The AICPA recently submitted written testimony for the record of the Senate Finance Committee’s April 12, 2007 hearing to examine tax administration and tax gap initiatives. While a good portion of this testimony is similar to the previous testimony to the House Ways and Means Committee, the section in which the Institute lays out its opposition to a particular taxpayer confidentiality provision is new and likely to be of interest to tax practitioners.

The AICPA said the provision would introduce “unnecessary burden and complexity that is at odds with well established modern business practices,” and that it is “concerned the proposal has the potential to actually undermine the range and quality of professional tax services available to many taxpayers.” The provision was included in S. 1321 that was crafted by the Senate Finance Committee during the last Congress. The Senate Finance Committee is continuing its work in this area this Congress so provisions of S. 1321 are still considered likely proposals.

The AICPA said, “We understand the Congressional concerns that emanate from instances in which unscrupulous or unethical return preparers have abused their access to tax return information and the AICPA remains resolute in its commitment to the privacy of taxpayers’ return information. However, if this proposal were to pass in its current form, it would reverberate well beyond the offensive conduct at which it is aimed and negatively impact the fundamental relationships between taxpayers and their chosen professional advisors.”

The disclosure of tax return information by the tax preparer to another professional in the accounting firm or to a third party in order to provide certain services—including estate planning, requests from lenders to the client’s business or to provide a client’s stockholders or management with appropriate financial information—should be allowed, the AICPA said. The Institute suggested the proposal be “modified to acknowledge the reality that CPAs and attorneys are already subject to a higher level of ethical standards.”

In its testimony, the AICPA also commented on other provisions in S. 1321 regarding the understatement of taxpayer’s liability by tax return preparers, the penalty for aiding and abetting the understatement of tax liability, and the doubling of certain penalties, fines, and interest on underpayments relating to certain offshore financial arrangements.

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