good conduct, and punish innocent conduct; and the trend
toward strict liability.
In addition, it believes that there are inconsistencies between penalty standards
and the role of tax professionals; an increase in automated assessment of penalties
that can lead to unwarranted assessments; a needed to improve Internal Revenue
Service (IRS) guidance and training; and the need for the IRS to increase its
efforts to educate taxpayers and tax professionals.
In particular, as part of AICPA's Proposals there is a legislative proposal
on tax shelters that includes an addendum with an in-depth analysis on the definition
of the term "tax shelter" for purposes of the taxpayer accuracy-related
penalty in the Code. It has found that the broad and uncertain definition of
tax shelter in the Code and the Treasury Regulations is an impediment to the
goal of voluntary compliance that the civil tax penalties are designed to achieve.