Academic journal article Washington and Lee Law Review

Law and Order Comes to "Dodge City": Treasury's New Return Preparer and IRS Practice Standards

Academic journal article Washington and Lee Law Review

Law and Order Comes to "Dodge City": Treasury's New Return Preparer and IRS Practice Standards

Article excerpt

Tax policy discussions tend to take the shape of proposals for change. I depart from that tradition to offer support for recent United States Treasury Department (Treasury) efforts to reinvigorate the self-assessment system. Almost seven years ago, proposed amendments to Circular 230 which sought to redefine practitioner standards of federal tax advice set off a maelstrom.(1) There followed studies, reports, revised taxpayer and preparer penalty legislation, notices, proposed and final regulations, and another round of proposed revisions to Circular 230 that generally would conform the standards of practice before the Internal Revenue Service (IRS) to those established by the preparer penalty regulations.

There has been and will continue to be no shortage of critics of the new standards. I offer the observation that the Treasury has contributed significantly to public law jurisprudence by articulating for practitioners expectations of respect for legitimate lawmaking authority and discipline in identifying the requirements of "law." Additionally, the Treasury implicitly has defined "law" in terms that are meaningful to the taxpaying public, which has been alienated by the appearance of lawlessness created by lawyers' and accountants' insistence on broad discretion to supply to "ambiguous" statutory terms virtually any content most favorable to clients.

The strength of the new standards is that they require practitioners to defer, in resolving ambiguities in the revenue statutes, to legislative, judicial and administrative "authority" as defined under the accuracy-related penalty regulations.(2) The objectivity achieved by this limitation vastly improves the administrability of the Treasury standards over the standards of the American Bar Association (ABA)(3) and the American Institute of Certified Public Accountants (AICPA).(4) Moreover, the Treasury's approach soundly, if not explicitly, rejects the proposition, inherent in the ABA and AICPA standards, that taxpayers and their advisers (or even academics) may substitute their own private speculation for authoritative judgments. While further clarification would be in order, Congress and the Treasury should resist the pressure to reverse course. Bringing law and order to the tax return by prescribing professional conduct consistent with a broadly accessible concept of the rule of law may breathe new life into our self-assessment system.

The regulations assume "law" to mean "positive law," that is, norms established "by the authority of the state as contrasted with natural law or a body of ideal precepts."(5) Many of us may wish that we were subject to tax under principles of natural justice, but the content of those principles is the subject of some dispute and so, as a practical matter, varies with the identity of the person applying them. Most accept that members of the legislature, executive officials, and judges, who are the final arbiters, resolve conflicting notions of what principles of justice ought to govern in our polity. We may attain for our personal principles the status of law only by advancing them for adoption by these politically authorized decisionmakers. Whereas individuals have considerable power to define private law rights and duties, our judgments as individuals are not recognized as authoritative pronouncements of public law.

These propositions may seem unremarkable; but, as related in Section I below, for some time the federal tax system has tolerated practitioners' assessing a client's tax liability in accordance with their personal preferences as to the requirements of the tax laws. One costume in which personal preference can dress is as a prediction of a position's likelihood of prevailing in an adversarial proceeding, which is the ethical standard governing return advice adopted by the ABA and the AICPA. The ABA permits advising a return position that has a "realistic possibility of success in litigation,"(6) and the AICPA permits advising a position that has a "realistic possibility of being upheld, administratively or judicially, on its merits. …

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