Monday, August 27, 2007

New Law Changes Tax Preparers' Role And Could Lead to Increase in Fees

Tucked into the May Iraq war funding bill was a provision that increasing the tax return reporting standards applicable to tax return preparers for undisclosed non-tax shelter items from the "realistic possibility of success" standard to the "more likely than not" standard. The American Institute of Certified Public Accountants considers this a major change in tax policy that was made without Congressional hearings.

This law puts "the standard for tax preparers to a level above the standard for taxpayers...(and) creates the potential for conflicts of interest between preparers and their clients, and consequently affect the nature of taxpayers' representation," an AICPA spokesman said in a July press release.

Why would fees increase? There will be situations where tax preparers will have to more research than in the past in order to meet the "more likely than not" standard. And who pays for that research? The taxpayer.

The AICPA is asking Congress to return the standard to the previous standard.

I'm not sure who snuck this one. This is a potential nightmare for the taxpayer, for the tax preparer, and for the IRS. Tax preparers might revert to including excessive disclosures in tax returns which would tax the IRS processing systems and could affectg the electronic filing initiative as well.

Let's hope it goes away.

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