Role of Tax Professionals In Achieving Improved Tax Compliance Mark W. Everson Commissioner of Internal Revenue United States of America.

Role of Tax Role of Tax Professionals In Professionals In

Achieving Improved Achieving Improved Tax ComplianceTax Compliance

Mark W. EversonMark W. Everson

Commissioner of Internal RevenueCommissioner of Internal Revenue

United States of AmericaUnited States of America

IRS Strategic Plan GoalsIRS Strategic Plan Goals

Improve Taxpayer ServiceImprove Taxpayer Service

Enhance EnforcementEnhance Enforcement

Modernize the IRS Through Its People, Modernize the IRS Through Its People, Processes and TechnologyProcesses and Technology

Enhance Enforcement Enhance Enforcement of the Tax Lawsof the Tax Laws

Key Objectives:Key Objectives:

I.I. Discourage and deter noncompliance Discourage and deter noncompliance with emphasis on corrosive activity by with emphasis on corrosive activity by corporations, high-income individual corporations, high-income individual taxpayers and other contributors to the taxpayers and other contributors to the tax gaptax gap

II.II. Ensure that attorneys, accountants and Ensure that attorneys, accountants and other tax practitioners adhere to other tax practitioners adhere to professional standards and follow the professional standards and follow the lawlaw

Enhance Enforcement Enhance Enforcement of the Tax Lawsof the Tax Laws

(continued)(continued)

III.III. Detect and deter domestic and off-Detect and deter domestic and off-shore based tax and financial criminal shore based tax and financial criminal activityactivity

IV.IV. Deter abuse within tax-exempt and Deter abuse within tax-exempt and governmental entities and misuse of governmental entities and misuse of such entities by third parties for tax such entities by third parties for tax avoidance or other unintended avoidance or other unintended purposespurposes

Role of Tax Professionals in the USRole of Tax Professionals in the US

Over 1.2 million tax professionals help US Over 1.2 million tax professionals help US taxpayers understand and comply with taxpayers understand and comply with their tax obligations their tax obligations

Paid return preparers used by over 50% of Paid return preparers used by over 50% of taxpayers taxpayers

Many are not regulatedMany are not regulated

IRS e-Services Support Tax IRS e-Services Support Tax ProfessionalsProfessionals

New e-Services offer tax professionals an New e-Services offer tax professionals an efficient way to receive and exchange efficient way to receive and exchange information with the IRSinformation with the IRS

Obtaining tax transcriptsObtaining tax transcripts Filing Powers of AttorneyFiling Powers of Attorney Resolving accounts electronicallyResolving accounts electronically

Erosion of Professional StandardsErosion of Professional Standards

Vast majority of professionals follow the Vast majority of professionals follow the law and support tax compliancelaw and support tax compliance

Notwithstanding a general commitment to Notwithstanding a general commitment to ethical behavior, standards eroded in the ethical behavior, standards eroded in the 1990s1990s Growth of abusive transactions Growth of abusive transactions

developed and promoted by tax developed and promoted by tax practitionerspractitioners

Number of steps taken by the IRS to re-Number of steps taken by the IRS to re-establish high professional standardsestablish high professional standards

Office of Professional Office of Professional Responsibility (OPR)Responsibility (OPR)

OPR sets and enforces professional OPR sets and enforces professional standards for standards for AttorneysAttorneys AccountantsAccountants Enrolled AgentsEnrolled Agents In-house counselIn-house counsel

OPR does not currently have jurisdiction OPR does not currently have jurisdiction over other tax return preparersover other tax return preparers

OPR RevitalizedOPR Revitalized

Recruited new OPR leader – Recruited new OPR leader – Cono Namorato, a prominent former Cono Namorato, a prominent former prosecutor and defense counselprosecutor and defense counsel

Increased OPR staffingIncreased OPR staffing

Better utilization of existing disciplinary Better utilization of existing disciplinary toolstools

OPR is actively examining misconduct OPR is actively examining misconduct issues involving major law and accounting issues involving major law and accounting firms and their role in abusive sheltersfirms and their role in abusive shelters

Regulatory Actions to Address Regulatory Actions to Address Abusive PracticesAbusive Practices

Additional standards for written advice—Additional standards for written advice—1.1. Specify form and content of opinions used for Specify form and content of opinions used for

penalty protectionpenalty protection

2.2. Include best practices for advisorsInclude best practices for advisors

3.3. Allow firms to be held responsible if no internal Allow firms to be held responsible if no internal controls exist to ensure compliancecontrols exist to ensure compliance

New standards build on recent victories New standards build on recent victories in court on false claims of privilegein court on false claims of privilege

Next revisions to professional standards Next revisions to professional standards will address broader ethical issueswill address broader ethical issues

Enforcement Initiatives Enforcement Initiatives Promote Compliance with Promote Compliance with

Professional StandardsProfessional Standards

Parallel proceedings coordinate criminal, Parallel proceedings coordinate criminal, civil and OPR actionscivil and OPR actions Traditional approach of suspending Traditional approach of suspending

other actions until criminal review is other actions until criminal review is finished no longer works as abusive finished no longer works as abusive practices can be promoted over the practices can be promoted over the InternetInternet

Enforcement Initiatives Enforcement Initiatives Promote Compliance with Promote Compliance with

Professional StandardsProfessional Standards

Son of BOSSSon of BOSS settlement set tough terms on a settlement set tough terms on a clearly abusive transactionclearly abusive transaction Participants required to pay full amount of Participants required to pay full amount of

tax, plus a penaltytax, plus a penalty 1,165 taxpayers accepted the offer, over 1,165 taxpayers accepted the offer, over

$3½ billion paid to date$3½ billion paid to date

Recent Congressional Action Recent Congressional Action Strengthens IRS Regulation of Strengthens IRS Regulation of

Professionals Professionals

Tax professionals subject to monetary Tax professionals subject to monetary fines, up to the gross income derived from fines, up to the gross income derived from the misconductthe misconduct

Firm may be fined if it knew or should Firm may be fined if it knew or should have known of misconducthave known of misconduct

Monetary penalties may be imposed in Monetary penalties may be imposed in addition to or in lieu of limits on practice addition to or in lieu of limits on practice privilegesprivileges

Pending Legislation Concerning Pending Legislation Concerning PractitionersPractitioners

Expand OPR jurisdiction to include Expand OPR jurisdiction to include tax return preparerstax return preparers

Open OPR proceedings to publicOpen OPR proceedings to public

Require disclosure of Refund Anticipation Require disclosure of Refund Anticipation Loans termsLoans terms

US Internal Revenue US Internal Revenue ServiceService

Taxpayer Service and Taxpayer Service and Enforcement MeasuresEnforcement Measures

Toll-Free Telephone Level of Service

56%68%

80%87% 84%

0%

20%

40%

60%

80%

100%

FY 2001 FY 2002 FY 2003 FY 2004 FY2005Proj.

Toll-Free Tax Law Accuracy

80%

84%82%

80%

88%

70%

74%

78%

82%

86%

90%

FY 2001 FY 2002 FY 2003 FY 2004 FY2005Proj.

IRS.gov Internet Downloads (millions)

317438

560

739

0

200

400

600

800

FY 2001 FY 2002 FY 2003 FY 2004

Percent of Individuals Filing Electronically

31%36%

41%46%

51%

0%

10%

20%

30%

40%

50%

60%

FY 2001 FY 2002 FY 2003 FY 2004 FY2005Proj.

Total Individual Audits(in thousands)

0

500

1,000

1,500

2,000

2,500

FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04

High Income Audits (over $100,000) (in thousands)

-

50

100

150

200

250

FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04

Audits of Corporations (Assets over $10 million)

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04

Audits of Small Businesses (Assets under $10 million)

-

10,000

20,000

30,000

40,000

50,000

60,000

FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04

Criminal Investigations Completed

-

1,000

2,000

3,000

4,000

5,000

6,000

FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04

Enforcement Revenue ($ billions)

38.0 37.2 35.232.9 33.8 33.8 34.1

37.6

43.1

05

1015202530354045

FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04