My name is Louis Mirman. I am an accountant in public practice in Virginia Beach, Virginia and I am here representing the National Society of Public Accountants. I am presently President of the National Society and a member of its Executive Committee. Also, I am a Past President of the Accountants' Society of Virginia. I have been enrolled to practice before the Internal Revenue Service since 1959.

The National Society of Public Accountants is an organization of over 17,000 professional practicing accountants located throughout the United States. The National Society also has an affiliated state organization in each of the 50 states, the District of Columbia and the Commonwealth of Puerto Rico.

The members of the National Society are, for the most part either sole practitioners or partners in moderately sized public accounting firms. NSPA members provide accounting, auditing, tax preparation, tax planning and management advisory services to individuals and to small and medium-sized business firms. Members of NSPA are pledged to a strict code of professional ethics and rules of professional conduct.

In response to the invitation to testify before this Subcommittee regarding efforts to reduce taxpayer burdens, the National Society of Public Accountants submits the following observations for consideration.

We feel that the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), rather than providing "important taxpayer protections" has created additional taxpayer burdens. Not only has it created additional reporting and compliance burdens but also continuing confusion in understanding the new tax laws, rules and regulations.

We believe that the TEFRA tax penalty provisions designed to improve taxpayer compliance, will instead fuel and encourage the increasing trend of deterioration of the tax compliance problem because of the complexity of the law. It seems that Internal Revenue Service's attempt to "clarify" the Internal Revenue Code Section 6661 penalty provisions confuses the issue.

Among the areas of concern regarding the IRS proposals under IRC section 6661 are proposed regulations section 1.6661-3 regarding the definition of substantial authority the determination of whether substantial authority is present, and types of authority. Most taxpayers do not own or have access to a sophisticated tax library and even if they did, most could not begin to comprehend the provisions of section 6661. In addition, it appears illogical under the IRS proposed rules that a taxpayer residing in a particular Federal judicial circuit, does not have the judicial opinions of the courts considered in determining whether there is substantial authority for his position. We believe the IRS has gone beyond the Congressional intent as indicated by the examples given in the Committee Report of what does not constitute substantial authority. In our opinion, the concept of substantial authority should be replaced by a reasonable basis concept.

Another area of concern is the adequate disclosure rules contained in section 1.6661-4 of the proposed regulations. It appears unreasonable to expect a taxpayer to "red flag" his tax return for a virtually assured IRS audit in situations where there may be a legitimate controversial issue.

It is like a motorist driving at 56 miles per hour in a 55 mile zone calling his speed to the policemen's attention by waving a red flag on top of the car. In the case of the taxpayer, the law requires him to call attention (that is, to make adequate disclosure) to items in his tax return about which there might be reasonable differences of opinion between the IRS and himself. Further, the taxpayer may view the tax preparer as representing the IRS rather than the client.

It seems that the provisions of the proposed regulations relating to IRC section 6661(b)(2)(B)(i) & (ii) are missing their target. The taxpayers that they aim to hit will be the very taxpayers who are making a good faith effort to comply with the law; those who comply will be penalized, while those who disregard the rules will escape the penalty.

An example of this type of situation is contained in the recently released "Report To The Joint Committee On Taxation By The Comptroller General: IRS' Administration Of Penalties Imposed On Tax Return Preparers" (GAO/GGD-83-6, January 6, 1983) on page 28. According to some IRS district office and service center managers and examiners, "IRS has been most successful in identifying and penalizing these preparers who have sought to comply with the requirements of the law. They base this belief on the view that IRS has been able to easily detect and penalize preparers who at least identify themselves on returns. Conversely, they believe that IRS has been less successful in detecting preparers who do not identify themselves on returns and/or commit conduct violations."

It seems that the penalty provisions of tax law and the proposed regulations are continuing a trend of the Congress and IRS to intimidate taxpayers with their overzealousness of penalty assessments. This, along with the complexity of tax laws has worked to wreck tax compliance. There was a time when taxpayers were proud to support our country by paying their taxes, but now, compliance is continually deteriorating under the burden of complex tax laws. Complexity is at the base of what is wrong with tax compliance.

Tax cheating has flared up over the past years because taxpayers perceive unfair treatment, particularly when they are trying desperately, in good faith, to comply but they simply cannot understand what the tax laws are. To be unreasonably penalized by the law adds to their consternation.

Taxpayers need to be able to trust their government, but at the moment, they think that IRS is out to get them and they consider this outrageous. IRS, therefore, should seek to improve its image but it will not do so by promulgating regulations such as section 1.6661-3 and 1.6661-4.

Fair and effective administration of the nation's tax laws is necessary if our voluntary self assessment system of taxation is to survive. All of us have a duty to see that voluntary compliance does not deteriorate further. NSPA is concerned that the subjects we have discussed today tend to diminish voluntary compliance rather than to enhance it.

NSPA is pleased to have this opportunity to participate in these hearings on efforts to reduce taxpayer burdens. We shall be happy to work with this Subcommittee and its staff in every appropriate way to achieve the goals of tax compliance to benefit all taxpayers and the nation.