Comment sent to IRS on Notice 2009-5

The IRS requested comment on Notice 12009-5. The following is the comment I made. Although I have received a great deal of e-mail feedback and questions from those who read this blog, you can make your comment as an attachment to any blog, including the one today. The full comment follows:

Notice 2009-5

e-mail address: Notice.Comments@irscounsel.treas.gov

Internal Revenue Service, CC:PA:LPD:PR ( Notice 2009-5)
Room 5203, P.O. Box 7604, Ben Franklin Station
Washington, DC 20224.
.
Notice 2009-5 has created a new substantive definitions for “substantial authority” (the New Definition), is quoted, as follows
Solely for purposes of section 6694(a), a tax return preparer nevertheless will be considered to have met the standard in section 6694(a)(2)(A) if the tax return preparer relies in good faith and without verification on the advice of another advisor, another tax return preparer, or other party. Factors used in evaluating a tax return preparer's good faith reliance on the advice of another are found in § 1.6694-2(e)(5).
The New Definition is inconsistent with the plain language of section 6694(a)(2)(A) which requires “substantial authority.” The New Definition is also inconsistent with the statement in Notice 2009-5 that the authorities used to define “substantial authority” are those described in section 1.6662-4(d)(3)(iii). The reliance on another person in the New Definition is not “authority.” Also Notice 2009-5 is inconsistent with the following statement in the Notice:
Conclusions reached in treatises, legal periodicals, legal opinions, or opinions rendered by tax professionals (including tax return preparers) are not authority. I do not see how there can be reliance on another “person” as “substantial authority” under the New Definition if the same Notice says that the opinion of a tax professional is not “authority.”
One cannot read the word “authority” in section 6694(a)(2)(A) and construe it to be something other than technical “authority” in conflict with the clear language of section 1.6662-4(d)(3)(iii) and its interpretation by longstanding judicial precedent. Under section 1.6662-4(d)(2), the term “substantial authority” is a “standard.” A person is not a “standard.” Further, a person is not a “type of authority” as that term is used in section1.6662-4(d)(3)(iii).
Statutory interpretation begins with the language, or plain meaning of the statute. Exxon Mobil Corp. v. Allapattah Servs., Inc., 125 S.Ct. 2611, 2626 (2005); Norfolk Dredging Co., Inc., v. United States, 375 F.3d 1106, 1110 (Fed. Cir. 2004) (citing Williams v. Taylor, 529 U.S. 420, 431 (2000)). If examination of the statute in light of these rules shows that "the language is clear and fits the case, the plain meaning of the statute generally will be regarded as conclusive." Norfolk Dredging Co., 375 F.3d at 1110. Once “plain meaning” is ascertained, it is inappropriate for courts to attempt to interpret a statutory provision. The plain meaning of a statute comes from its "text and structure." If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.
The reference in the New Standard to the Factors used in evaluating a tax return preparer's good faith reliance on the advice of another are found in § 1.6694-2(e)(5) is also contradictory because § 1.6694-2(e)(5) which is only one element of the “reasonable cause” standard. It elevates conduct as a factor to trump technical authority.
Although Notice 2009-5 does not address “diligence” in the manner used in section 1.6694-2(b)(1), it is likely that the IRS will consider “diligence” when the section1.6694-2(c) regulations are drafted. I believe the “diligence” concept is misleading. For example, if a return preparer does not apply the substantiation required by a tax regulation, the issue of “diligence” should not be taken into account. The standard of conduct to negate a 6694 penalty applies to return preparers who are not negligent. To make the point in one other way, the 6694 penalty is a per se penalty when a return preparer is clearly negligent (e.g., does not apply the standards of any tax regulation). For this reason I believe it is misleading to imply that due diligence will negate clear negligence. The apparent tax policy is to upgrade the technical skill of return preparers, not to excuse inept tax return preparers who demonstrate due diligence but who are technically inept. For the same reason, I believe that the use of that term in section 1.6694-2(b)(1) was a mistake and should not be applied when the section 1.6694-2(c) regulations are drafted


Alvin S. Brown, Esq.
Tax attorney
ab@irstaxattorney.com
703 425-1400