IRS Issues Proposed Regulations on Tax Return Preparer Penalties (NPRM REG-129243-07)
CCH (cch.taxgroup.com) reports:
After months of speculation, the IRS on June 16 released proposed return preparer penalty regulations. The proposed regulations, the IRS explained, do not only provide guidance on the new Code Sec. 6694(a) more-likely-than-not preparer standard, they also contain a comprehensive overhaul of all preparer penalties. The IRS predicted that final regulations will be in place for the 2009 filing season. A hearing on the proposed regulations is scheduled for August 18, 2008, at the IRS National Office in Washington, D.C.
In welcome news to practitioners, the IRS stated that it will not stack penalties under Code Sec. 6694 and Circular 230 (TAXDAY, 2007/10/09, M.2) and reiterated that penalties under Code Sec. 6694 are not automatic (TAXDAY, 2008/03/07, I.9). Additionally, the IRS included many examples of various provisions in the proposed regulations.
Pending legislation could make the proposed regulations obsolete before they are finalized, Thomas Ochsenschlager, Vice President, Taxation, American Institute of Certified Public Accountants (AICPA), told CCH. The House-passed Renewable Energy and Job Creation Bill of 2008 (HR 6049) would equalize the preparer and taxpayer penalty standards at substantial authority (TAXDAY, 2008/05/22, C.1). Although Senate Democrats were unable to bring HR 6049 before the full Senate for debate during the week of June 9, they are expected to try again the week of June 16.
"In an initial review of the proposed regs, I'm pleased to see that the examples include a number of preparation-based scenarios, which are indeed welcome to enrolled agents and, I think, to many in the Circular 230 community at large," Robert A. Kerr, senior director of government relations for the National Association of Enrolled Agents (NAEA) told CCH.
"The proposed regs are likely to generate an avalanche of comment on the lack of certainty about how to determine the amount of the penalty," Kip Dellinger, chair of the AICPA Tax Division's Tax Practice Responsibilities Committee, told CCH. Dellinger, who is author of CCH's The Practical Guide to Federal Tax Practice Standards, also predicted that the legal community will "seek more bright-line guidance on who is a nonsigning preparer."
Sea Change in 2007
Passage of the Small Business and Work Opportunity Tax Act of 2007 (2007 Small Business Tax Act) (P.L. 110-28), sparked the drafting of the proposed regulations. The new law replaced the "realistic possibility of success standard" in Code Sec. 6694(a) with the heightened "more likely than not standard" for nonabusive undisclosed positions. The preparer must have a reasonable belief that the tax treatment of the position would more likely than not be sustained on its merits.
The 2007 Small Business Tax Act also extended Code Sec. 6694 to preparers of all returns and not just preparers of income tax returns. Additionally, the new law significantly increased the penalties for noncompliance. The old, first-tier $250 penalty in Code Sec. 6694(a) jumped to the greater of $1,000 or 50 percent of the income derived, or to be derived, by the preparer. The penalty for willful or reckless conduct in Code Sec. 6694(b) increased from $1,000 to the greater of $5,000 or 50 percent of the income
Picked this off, so you can see it (a portion) - it appears to be geared more for Tax Preparers....not quite sure about it, but it's still under Review anyway
