New 6694 conduct standard to be considered

The extender bill proposes a reduction of the "more likely than not" standard of conduct to the "substantial authority" standard now applicable to negate penalties under section 6662. The House already passed that provision. The reduction was lobbield by the ABA, the AICPA, and the Engrolled Agent associations. Even the National Taxpayer Advocate appeared to approve of the legislative change.

I believe it will pass. Will it make any difference? I have worked a lot of penalty abatement issues, and the easiest resolution is based on "reasonable cause." It is near impossible to get a negligence penalty abated based on "substantial authrority" because I resolve those issues within the IRS administratively. I do not see cases with assessed penalties where the IRS has made any serious technical error. I work a lot of trust fund penalty liability cases where I challange the liability and win with the result that the liability goes away along with the applicable negligence penalty.

More importantly, I do not see a noticeable difference in the standards of conduct because they are both subjective. When does one have "substantial authority? Yes, it depends on the quality of the analysis and authority, but one then must convince the IRS that it does represent "substantial authority" (an advocacy issue)? The MLTN standard is defined to be at least 51% and the "substantial authority" is over 40%. There is no human who who can quantify the 10% difference.

For that reason, it is my opinion that each of the proFessional organization who lobbied this issue "goofed" big time. They should have argued the size of the penalty. I have seen effective lobying on the 1099 reporting requirement
by keeping it at $50 instead of $250 in 2008. The IRS will be motivated to nail return preparers with the $1,000 or $5,000 penalties, or the higher percent of the fee BECAUSE OF THE LARGE SIZE OF THE PENALTY. Count on that. Anytime there is a tax liability by an examiner or the service center, they will look at the return preparer penalty.

One of the flaws in the proposed regulations is that it does not fix a de minimus standard on the amount of the undperpayment of tax. Under the proposed regulations, one can have an underpayment of $100, and that would subject the return preparer to the full $1,000 penalty.

I do not count the reduction of the standard of conduct to the "substantial authority" standard as an important win for the industry.

Back on tipic: why would Grassly bring up lthe extender bill and not Baucus? There are obviously some political issues connected with other parts of the extender bill. However, since there is no apparent opposition to the reduction in the standard of conduct, I believe it will survive in the findal extender bill.

I have been receiving some good questions derived from this blog and portal. I can be reached at ab@irstaxattorney.com for those with questions or opposing views.




SFC Release: Baucus, Grassley, Senate Leaders Agree to Move Clean Energy Incentives, Extend Expiring Tax Cuts, Offer Disaster Tax Relief, Protect Millions from Alternative Minimum Tax

September 17, 2008

110th Congress

Committee On Finance



NEWS RELEASE



For Immediate Release



September 16, 2008



Contact: Carol Guthrie (Baucus)/ Jill Gerber (Grassley)


(202) 224-4515





BAUCUS, GRASSLEY, SENATE LEADERS AGREE TO MOVE CLEAN ENERGY INCENTIVES,





EXTEND EXPIRING TAX CUTS, OFFER DISASTER TAX RELIEF,





PROTECT MILLIONS FROM ALTERNATIVE MINIMUM TAX





Deal combines Finance leaders' key energy priorities with top tax issues for 110\th/ Congress


Washington, DC - Senate Finance Committee Chairman Max Baucus (D-Mont.) and Ranking Member Chuck Grassley (R-Iowa) today announced an agreement with the Senate's Democratic and Republican leadership to move legislation accomplishing the Finance panel's remaining major objectives for the year: passage of clean energy tax incentives, the protection of millions of Americans from the alternative minimum tax (AMT), and extensions of expiring family and business tax cuts. Last week, Baucus and Grassley unveiled a $40 billion package of clean energy tax incentives for Senate consideration this month. Today, the Finance leaders combined key objectives of that legislation with an agreement to update alternative minimum tax rules and continue tax cuts for college tuition, state and local sales taxes, and research and development for U.S. businesses. Senators should vote this week on amendments to replace the current text of H.R. 6049, energy tax legislation approved in the House of Representatives earlier this year.

"This month, the Senate can act to create jobs, break America's dependence on foreign oil, support working families and help businesses thrive. This agreement will lead America toward clean, homegrown energy and the good-paying jobs that come with it. Protecting families from the alternative minimum tax and extending expiring tax cuts will put real money in the pockets of struggling families, and enable entrepreneurs to invest and innovate," said Baucus. "We've also agreed on ways to pay for much of this good policy, and that's a significant achievement. The Senate and the House should take up the elements of this agreement and pass them without delay. Americans are ready now for good-paying jobs, tax relief, economic growth, and a brighter energy future."

"This legislation will be a huge shot in the arm to the economy, and the timing couldn't be better. The legislation will prevent tax increases on students, teachers and families, including 24 million taxpayers who will be protected from having to pay an average of $2,000 of Alternative Minimum Tax on top of what they already owe. It also will extend tax incentives for renewable energy and strengthens America's effort to build a more stable and sustainable energy supply," Grassley said. "The legislation also includes $7 billion in tax relief to help Iowa and other Midwestern states recover from floods and tornadoes that destroyed homes, businesses and communities this summer. The disaster tax relief package that's part of this agreement provides for the Midwest the same kind of tax provisions passed for Katrina victims. This package is a major victory and was worth fighting for in Congress because these provisions have proven their value for disaster recovery efforts, whether it's helping small businesses keep their doors open, communities raise additional dollars to recover, or families trying to rebuild their homes and their lives. The legislation also continues the bipartisan Finance Committee efforts to curtail tax shelters and close loopholes. The agreement includes the proposal to end tax abuse by hedge fund managers with respect to offshore deferred compensation plans. And it adopts my recommendation and eliminates the charitable loophole for these transactions."



The bipartisan Senate agreement includes the following elements:


Ÿ Clean energy tax incentives totaling approximately $17 billion, paid for by freezing the tax deduction for the domestic manufacturing activities of American oil and gas companies, by tightening the rules by which oil and gas companies pay taxes on income earned overseas, by freeing general fund monies with increased payments into the oil spill liability trust fund as new drilling is considered, by a one-year extension of the Federal Unemployment Tax Act surtax at the current level, and by increasing reporting requirements for brokers on sales of stock.



Ÿ An increase in the income threshold at which Americans become subject to the higher alternative minimum tax. This measure would protect approximately 20 million taxpayers from higher taxes at a cost of $64 billion. Baucus and Grassley do not expect the cost of the AMT "patch" to be offset.



Ÿ Extensions of expiring family and business tax cuts and other policies -including badly needed tax relief for victims of natural disasters, an expansion of the child tax credit, and long-awaited legislation providing parity for mental health treatment in the U.S. health care system. Extensions of expiring tax cuts will be partially offset by keeping hedge fund managers from using offshore corporations and other structures to defer taxes on compensation received for providing investment services.


Detailed summary information will be made available shortly.




# # #


Carol Guthrie

Communications Director, Democratic Staff

U.S. Senate Finance Committee

219 Dirksen Senate Office Building

Washington, DC 20510