IRS Targeting “Abuses of Integrity”

As part of a broader effort to strengthen professional standards, the IRS today announced the appointment of Cono Namorato as the Director of the Office of Professional Responsibility. The New York Times reports on the appointment: "I.R.S. Unit Will Focus…

As part of a broader effort to strengthen professional standards, the IRS today announced the appointment of Cono Namorato as the Director of the Office of Professional Responsibility. The New York Times reports on the appointment: “I.R.S. Unit Will Focus on Lawyers and Accountants.” The article reports that the IRS is intending to weed out “attorneys and accountants who sacrifice their independence and integrity at the altar of higher fees.” According to the article, IRS Commissioner Mark Everson, in announcing the appointment, stated: “We need to have a complete attack on abuses of integrity,” he said, and disciplining “fast and loose attorneys and accountants who are working to undermine the system at the high end” is central to that strategy.

In addition, the IRS also announced the issuance of four items of administrative guidance as part of their ongoing effort to halt abusive tax avoidance transactions and maximize effective use of IRS audit resources:

  • Proposed changes to Circular 230 that set high standards for the tax advisors and firms that provide opinions supporting tax-motivated transactions.
  • Final regulations that will increase the cost of failing to disclose abusive tax avoidance transactions.
  • Revised final regulations clarifying that the disclosure of confidential transactions on a return is limited to transactions for which a promoter has imposed confidentiality on a taxpayer to protect the promoter?s tax strategies from disclosure.
  • Proposed new Form 8858 requiring information reporting by U.S. persons that own foreign entities that are disregarded for U.S. tax purposes.

Quote of Note from the Press Release: ?Taken together, the actions we are announcing today represent another significant step to end the proliferation of abusive tax avoidance transactions that has undermined confidence in our tax system,? said Treasury Assistant Secretary for Tax Policy Pam Olson. ?We are proposing a set of best practices that makes clear that tax professionals should adhere to the highest ethical standards and ensure that their clients are well-advised of the law and any risks they are taking.?

You can access the IRS Penalty Policy Statement issued in conjunction with the regulations here.

Also, Mike O’Sullivan at Corp Law Blog.com discusses the developments. Mike notes an interesting article from the Washington Post: “IRS Speeds Corporate Tax Audits.” The article quotes Charles O. Rossotti, the former internal revenue commissioner, as saying that some IRS agents, who might spend years auditing routine matters, appear to be in the archaeology business, rather than the audit business.

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