Comment on FR Doc # N/A

The regulations as proposed would violate long-established concepts of due process in the administrative assessment of IRS penalties, and risks creating a conflict of interest between the rights of a taxpayer and those of his or her authorized representative. My specific comments include: 1. A preparer penalty could be assessed by a single IRS employee -- there is no review procedure. In the U.S. criminal justice system there are at least three levels of review after charges are filed -- the local prosecuter determines whether to take the case to a grand jury, then the grand jury decides whether there is enough evidence to send the case to court where a jury makes the third review of the strength of the case. The IRS should allow a front-line IRS employee only to propose a preparer penalty, which should then be reviewed by a manager separate from the line division where the penalty was proposed -- perhaps even someone in the Office of Professional Responsibility (OPR). 2. There should be an administrative appeals process for preparer penalties, just as there is an IRS administrative appeals process for most taxpayer assessments. Fundamental fairness would indicate that an administrative appeals process is a basic tenet of due process of law in the case of administrative, non-criminal assessments. Forcing tax professionals to immediately take preparer penalty assessments only to tax court risks overloading the tax court and Justice Department with cases that could more efficiently and fairly resolved at a lower, administrative level of the IRS. 3. When preparing a proposed preparer penalty assessment, an IRS employee should be, at a minimum, required to prepare the same level of detail in calculating the assessment as is required for most taxpayer assessments. A preparer penalty proposal should describe the tax underpayment amount, the tax return position that created the underpayment and the preparer action or inaction that is alleged to have helped create that tax return position. Only then would an IRS administrator be able to accurately review the proposed assessment and provide the preparer with a reasonable opportunity to respond in detail to the assessment proposal. 4. A requirement that a proposed preparer penalty assessment be accompanied by a detailed description of the tax underpayment, the return position that caused the underpayment and the preparer action or inaction alleged to have caused that return position would also put the initial burden of proof on the IRS employee proposing the penalty assessment. This would meet minimum legal requirements to reach a probable cause threshold under a due process standard. 5. The proposed regulations appear to provide for assessment of preparer penalties at relatively early stages of a taxpayer's case, and such assessment would likely create an immediate conflict of interest position for the taxpayer's representative if that representative is determined to also be the preparer in the case. Since a preparer's defense to a preparer penalty could well be that the taxpayer failed to provide essential information, and the taxpayer's defense could be to claim that the preparer had information but did not put it on the return, a preparer penalty assessment could force the representative to withdraw in the middle of the process, and force the taxpayer to obtain a new representative who is unfamiliar with the case to take a case to appeals, as one example. The creation of a such a conflict of interest would delay resolution of the original taxpayer case while the taxpayer obtains alternate representation and brings a new representative up to speed, further aggravating already existing caseload backlogs within the IRS. One solution to this dilemma might be to delay the initiation of any proposed preparer penalty in a case until that case has worked its way fully through the IRS administrative procedures. 6. Careful attention to the addition of due process procedures and protections in the implementation of the new preparer penalties could help ensure that its application is more precise and more likely to be applied to the truely "problem preparers," rather than becoming a bludgeon at risk of being crudely applied to honest and energetic tax professionals who seek to provide their clients with the fair and firm representation to which the IRC entitles them. Thank you.