March 31,2004

Grassley, Baucus Express Concern Over Poor Oversight of Tax Practitioners

WASHINGTON – Sen. Chuck Grassley, chairman of the Committee on Finance, and Sen. Max Baucus, ranking member, today expressed concern that the Internal Revenue Service is doingtoo little to rein in tax practitioners and must increase its efforts to stop abusive tax shelters, bad service from paid preparers, and other problems.

“At the heart of every abusive tax shelter is a tax lawyer or accountant,” Grassley said. “Ifthe IRS isn’t getting at the lawyers and accountants who take unfair advantage, then it’s not pullingout the weed by its roots. The same goes for paid tax preparers who overcharge their clients. Oftenthe tax practitioner, not the taxpayer, is the problem. The IRS is taking some steps in the rightdirection, but it has to do a lot more to make real progress in cleaning up tax abuses.”

Baucus said, “In too many cases, recent financial scandals on Wall Street have been the resultof shady tax practitioners leading companies down the garden path. While ultimate responsibilityfalls on the shoulders of those who commit the crimes, it’s up to the IRS to lay down the law. Let’sstop these unsavory practices in their tracks by restoring integrity and professionalism in thepractitioners community -- an ounce of prevention is worth a pound of cure. By strengthening theOffice of Professional Responsibility within the IRS we can eliminate problems before they begin.”

The senators wrote to Treasury Secretary John Snow to express their concerns and ask formore action from the IRS’ Office of Professional Responsibility, which regulates tax practitioners.The text of their letter follows.

March 31, 2004

The Honorable John Snow
Department of the Treasury
1500 Pennsylvania Avenue
Washington, DC 20220

Dear Mr. Secretary:

We applaud the recent selection of Mr. Cono Namorato as the head of the Office ofProfessional Responsibility (OPR). However, we remain concerned that the Department of Treasury(Treasury) and the Internal Revenue Service (IRS) have unnecessarily narrowed the effectivenessof the OPR. At a recent Federal Bar Association symposium, a senior Treasury official was askedabout regulating the conduct of tax practitioners. In response, the Treasury official stated, “Congressis never going to give the IRS the resources that would be necessary to cover things on a very broadbasis. . ..” These comments were reported in the tax press on January 12, 2004. One of the seriousweaknesses in the IRS’ and the Treasury’s enforcement of the tax laws, including shutting down ofabusive tax shelter transactions, has been the operation of OPR.

The comments by the Treasury official demonstrates the self-imposed limitations Treasuryand the IRS have placed on the OPR. We believe that the first step to ensuring that Congressproperly funds OPR is for the Administration to inform Congress of the amount needed to ensurevigorous enforcement of the law, including policing tax practitioners. Thus, the statement thatCongress will “never” provide the resources necessary for a robust enforcement program appearspremature and presumptuous if Congress is not advised about workload requirements and resourceneeds. Please provide us with the budget and full-time equivalent requests for OPR for the last sixyears, including the administration’s proposal for FY 2005, as well as the amount appropriated bythe Congress in previous years.

While we recognize that a significant step to rectify the problem has been taken with theappointment of Mr. Cono Namorato as the head of OPR, we remain concerned with Treasury’s andthe IRS’ self-limiting authority through rulemaking and guidance for the OPR. Without a clearchange in course as directed from you, these are unacceptable limitations that Mr. Namorato willconfront.

We are concerned that the IRS Chief Counsel has been slow to follow through on anysubstantial changes to Circular 230. The IRS has historically restrained itself from regulating paidtax preparers even though there is no statutory restriction. We remain concerned that Treasury andIRS have not acted to alter that approach. Moreover, we remain concerned that OPR is not receivingreferrals from other divisions within the IRS, such as the Office of Tax Shelter Analysis, and areconcerned equally that OPR is not working in a collaborative effort with the Justice Department(DOJ). Such institutional intransigence in the face of the demanding need and changing economicrealities brings into question whether there truly is a desire by the Treasury and the IRS to properlypolice tax practitioners.

Therefore, we request that you provide the Finance Committee with your plans for pursuingunscrupulous practitioners and for OPR to fully and effectively pursue those who are enabling othersto abuse the tax laws. We also urge you to put an end to the self-limiting mindset that has plaguedthe Treasury and the IRS regarding OPR. Mr. Namorato’s success hinges on your willingness to givehim more authority.

Sincerely yours,

Max Baucus 
Ranking Member

Charles E. Grassley

cc: The Honorable Mark W. Everson, IRS Commissioner
Mr. Cono Namorato, Director, Office of Professional Responsibility