[Federal Register Volume 73, Number 117 (Tuesday, June 17, 2008)]
[Proposed Rules]
[Pages 34560-34597]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-12898]
[[Page 34559]]
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Part IV
Department of the Treasury
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Internal Revenue Service
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26 CFR Parts 1, 20, 25, et al.
Tax Return Preparer Penalties Under Sections 6694 and 6695; Proposed
Rule
Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 /
Proposed Rules
[[Page 34560]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 20, 25, 26, 31, 40, 41, 44, 53, 54, 55, 56, 156,
157, and 301
[REG-129243-07]
RIN 1545-BG83
Tax Return Preparer Penalties Under Sections 6694 and 6695
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
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SUMMARY: This document contains proposed regulations implementing
amendments to the tax return preparer penalties under sections 6694 and
6695 of the Internal Revenue Code (Code) and related provisions under
sections 6060, 6107, 6109, 6696, and 7701(a)(36) reflecting amendments
to the Code made by section 8246 of the Small Business and Work
Opportunity Tax Act of 2007. The proposed regulations affect tax return
preparers and provide guidance regarding the amended provisions. This
document also provides notice of a public hearing on these proposed
regulations.
DATES: Written or electronic comments must be received by August 18,
2008. Outlines of topics to be discussed at the public hearing
scheduled for Monday, August 18, 2008, must be received by Monday,
August 4, 2008.
ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-129243-07), room
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered Monday through
Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-
129243-07), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue, NW., Washington, DC, or sent electronically via the Federal
eRulemaking Portal at http://www.regulations.gov/Regs (IRS REG-129243-
07). The public hearing will be held in the IRS Auditorium, Internal
Revenue Building, 1111 Constitution Avenue, NW., Washington, DC.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Michael E. Hara, (202) 622-4910, and Matthew S. Cooper, (202) 622-4940;
concerning submissions of comments, the hearing, and/or to be placed on
the building access list to attend the hearing, Regina Johnson, (202)
622-7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in this notice of proposed
rulemaking has been submitted to the Office of Management and Budget in
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3507(d)). Comments on the collection of information should be sent to
the Office of Management and Budget, Attn: Desk Officer for the
Department of the Treasury, Office of Information and Regulatory
Affairs, Washington, DC 20503, with copies to the Internal Revenue
Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP,
Washington, DC 20224. Comments on the collection of information should
be received by August 18, 2008. Comments are specifically requested
concerning:
Whether the proposed collection of information is necessary for the
proper performance of the functions of the IRS, including whether the
information will have practical utility;
The accuracy of the estimated burden associated with the proposed
collection of information;
How the quality, utility, and clarity of the information to be
collected may be enhanced;
How the burden of complying with the proposed collection of
information may be minimized, including through the application of
automated collection techniques or other forms of information
technology; and
Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of services to provide information.
The collection of information in this proposed regulation is in
Sec. Sec. 1.6060-1(a)(1), 1.6107-1, 1.6694-2(c)(3), 20.6060-1(a)(1),
20.6107-1, 25.6060-1(a)(1), 25.6107-1, 26.6060-1(a)(1), 26.6107-1,
31.6060-1(a)(1), 31.6107-1, 40.6060-1(a)(1), 40.6107-1, 41.6060-
1(a)(1), 41.6107-1, 44.6060-1(a)(1), 44.6107-1, 53.6060-1(a)(1),
53.6107-1, 54.6060-1(a)(1), 54.6107-1, 55.6060-1(a)(1), 55.6107-1,
56.6060-1(a)(1), 56.6107-1, 156.6060-1(a)(1), 156.6107-1, 157.6060-
1(a)(1), and 157.6107-1. This information is necessary to make the
record of the name, taxpayer identification number, and principal place
of work of each tax return preparer, make each return or claim for
refund prepared available for inspection by the Commissioner of
Internal Revenue, and to document that the tax return preparer advised
the taxpayer of the penalty standards applicable to the taxpayer in
order for the tax return preparer to avoid penalties under section
6694. The collection of information is required to comply with the
provisions of section 8246 of the Small Business and Work Opportunity
Tax Act of 2007. The likely respondents are tax return preparers and
their employers.
Estimated total annual reporting burden: 10,679,320 hours.
Estimated average annual burden per respondent: 15.6 hours.
Estimated number of respondents: 684,268.
Estimated frequency of responses: 127,801,426.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by the Office of Management and Budget.
Background
This document contains proposed amendments to the Income Tax
Regulations (26 CFR part 1), the Estate Tax Regulations (26 CFR part
20), the Gift Tax Regulations (26 CFR part 25), the Generation-Skipping
Transfer Tax Regulations (26 CFR part 26), the Employment Tax and
Collection of Income Tax at Source Regulations (26 CFR part 31), the
Excise Tax Procedural Regulations (26 CFR part 40), the Highway Use Tax
Regulations, (26 CFR part 41), the Wagering Tax Regulations (26 CFR
part 44), the Foundation and Similar Excise Tax Regulations (26 CFR
part 53), the Pension Excise Tax Regulations (26 CFR part 54), the
Excise Tax on Real Estate Investment Trusts and Regulated Investment
Companies Regulations (26 CFR part 55), the Public Charity Excise Tax
Regulations (26 CFR part 56), the Excise Tax on Greenmail Regulations
(26 CFR part 156), the Excise Tax on Structured Settlement Factoring
Transactions Regulations (26 CFR part 157), and the Regulations on
Procedure and Administration (26 CFR part 301) implementing the
amendments to tax return preparer penalties under sections 6694 and
6695 (and the related provisions under sections 6060, 6107, 6109, 6696,
and 7701(a)(36)) made by section 8246 of the Small Business and Work
Opportunity Tax Act of 2007, Public Law 110-28 (121 Stat. 190) (May 25,
2007) (the 2007 Act).
In accordance with the 2007 Act, these proposed regulations amend
existing regulations defining income tax return preparers to broaden
the scope of that definition to include preparers of estate, gift, and
generation-skipping transfer tax returns, employment tax returns,
excise tax returns, and returns of exempt organizations. These proposed
regulations also revise current
[[Page 34561]]
regulations to amend the standards of conduct that must be met to avoid
imposition of the tax return preparer penalty under section 6694. In
addition, these proposed regulations reflect changes to the computation
of the section 6694 tax return preparer penalty made by the 2007 Act.
These regulations also amend current regulations under the penalty
provisions of section 6695 to conform them with changes made by the
2007 Act expanding the scope of that statute beyond income tax returns.
The Treasury Department and the IRS intend to finalize these proposed
regulations by the end of 2008, with the expectation that the final
regulations will be applicable to returns and claims for refund filed
(and advice given) after the date that final regulations are published
in the Federal Register, but in no event sooner than December 31, 2008.
History of the Tax Return Preparer Penalty Provisions
The 2007 Act amended section 6694 to expand the definition of tax
return preparer, broaden the scope of the tax return preparer penalties
to include preparers of returns other than income tax returns, revise
the standards of conduct that tax return preparers must meet to avoid
imposition of penalties, and change the computation of the tax return
preparer penalties. The 2007 Act did not amend a number of other Code
sections related to tax return preparer conduct, nor did it directly
address the tax regulations, published guidance, and case law that have
developed since enactment of the preparer penalty regime as part of the
Tax Reform Act of 1976, Public Law 94-455 (90 Stat. 1688) (October 4,
1976) (the 1976 Act).
The Treasury Department and the IRS believe that the recent
amendments to the tax return preparer penalty provisions necessitate a
comprehensive review and overhaul of all the tax return preparer
penalties and related regulatory provisions. These proposed regulations
are the first significant step in this process. Because the proposed
regulations were drafted with consideration of the existing regulations
and the legislative history of the statutory provisions that were
amended by the 2007 Act, a brief review of the legislative and
regulatory history leading up to the recent amendments is appropriate
in order to place the proposed regulatory changes reflecting the 2007
Act amendments in context.
The Tax Reform Act Of 1976
The provisions in section 7701(a)(36) defining income tax return
preparers, and the provisions in sections 6694, and 6695, imposing
various penalties on income tax return preparers, were first enacted by
the 1976 Act. Sections 6107 and 6109, imposing an obligation on return
preparers to furnish and maintain copies of returns and include an
identifying number on those returns, were also enacted by the 1976 Act.
As originally enacted, section 7701(a)(36)(A) defined the term
income tax return preparer to mean any person who prepared for
compensation, or who employed one or more persons to prepare for
compensation, any income tax return or income tax claim for refund, or
a ``substantial portion'' of such return or claim. Section
7701(a)(36)(B) excluded from the definition of income tax return
preparer persons who merely provided mechanical assistance in the
preparation of a return or claim for refund, or who prepared returns
and claims as an employee of the taxpayer or in a fiduciary capacity.
The legislative history to the 1976 Act explained that whether or not a
portion of a return constituted a substantial portion of a tax return
was to be determined by examining both the length and complexity of
that particular portion of the return and the amount of tax liability
involved. The legislative history noted, however, that the filling out
of a single schedule would generally not be considered a substantial
portion of that return unless that particular schedule was the dominant
portion of the entire tax return. The legislative history also provided
that a person who prepared a return for compensation may be an income
tax return preparer even though that person did not actually place
figures on a taxpayer's return. See S. Rep. No. 94-938, 94th Cong., 2d
Sess. 349-359 (1976).
As originally enacted, section 6694(a) imposed a ``first tier''
penalty of $100 if any part of an understatement was due to the
negligent or intentional disregard of rules or regulations by an income
tax return preparer. Section 6694(b) imposed a ``second tier'' penalty
of $500 if any part of an understatement was due to a willful attempt
in any manner to understate tax liability by an income tax return
preparer. Section 6695(b) imposed a penalty of $25 if an income tax
return preparer failed to sign a return or claim for refund in the
manner prescribed by regulations. Sections 6695(a), (c), (d), and (e)
also imposed penalties of $25 if an income tax return preparer failed
to comply with the various identification rules in sections 6107(a),
6109(a)(4), 6107(b) and 6060.
The House and Senate Reports to the 1976 Act, H. Rep. No. 94-658,
94th Cong., 1st Sess. at 274 (1975) and S. Rep. No. 94-938 at 349-50,
and the Joint Committee on Taxation's General Explanation of the Tax
Reform Act of 1976, 94th Cong., 2d Sess. at 346 (1976), explained the
need for the new tax return preparer penalty regime by noting the
significant number of fraudulent returns and tax return preparers
engaged in abusive practices. The legislative history further explained
that, under prior law, it was often difficult for the IRS to detect any
individual case of improper return preparation. This was because the
IRS generally had no way of knowing whether the return was prepared by
the taxpayer or by a tax return preparer who may have engaged in
abusive practices involving a number of returns. Further, even when the
IRS could trace the improper preparation of tax returns to an
individual tax return preparer, the only sanctions available were
criminal penalties, which were often considered inappropriate,
cumbersome, and ineffective deterrents because of the cost and length
of time involved in prosecuting those cases. The legislative history
makes clear that Congress intended the tax return preparer penalties to
aid the IRS in detecting returns that were incorrectly prepared and to
deter tax return preparers from engaging in improper conduct. See S.
Rep. No. 94-938, at 350-51 (1976).
Regulations implementing certain of the amendments made by the 1976
Act were published on December 29, 1976, as TD 7451, 41 FR 56631, and
later amended on March 31, 1977, by TD 7473, 42 FR 17124. Additional
regulations were published on April 1, 1977, as TD 7475, 42 FR 17452,
and November 23, 1977, as TD 7519, 42 FR 17452 (the November 1977 final
regulations).
The November 1977 final regulations applied the tax return preparer
penalty provisions to persons who did not sign the return or claim for
refund, or make or control the entries on the return or claim for
refund, including tax professionals who rendered advice that was
directly related to the determination of the existence,
characterization, or amount, of an entry on a return or claim for
refund. By including a broad definition of tax return preparer, the
Treasury Department and the IRS intended the regulations to increase
advisor care and to monitor careless or deceptive members of the
profession. The November 1977 final regulations reflected the
considered view that excluding nonsigning tax professionals from the
reach of section 6694 could result in a lack of accountability for
positions taken on a return, as taxpayers could escape penalty
liability because
[[Page 34562]]
they employed tax return preparers, tax return preparers could escape
liability because they relied on nonsigning tax professionals'
opinions, and nonsigning tax professionals could escape liability
because they would not be considered tax return preparers. The November
1977 final regulations also reflected a concern with the possible
exemption of tax attorneys and other professionals involved in
preparing more complex returns while at the same time subjecting to
penalties preparers of less sophisticated returns who did not rely on
the work of others.
The November 1977 final regulations also adopted the safe harbor
provisions of Sec. 301.7701-15(b)(2), which excluded from the
definition of a tax return preparer persons providing tax advice (other
than those signing the return) if the amounts of gross income,
deductions, or credits giving rise to the understatement were less than
$2,000; or less than $100,000 and also less than 20 percent of the
gross income (or, for an individual, the individual's adjusted gross
income) shown on the return or claim for refund.
Omnibus Budget Reconciliation Act of 1989
Sections 6694 and 6695 were amended by the Improved Penalty
Administration and Compliance Tax Act of 1989, enacted as title G of
the Omnibus Budget Reconciliation Act of 1989 (OBRA 1989), Public Law
101-239 (103 Stat. 2106) (December 19, 1989). The OBRA 1989 amended
section 6694(a) to remove the prior link to negligence or intentional
disregard of rules or regulations and instead impose a $250 penalty on
an income tax return preparer who understated a taxpayer's tax
liability on an income tax return or claim for refund if the
understatement was due to a position for which there was not a
``realistic possibility'' of being sustained on its merits, and the tax
return preparer knew or reasonably should have known of such position.
The revised section 6694(a) penalty did not apply, however, if the
position was ``not frivolous'' and was adequately disclosed, or if
there was reasonable cause for the position taken and the tax return
preparer acted in good faith. The OBRA 1989 also amended section
6694(b) to impose a $1,000 penalty on a tax return preparer who
understated a taxpayer's tax liability on an income tax return or claim
for refund if the understatement was due to the tax return preparer's
willful attempt to understate tax liability or the tax return
preparer's reckless or intentional disregard of rules or regulations.
The OBRA 1989 also made uniform the tax return preparer penalties
that apply for each failure by a tax return preparer to: (1) Furnish a
copy of a return or claim for refund to the taxpayer under section
6695(a); (2) sign the return or claim for refund under section 6695(b);
(3) furnish his or her identification number under section 6695(c); or
(4) file a correct information return under section 6695(e). The
unified penalty amount was $50 for each failure, with a limit of
$25,000 for the total amount of penalties that could be imposed for any
single type of failure.
The OBRA 1989 also consolidated the negligence, substantial
understatement and valuation misstatement penalties applicable to
taxpayers. These penalties were consolidated into a single accuracy-
related penalty regime under section 6662. The new accuracy-related
penalty for a substantial understatement of income tax generally would
not be imposed, however, if (1) there was ``substantial authority'' for
the taxpayer's treatment of the item giving rise to the understatement,
or (2) relevant facts affecting the tax treatment of the item were
adequately disclosed in the return or in a statement attached to the
return and there was a ``reasonable basis'' for the tax treatment of
the item.
By adopting the ``realistic possibility'' standard for tax return
preparers, and the higher ``substantial authority'' standard for
taxpayers with respect to undisclosed positions, OBRA 1989 created a
disparity between the penalty treatment of tax return preparers and
most taxpayers subject to income tax.
Regulations were published on December 31, 1991, as TD 8382, 56 FR
67509, which amended the regulations under section 6694 to conform the
income tax return preparer regulations with the statutory changes made
by OBRA 1989 and to make other changes.
The Small Business and Work Opportunity Tax Act of 2007
Section 8246 of the 2007 Act amended sections 6694 and 7701(a)(36)
and made conforming changes to other Code provisions to make tax return
preparer penalties applicable to a broader range of tax returns. The
2007 Act's amendments to section 6694 also changed the standards of
conduct that tax return preparers must meet in order to avoid
imposition of penalties in the event that a return prepared results in
an understatement of tax. For undisclosed positions, the 2007 Act
replaced the ``realistic possibility'' standard with a standard
requiring the tax return preparer to ``reasonably believe that the tax
treatment of the position is more likely than not'' the proper
treatment. For disclosed positions, the 2007 Act replaced the ``not-
frivolous'' standard with a standard requiring the tax return preparer
to have a ``reasonable basis'' for the tax treatment of the position.
The 2007 Act also increased the first-tier penalty under section
6694(a) from $250 to the greater of $1,000 or 50 percent of the income
derived (or to be derived) by the tax return preparer from the
preparation of a return or claim for refund with respect to which the
penalty was imposed. In addition, the 2007 Act increased the second-
tier penalty under section 6694(b) from $1,000 to the greater of $5,000
or 50 percent of the income derived (or to be derived) by the tax
return preparer. The amendments made by the 2007 Act are effective for
tax returns prepared after the date of enactment, May 25, 2007.
Notice 2008-13
Notice 2008-13 (2008-3 IRB 282) was released on December 31, 2007
and provided interim guidance under the 2007 Act regarding: (1) The
relevant categories of tax returns or claims for refund for purposes of
applying the penalty under section 6694(a); (2) the definition of ``tax
return preparer'' under sections 6694 and 7701(a)(36); (3) the date a
return is deemed prepared; (4) the standards of conduct applicable to
tax return preparers for disclosed and undisclosed positions taken on
tax returns; and (5) the penalty compliance obligations applicable to
tax return preparers. Additional guidance was provided in Notice 2008-
12 (2008-3 IRB 280) with respect to the implementation of the tax
return preparer signature requirement of section 6695(b), and in Notice
2008-11 (2008-3 IRB 279), which clarified the earlier transition relief
provided in Notice 2007-54 (2007-27 IRB 12 (July 2, 2007)). Notice
2008-46 (2008-18 IRB 868) was released on April 16, 2008 and added
certain returns and documents to Exhibits 1, 2, and 3 of Notice 2008-
13.
Explanation of Provisions
In developing these proposed regulations, the Treasury Department
and the IRS recognize that the majority of tax return preparers serve
the interests of their clients and the tax system by preparing complete
and accurate returns. Tax return preparers are critical to ensuring
compliance with the Federal tax laws and are an important component in
the IRS's administration of those laws. The proposed regulations intend
to balance the interests of the IRS in curtailing the activities of
noncompliant tax return
[[Page 34563]]
preparers against the burden imposed on all tax return preparers in
complying with the requirements imposed by the 2007 Act and these
proposed regulations.
The Treasury Department and the IRS also recognize that the
government has a number of tools to monitor and sanction tax return
preparers, and will continue to coordinate the application of penalties
under sections 6694, 6695, 6695A, 6700, 6701, 6702, and Circular 230,
as well as other applicable penalties and criminal sanctions.
The IRS will assess penalties under section 6694 in appropriate
cases. In keeping with a balanced enforcement program for tax return
preparers, the IRS intends to modify its internal guidance so that a
referral by revenue agents to the IRS Office of Professional
Responsibility (OPR) will not be per se mandatory when the IRS assesses
a tax return preparer penalty under section 6694(a) against a tax
return preparer who is also a practitioner within the meaning of
Circular 230. This change is consistent with the general administrative
recommendations made in the legislative history of the amendments made
by OBRA 1989 to the section 6694 penalty. See H.R. Conf. Rep. 101-386,
101st Cong., 1st Sess. at 662 (1989). In matters involving non-willful
conduct, the IRS will generally look for a pattern of failing to meet
the required penalty standards under section 6694(a) before making a
referral to OPR, although any egregious conduct subjecting a tax return
preparer to penalty may also form a basis for a referral to OPR.
Proposed Changes
The following is a summary of the proposed changes to the existing
regulations affecting tax return preparers. The changes included in
these proposed regulations are discussed in order of the Code sections
to which they relate. When appropriate, cross-references to
definitional sections are included. Significantly, the definition of
tax return preparer, which maintains the concepts in the existing
regulations of signing and nonsigning tax return preparers, is located
at the end of these proposed regulations in Sec. 301.7701-15, and that
section is cross-referenced in the relevant sections of the regulations
under sections 6694 and 6695.
Furnishing of Copy of the Tax Return
Section 1.6107-1(a), which requires signing tax return preparers to
furnish the taxpayer a copy of the prepared return, is proposed to be
amended to provide that for electronically filed Forms 1040EZ, ``Income
Tax Return for Single Filers and Joint Filers With No Dependents,'' and
Forms 1040A, ``U.S. Individual Income Tax Return,'' filed for the 2009,
2010 and 2011 taxable years, the return information may be provided on
a replica of a Form 1040, ``U.S. Individual Income Tax Return,'' that
provides all of the return information. For other electronically filed
returns, the information may be provided on a replica of an official
form that provides all of the information. This amendment addresses the
IRS' transitional issues in implementing the Modernized e-File platform
for the Form 1040 series of returns.
Date Return Is Prepared
Proposed Sec. 1.6694-1(a)(2) defines the date a return or claim
for refund is prepared as the date it is signed by the tax return
preparer, and also provides that if the tax return preparer fails to
sign the return when otherwise required to do so, the date the return
is deemed prepared is the date the return is filed. In the case of a
nonsigning tax return preparer, the relevant date is the date the
person provides the advice on the position that results in the
understatement. This date will be determined based on all the facts and
circumstances.
Defining the Preparer Within a Firm
Current Sec. 1.6694-1(b)(1) provides a ``one preparer per firm''
rule. Specifically, if a signing tax return preparer is associated with
a firm, that individual, and no other individual in the firm, is
treated as a tax return preparer with respect to the return or claim
for purposes of section 6694. Under the current regulations, if two or
more individuals associated with a firm are tax return preparers with
respect to a return or claim for refund, and none of them is the
signing tax return preparer, only one of the individuals is a
nonsigning tax return preparer with respect to that return or claim for
purposes of section 6694. In such a case, ordinarily, the individual
who is a tax return preparer for purposes of section 6694 is the
individual with overall supervisory responsibility for the advice given
by the firm with respect to the return or claim. The ``one preparer per
firm'' rule and the corollary rule included in Sec. 1.6694-2(d)(5) of
the current regulations precluding a tax return preparer from relying
on the advice of an individual associated with the tax return
preparer's same firm for purposes of penalty protection were intended
to eliminate the administrative difficulty of attempting to apply the
section 6694 penalty on an intra-firm basis.
The Treasury Department and the IRS believe that the amendments to
section 6694 made by the 2007 Act, together with the evolution in
existing business practices and the increased complexity of the Federal
tax law that has created an increased need for specialization, require
reconsideration of the ``one preparer per firm'' rule. Specifically,
the Treasury Department and the IRS believe this evolution requires the
adoption of a framework that centers on the return or claim for refund
on a position-by-position basis, with the focus of any penalty on the
position(s) giving rise to the understatement on the return or claim
for refund and any responsible parties with respect to such
position(s). Thus the Treasury Department and the IRS believe that the
``one preparer per firm'' rule is no longer appropriate and have
proposed to adopt a framework defining a preparer-per-position within a
firm.
Under both the current and the proposed regulations, an individual
is a tax return preparer subject to section 6694 if the individual is
primarily responsible for the position on the return or claim for
refund giving rise to the understatement.
Under proposed Sec. 6694-1(b)(1), only one person within a firm
will be considered primarily responsible for each position giving rise
to an understatement and, accordingly, be subject to the penalty. In
the course of identifying the individual who is primarily responsible
for the position, the IRS may advise multiple individuals within the
firm that it may be concluded that they are the individual within the
firm who is primarily responsible. In some circumstances, there may be
more than one tax return preparer who is primarily responsible for the
position(s) giving rise to an understatement if multiple tax return
preparers are employed by, or associated with, different firms.
Proposed Sec. 1.6694-1(b)(2) provides that the individual who
signs the return or claim for refund as the tax return preparer will
generally be considered the person that is primarily responsible for
all of the positions on the return or claim for refund giving rise to
an understatement. The ``one preparer per firm'' rule, however, is
revised by these proposed regulations if it is concluded based upon
information received from the signing tax return preparer (or other
relevant information from a source other than the signing tax return
preparer) that another person within the signing tax return preparer's
same firm was primarily responsible for the position(s)
[[Page 34564]]
giving rise to the understatement. In this situation, the ``one
preparer per firm'' rule in the current regulations could unduly limit
the IRS to assessing the penalty against a person who may have overall
responsibility in terms of signing the return, but who may lack
detailed knowledge of, or responsibility for, a problematic return
position, and who reasonably relied on another professional at the same
firm with greater knowledge of, and responsibility for, the accuracy of
a position giving rise to the understatement.
The Treasury Department and the IRS believe that amending the
regulations to better target the person or persons responsible for the
position(s) giving rise to the understatement will further compliance
and result in more equitable administration of the tax return preparer
penalty regime.
Proposed Sec. 1.6694-1(b)(3) establishes a similar rule for
situations when there are one or more nonsigning tax return preparers
at the same firm. If there are one or more nonsigning tax return
preparers at the firm and no signing tax return preparer within the
firm, the individual within the firm with overall supervisory
responsibility for the position(s) giving rise to the understatement is
the tax return preparer who is primarily responsible for the position
for purposes of section 6694. Additionally, if after the application of
proposed Sec. 1.6694-1(b)(2) it is concluded that the signer is not
primarily responsible for the position or the IRS cannot conclude which
individual (as between the signing tax return preparer and other
persons within the firm) is primarily responsible for the position, the
individual nonsigning tax return preparer within the firm with overall
supervisory responsibility for the position(s) is the tax return
preparer who is primarily responsible for the position(s) giving rise
to the understatement.
This rule in proposed Sec. 1.6694-1(b)(3) is intended to address
the potential for uncertainty regarding the identification of the
primarily responsible tax return preparer prior to the time of the
expiration of the period of limitations on making an assessment under
section 6694(a). The proposed rule is distinguished from the current
``one preparer per firm'' rule in the current regulations because under
the proposed rule the IRS may assess the penalty against either the
signing tax return preparer or the nonsigning tax return preparer with
overall supervisory responsibility for the position(s) giving rise to
an understatement depending on the facts and circumstances.
Specifically, when the facts indicate that the signing tax return
preparer is the primarily responsible tax return preparer under
proposed Sec. 1.6694-1(b)(1) and (b)(2), the IRS may assess the
section 6694 penalty against that individual when appropriate under the
statute and regulations. In situations when the facts indicate that the
nonsigning tax return preparer with overall supervisory responsibility
is the primarily responsible tax return preparer under proposed Sec.
1.6694-1(b)(1) and (b)(3), the IRS may assess the section 6694 penalty
against that individual when appropriate. In situations when it is
unclear which individual, as between the signer and other nonsigning
tax return preparers at the firm, the IRS may assess the section 6694
penalty against the nonsigning tax return preparer with overall
supervisory responsibility with respect to the position giving rise to
the understatement when appropriate. The Treasury Department and the
IRS specifically request comments regarding the approach taken in these
proposed regulations and any recommendations to improve this rule.
As described in this preamble, conforming rules are included in
Sec. 1.6694-1(f) of the proposed regulations regarding computation of
the ``income derived (or to be derived)'' from the firm and the
individual(s) associated with the firm, in order to ensure that the
same income is not counted twice in determining the amount of income
subject to the section 6694 penalty.
Reliance on Information Provided
Section 1.6694-1(e) of the current regulations allows a tax return
preparer generally to rely in good faith without verification upon
information furnished by the taxpayer. Proposed Sec. 1.6694-1(e)
allows similar reliance, but provides that a tax return preparer may
not rely on information provided by taxpayers with respect to legal
conclusions on Federal tax issues.
The proposed regulations expand on the current regulations to
provide that a tax return preparer may rely in good faith and without
verification on information furnished by another advisor, another tax
return preparer, or other party (even when the advisor or tax return
preparer is within the tax return preparer's same firm). Similarly, a
tax return preparer may rely in good faith without verification upon a
tax return that has been previously prepared by a taxpayer or another
tax return preparer and filed with the IRS. The tax return preparer,
however, may not ignore the implications of information furnished to
the tax return preparer or actually known by the tax return preparer,
and must make reasonable inquiries if the information as furnished
appears to be incorrect or incomplete. The Treasury Department and the
IRS believe that this expansion of the current rules regarding reliance
is necessary given the heightened standards imposed on tax return
preparers by the 2007 Act and the increased complexity of the tax law,
which often requires signing and nonsigning tax return preparers to
rely on the work of others in ensuring compliance.
Income Derived Determination in Computing Penalty Amount
Proposed Sec. 1.6694-1(f) defines ``income derived (or to be
derived)'' with respect to a return or claim for refund as all
compensation the tax return preparer receives or expects to receive
with respect to the engagement of preparing the return or claim for
refund or providing tax advice (including research and consultation)
with respect to the position(s) taken on the return or claim for refund
that gave rise to the understatement. In the situation of a tax return
preparer who is not compensated directly by the taxpayer, but rather by
a firm that employs the tax return preparer or with whom the tax return
preparer is associated, income derived (or to be derived) means all
compensation the tax return preparer receives from the firm that can be
reasonably allocated to the engagement of preparing the return or claim
for refund or providing tax advice (including research and
consultation) with respect to the position(s) taken on the return or
claim for refund that gave rise to the understatement. In the situation
where a firm that employs the individual tax return preparer (or the
firm with which the individual tax return preparer is associated) is
subject to a penalty under section 6694(a) or (b), income derived (or
to be derived) means all compensation the firm receives or expects to
receive with respect to the engagement of preparing the return or claim
for refund or providing tax advice (including research and
consultation) with respect to the position(s) taken on the return or
claim for refund that gave rise to the understatement.
If the tax return preparer or the tax return preparer's firm has
multiple engagements related to the same return or claim for refund,
only those engagements relating to the position(s) taken on the return
or claim for refund that gave rise to the understatement are considered
for purposes of computing the income derived (or to be derived). In the
situation of a tax return preparer
[[Page 34565]]
who is not compensated directly by the taxpayer, but rather by a firm
that employs the tax return preparer or with whom the tax return
preparer is associated, income derived (or to be derived) means all
compensation the tax return preparer receives from the firm that can be
reasonably allocated to the relevant firm engagements.
The proposed regulations also provide that only compensation for
time spent on tax advice that is given with respect to events that have
occurred at the time the advice is rendered and that relates to the
position(s) giving rise to the understatement will be taken into
account for purposes of calculating the section 6694 penalty. This rule
is intended to be consistent with the definition of tax return preparer
in Sec. 301.7701-15(b)(2)(i).
The proposed regulations provide that it may be concluded, based
upon information received from the tax return preparer, that an
appropriate allocation of compensation attributable to the position(s)
giving rise to the understatement on the return or claim for refund is
less than the total amount of compensation associated with the
engagement. For example, it may be concluded that the number of hours
of the engagement spent on the position(s) giving rise to the
understatement may be less than the total hours associated with the
engagement. If this is concluded, the amount of the penalty will be
calculated based upon the compensation attributable to the position(s)
giving rise to the understatement. Otherwise, the total amount of
compensation from the engagement will be the amount of income derived
for purposes of calculating the penalty under section 6694.
The proposed regulations also clarify that the amount of penalties
assessed against the individual and the firm shall not exceed 50
percent of the income derived (or to be derived) by the firm from the
relevant engagement(s) relating to the position(s) giving rise to an
understatement. The portion of the total amount of penalty assessed
against the individual tax return preparer shall not exceed 50 percent
of the individual's compensation attributable to the engagement that
relates to the position(s) giving rise to an understatement. In other
words, the same income will not be taken into consideration more than
once in calculating the penalty against an individual tax return
preparer and the individual tax return preparer's firm. The Treasury
Department and the IRS also anticipate that Circular 230 will be
revised to state that the IRS generally will not stack the section 6694
penalty and monetary penalties under 31 U.S.C. section 330 with respect
to the same conduct.
Firm Liability
Proposed Sec. Sec. 1.6694-2(a)(2) and 1.6694-3(a)(2) are the same
as Sec. Sec. 1.6694-2(a)(2) and 1.6694-3(a)(2) of the current
regulations regarding when a firm is liable for the section 6694(a) or
(b) penalty with one exception. Proposed Sec. Sec. 1.6694-2(a)(2)(iii)
and 1.6694-3(a)(2)(iii) provide that a firm is also subject to the
penalty when the firm's review procedures were disregarded by the firm
through willfulness, recklessness, or gross indifference (including
ignoring facts that would lead a person of reasonable prudence and
competence to investigate or ascertain) in the formulation of the
advice, or the preparation of the return or claim for refund, that
included the position for which the penalty is imposed.
Reasonable Belief of More Likely Than Not
Proposed Sec. 1.6694-2(b)(1) provides that the ``reasonable belief
that the position would more likely than not be sustained on its
merits'' standard will be satisfied if the tax return preparer analyzes
the pertinent facts and authorities and, in reliance upon that
analysis, reasonably concludes in good faith that the position has a
greater than 50 percent likelihood of being sustained on its merits.
Whether a tax return preparer meets this standard will be determined
based upon all facts and circumstances, including the tax return
preparer's due diligence. In determining the level of diligence in a
particular case, the IRS will take into account the tax return
preparer's experience with the area of tax law and familiarity with the
taxpayer's affairs, as well as the complexity of the issues and facts
in the case. The proposed regulations also provide that a tax return
preparer may meet the ``reasonable belief that the position would more
likely than not be sustained on its merits'' standard if a position is
supported by a well-reasoned construction of the applicable statutory
provision despite the absence of other types of authority, or if the
tax return preparer relies on information or advice furnished by a
taxpayer, advisor, another tax return preparer, or other party (even
when the advisor or tax return preparer is within the tax return
preparer's same firm), as provided in proposed Sec. 1.6694-1(e).
Proposed Sec. 1.6694-2(b)(2) provides that a tax return preparer
may not rely on unreasonable assumptions, while proposed Sec. 1.6694-
2(b)(3) states that the authorities contained in Sec. 1.6662-
4(d)(3)(iii) (or any successor provision) are to be considered in
determining whether a position satisfies the ``more likely than not''
standard. Proposed Sec. 1.6694-2(b)(4) also provides examples that
illustrate positions meeting the ``reasonable belief that the position
would more likely than not be sustained on its merits'' standard.
Reasonable Basis
Proposed Sec. Sec. 1.6694-2(c)(1) and (2) establish that the
``reasonable basis'' standard that must be met for disclosed positions
is the same standard as defined in Sec. 1.6662-3(b)(3) (or any
successor provision). The proposed regulations also provide that, to
meet the ``reasonable basis'' standard, a tax return preparer may rely
in good faith, without verification, upon information furnished by a
taxpayer, advisor, another tax return preparer, or other party (even
when the advisor or tax return preparer is within the tax return
preparer's same firm), as provided in proposed Sec. 1.6694-1(e).
Adequate Disclosure
Section 1.6694-2(c)(3) builds on the current regulations and the
interim guidance provided in Notice 2008-13 and provides the rules for
disclosure of a position for which there is a ``reasonable basis'' but
for which the tax return preparer does not have a ``reasonable belief
that the position would more likely than not be sustained on its
merits.''
For a signing tax return preparer within the meaning of Sec.
301.7701-15(b)(1), the proposed regulations provide that a position may
be disclosed in one of five ways. First, the position may be disclosed
on a properly completed and filed Form 8275, Disclosure Statement, or
Form 8275-R, Regulation Disclosure Statement, as appropriate, or on the
tax return in accordance with the annual revenue procedure. See Revenue
Procedure 2008-14 (2008-7 IRB 435 (February 19, 2008)). Second, for
income tax returns, if the position does not meet the ``substantial
authority'' standard described in Sec. 1.6662-4(d), disclosure of the
position is adequate if the tax return preparer provides the taxpayer
with a prepared tax return that includes the appropriate disclosure.
Third, for income tax returns, if the position meets the ``substantial
authority'' standard, disclosure of the position is adequate if the tax
return preparer advises the taxpayer of all of the penalty standards
applicable to the taxpayer under section 6662. Fourth, for income tax
returns, if the position may be described as a tax
[[Page 34566]]
shelter under section 6662(d)(2)(C) or a reportable transaction to
which section 6662A applies, disclosure of the position is adequate if
the tax return preparer advises the taxpayer that there needs to be at
a minimum ``substantial authority'' for the position, that the taxpayer
must possess a ``reasonable belief that the tax treatment was more
likely than not'' the proper treatment, and that disclosure will not
protect the taxpayer from assessment of an accuracy-related penalty.
Fifth, for tax returns or claims for refund that are subject to
penalties other than the accuracy-related penalty for substantial
understatements under sections 6662(b)(2) and (d), the tax return
preparer advises the taxpayer of the penalty standards applicable to
the taxpayer under section 6662. This fifth rule is intended to address
the situation when the penalty standard applicable to the taxpayer is
based on compliance with requirements other than disclosure on the
return (for example, section 6662(e)). In order to establish that the
tax return preparer's disclosure obligation was satisfied, the tax
return preparer must document contemporaneously in the tax return
preparer's files that the information or advice required by the
proposed regulations was provided.
In the case of a nonsigning tax return preparer within the meaning
of Sec. 301.7701-15(b)(2), the position may be disclosed in one of
three ways. First, the position may be disclosed on a properly
completed and filed Form 8275, ``Disclosure Statement,'' or Form 8275-
R, ``Regulation Disclosure Statement,'' as appropriate, or on the tax
return in accordance with the annual revenue procedure. Second, a
nonsigning tax return preparer may meet the disclosure standards if the
nonsigning tax return preparer advises the taxpayer of all
opportunities to avoid penalties under section 6662 that could apply to
the position and advises the taxpayer of the standards for disclosure
to the extent applicable. Third, disclosure of a position is adequate
if a nonsigning tax return preparer advises another tax return preparer
that disclosure under section 6694(a) may be required. The nonsigning
tax return preparer must document contemporaneously in the tax return
preparer's files that this advice required by the proposed regulations
was provided.
In order to satisfy the disclosure standards when the position is
not disclosed on or with the return, each return position for which
there is a ``reasonable basis'' but for which the tax return preparer
does not have a ``reasonable belief that the position would more likely
than not be sustained on the merits'' must be addressed by the tax
return preparer. Thus, the advice to the taxpayer with respect to each
position must be particular to the taxpayer and tailored to the
taxpayer's facts and circumstances. No form of a general boilerplate
disclaimer will satisfy these standards. Proposed Sec. 1.6694-2(c)(iv)
provides that disclosure in the case of items attributable to a pass-
through entity is adequate if made at the entity level in accordance
with the rules in Sec. 1.6662-4(f)(5). For example, a tax return
preparer of a partnership tax return need only advise the partnership
in order to satisfy any of the above disclosure rules and does not need
to advise each individual partner in the partnership of the applicable
penalties.
Reasonable Cause
Proposed Sec. 1.6694-2(d) maintains the rules in the current
regulations regarding reasonable cause and good faith, except that
Sec. 1.6694-2(d) is proposed to be revised to provide that whether a
position is supported by a generally accepted administrative or
industry practice is an additional factor to consider in determining
whether the tax return preparer acted with reasonable cause and good
faith. This provision is intended to address situations in the absence
of published guidance when administrative or industry practice has
developed that would not reasonably be subject to challenge by the IRS.
The reasonable cause factor regarding reliance on advice of another
tax return preparer is also expanded to allow a tax return preparer to
reasonably rely on information or advice furnished by a taxpayer,
advisor, another tax return preparer, or other party (even when the
advisor or tax return preparer is within the tax return preparer's same
firm), as provided in proposed Sec. 1.6694-1(e).
Electronically Signed Returns
Proposed Sec. 1.6695-1(b)(2) provides that, in the case of an
electronically signed tax return, a tax return preparer need not sign
the return prior to presenting a completed copy of the return to the
taxpayer. The tax return preparer, however, must furnish all of the
information to the taxpayer contemporaneously with furnishing the Form
8879, IRS e-file Signature Authorization, or similar IRS e-file
signature form. The information may be furnished on a replica of an
official form that provides all of the information.
Due Diligence for Earned Income Credit
Proposed Sec. 1.6695-2(b)(3) establishes a reasonableness standard
for signing tax return preparers' due diligence requirements with
respect to determining eligibility for the earned income credit and
adds examples.
Claims for Refund or Credit by Tax Return Preparers or Appraisers
Proposed Sec. 1.6696-1, discussing the procedures for filing
claims for credit or refund for penalties assessed against tax return
preparers under sections 6694 or 6695, is revised to also cover the new
appraiser penalty under section 6695A. Section 6695A was enacted by
section 1219 of the Pension Protection Act of 2006 (Pub. L. 109-280
(120 Stat. 780, 1084-86) (August 17, 2006)), as amended by the Tax
Technical Corrections Act of 2007 (Public Law 110-172 (121 Stat. 2473,
2474) December 29, 2007)). A separate regulation project will provide
guidance under section 6695A.
Definition of Tax Return Preparer
Proposed Sec. Sec. 301.7701-15(b)(1) and (2) add to the section
7701 regulations the definitions of ``signing tax return preparer'' and
``nonsigning tax return preparer'' that are included in Sec. 1.6694-1
of the current regulations. Proposed Sec. 301.7701-15(b)(1) provides
that a signing tax return preparer is any tax return preparer who signs
or who is required to sign a return or claim for refund as a tax return
preparer pursuant to Sec. 1.6695-1(b).
Proposed Sec. 301.7701-15(b)(2) provides that a nonsigning tax
return preparer is any tax return preparer who is not a signing tax
return preparer but who prepares all or a substantial portion of a
return or claim for refund within the meaning of Sec. 301.7701-
15(b)(3) with respect to events that have occurred at the time the
advice is rendered. In determining whether an individual is a
nonsigning tax return preparer, the proposed regulations provide that
any time spent on advice that is given with respect to events that have
occurred, which is less than 5 percent of the aggregate time incurred
by the person with respect to the position(s) giving rise to the
understatement will not be taken into account in determining whether an
individual is a nonsigning tax return preparer. The Treasury Department
and the IRS believe that this less than 5 percent test will encourage
tax professionals who principally rendered advice regarding events that
had not yet occurred to provide follow-up advice requested by a
taxpayer without the concern that, by providing
[[Page 34567]]
such advice to a taxpayer, the advisor would become a tax return
preparer under proposed Sec. 301.7701-15(b)(2) and (3).
Consistent with the current regulations and the legislative history
of the 1976 Act, proposed Sec. 301.7701-15(b)(3)(i) clarifies that
whether a schedule, entry, or other portion of a return or claim for
refund is a substantial portion is determined based upon all facts and
circumstances, and a single tax entry may constitute a substantial
portion of the tax required to be shown on a return. The proposed
regulations include additional factors to consider in determining
whether a schedule, entry, or other portion of a return or claim for
refund is a substantial portion, such as the size and complexity of the
item relative to the taxpayer's gross income and the size of the
understatement attributable to the item compared to the taxpayer's
reported tax liability.
Proposed Sec. 301.7701-15(b)(3)(ii) increases the de minimis
exception in determining a substantial portion of a return or claim for
refund for nonsigning tax return preparers. Under the proposed
regulations, the de minimis exception applies if the item giving rise
to the understatement is (i) less than $10,000, or (ii) less than
$400,000 if the item is also less than 20 percent of the taxpayer's
gross income (or, for an individual, the individual's adjusted gross
income). This de minimis rule does not apply for signing tax return
preparers within the meaning of Sec. 301.7701-15(b)(1). This change to
the regulations updates the current de minimis amounts to reflect the
passage of time since those amounts were set in 1977. The Treasury
Department and the IRS are considering whether other de minimis rules
applicable to nonsigning tax return preparers of non-income tax returns
are warranted.
Consistent with the interim guidance set forth in Notice 2008-13,
Sec. 301.7701-15(b)(4) is proposed to be amended by revising the
definitions of ``return'' and ``claim for refund'' to only include
preparers of returns and claims for refund that are specifically
identified in published guidance in the Internal Revenue Bulletin. The
Treasury Department and the IRS will publish this guidance
simultaneously with the publication of final regulations and will
likely maintain the three tiered approach used in the exhibits to
Notice 2008-13, subject to any appropriate modifications. Under the
substantial portion rule in section 7701(a)(36)(A), preparation of a
broad range of information returns, schedules, and other documents can
subject a person to the section 6694 penalties even though the
documents may not themselves give rise to an understatement.
Accordingly, the Treasury Department and the IRS believe that including
a list of returns or other documents, the preparation of which may
subject a tax return preparer to penalties, will further compliance by
not unduly increasing the burden on persons preparing information
returns and other documents.
Cross-References
Conforming changes are made in Sec. Sec. 1.6060-1, 1.6107-1,
1.6109-2, 1.6694-0, 1.6694-1, 1.6694-4, 1.6695-1, 1.6695-2, 1.6696-1,
and 301.7701-15 to replace references to income tax return preparers
with references to tax return preparers, consistent with the provisions
of the 2007 Act. Conforming cross references are also made to Part 20,
Estate Tax; Estates of Decedents Dying After August 16, 1954; Part 25,
Gift Tax; Gifts Made After December 31, 1954; Part 26, Generation-
Skipping Transfer Tax Under the Tax Reform Act of 1986; Part 31,
Employment Taxes and Collection of Income Tax at Source; Part 40,
Procedural Excise Tax; Part 41, Highway Use Tax; Part 44, Wagering Tax;
Part 53, Foundation and Similar Excise Taxes; Part 54, Pension Excise
Taxes; Part 55, Excise Tax on Real Estate Investment Trusts and
Regulated Investment Company Taxes; Part 56, Public Charity Excise
Taxes; Part 156, Excise Tax on Greenmail; and Part 157, Excise Tax on
Structured Settlement Factoring Transactions; to conform these parts
with the provisions in Parts 1 and 301, consistent with the provisions
of the 2007 Act.
Availability of IRS Documents
The IRS notices referred to in this preamble are published in the
Internal Revenue Bulletin and are available at http://www.irs.gov.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment is not required. It also has
been determined that section 553(b) of the Administrative Procedure Act
(5 U.S.C. chapter 5) does not apply to these regulations.
When an agency issues a rulemaking proposal, the Regulatory
Flexibility Act (5 U.S.C. chapter 6), requires the agency to ``prepare
and make available for public comment an initial regulatory flexibility
analysis'' that will ``describe the impact of the proposed rule on
small entities.'' (5 U.S.C. 603(a)). Section 605 of the RFA provides an
exception to this requirement if the agency certifies that the proposed
rulemaking will not have a significant economic impact on a substantial
number of small entities.
The proposed rules affect tax return preparers. The IRS estimates
there are 38,566 tax return preparation firms and 260,338 self-employed
tax return preparers that qualify as small entities. Therefore, the IRS
has determined that these proposed rules will have an impact on a
substantial number of small entities.
The IRS has determined, however, that the impact on entities
affected by the proposed rule will not be significant. The statute and
proposed regulations would require entities that employ tax return
preparers to retain a record of the name, taxpayer identification
number and principal place of work of each tax return preparer
employed. The IRS estimates that this would not require purchase of
additional software and would take five minutes per tax return preparer
employed. The statute and proposed regulations would also require tax
return preparers to retain a complete copy of a return (or claim for
refund) or a list of the name, taxpayer identification number and
taxable year for each return (or claim for refund) and the name of the
tax return preparer required to sign the return or claim for refund.
Many tax return preparers have copying machines or scanners and already
make copies of the returns prepared, and the IRS estimates this would
not require the purchase of additional equipment. The IRS estimates
that it would take an average of five minutes to make copies or prepare
a record of the returns prepared. Accordingly, the burden on employers
of tax return preparers to make a record of the name, taxpayer
identification number, and principal place of work of each employed tax
return preparer, and a copy of each return or claim for refund
prepared, or a record, is insignificant.
The proposed regulations also allow the tax return preparer to
generally avoid imposition of the tax return preparer penalties under
section 6694 in cases when a tax return position meets the
``substantial authority'' standard but not the ``reasonable belief that
the position would more likely than not be sustained on its merits''
standard if the tax return preparer advises the taxpayer of the penalty
standards applicable to the taxpayer, and contemporaneously documents
in the tax return preparer's files that this information or advice was
provided. Often, tax return preparers will choose not to advise the
taxpayer of the applicable penalty standards and will instead disclose
the position on a
[[Page 34568]]
properly completed and filed Form 8275, ``Disclosure Statement,'' or
Form 8275-R, ``Regulation Disclosure Statement,'' as appropriate, or on
the tax return in accordance with the annual revenue procedure. In
those instances when the tax return preparer elects to advise the
taxpayer of the penalty standards, the IRS estimates that it would take
an average of 15 minutes to document this advice. Accordingly, the
burden on those who choose this option is insignificant.
Although the proposed regulations also conform the standards of
conduct and tax return preparer penalties to the provisions of the 2007
Act, tax return preparers already enroll in educational seminars or
training programs to keep up to date with the latest changes to the
Code, and the provisions of the 2007 Act and the proposed regulations
will generally be part of that training.
Moreover, these proposed regulations are required to comply with
the provisions of section 8246 of the 2007 Act and flow directly from
amendments to the Code contained in the 2007 Act.
Based on these facts, the IRS hereby certifies that the collection
of information contained in these regulations will not have a
significant economic impact on a substantial number of small entities.
Accordingly, a Regulatory Flexibility Analysis is not required.
Pursuant to section 7805(f) of the Code, these regulations have
been submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on their impact on small business.
Comments and Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written (a signed original and eight
(8) copies) or electronic comments that are submitted timely to the
IRS. The IRS and the Treasury Department request comments on the
clarity of the proposed regulations and how they can be made easier to
understand. Comments are requested on the examples in the proposed
regulations, and commentators are specifically invited to suggest
changes to these examples or to suggest new examples that they believe
would better illustrate the principles that should be included in the
final regulations. The IRS and the Treasury Department also request
comments on the accuracy of the certification that the regulations in
this document will not have a significant economic impact on a
substantial number of small entities. All comments will be available
for public inspection and copying.
A public hearing has been scheduled for Monday, August 18, 2008, at
10 a.m. in the IRS Auditorium, Internal Revenue Building, 1111
Constitution Avenue, NW., Washington, DC. Due to building security
procedures, visitors must enter at the Constitution Avenue entrance. In
addition, all visitors must present photo identification to enter the
building. Because of access restrictions, visitors will not be admitted
beyond the immediate entrance area more than 30 minutes before the
hearing starts. For information about having your name placed on the
building access list to attend the hearing, see the FOR FURTHER
INFORMATION CONTACT section of this preamble.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who
wish to present oral comments at the hearing must submit written or
electronic comments by August 18, 2008 and an outline of the topics to
be discussed and the time to be devoted to each topic (a signed
original and eight (8) copies) by Monday, August 4, 2008. A period of
10 minutes will be allotted to each person for making comments. An
agenda showing the scheduling of the speakers will be prepared after
the deadline for receiving outlines has passed. Copies of the agenda
will be available free of charge at the hearing.
Drafting Information
The principal authors of these proposed regulations are Matthew S.
Cooper and Michael E. Hara, Office of the Associate Chief Counsel
(Procedure and Administration).
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 20
Estate taxes, Reporting and recordkeeping requirements.
26 CFR Part 25
Gift taxes, Reporting and recordkeeping requirements.
26 CFR Part 26
Estate taxes, Reporting and recordkeeping requirements.
26 CFR Part 31
Employment taxes, Income taxes, Penalties, Pensions, Railroad
Retirement, Reporting and recordkeeping requirements, Social security,
Unemployment compensation.
26 CFR Part 40
Excise taxes, Reporting and recordkeeping requirements.
26 CFR Part 41
Excise, Motor vehicles, Reporting and recordkeeping requirements.
26 CFR Part 44
Excise, Gambling, Reporting and recordkeeping requirements.
26 CFR Part 53
Excise taxes, Foundations, Investments, Lobbying, Reporting and
recordkeeping requirements.
26 CFR Part 54
Excise taxes, Pensions, Reporting and recordkeeping requirements.
26 CFR Part 55
Excise taxes, Investments, Reporting and recordkeeping
requirements.
26 CFR Part 56
Excise taxes, Lobbying, Nonprofit organizations, Reporting and
recordkeeping requirements.
26 CFR Part 156
Excise taxes, Reporting and recordkeeping requirements.
26 CFR Part 157
Excise taxes, Reporting and recordkeeping requirements.
26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR parts 1, 20, 25, 26, 31, 40, 41, 44, 53, 54,
55, 56, 156, 157, and 301 are proposed to be amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by adding
entries in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.6060-1 also issued under 26 U.S.C. 6060(a). * * *
Section 1.6109-2 also issued under 26 U.S.C. 6109(a). * * *
Section 1.6695-1 also issued under 26 U.S.C. 6695(b). * * *
Section 1.6695-2 also issued under 26 U.S.C. 6695(g). * * *
Par. 2. Section 1.6060-1 is amended by revising the section heading
and paragraphs (a) and (c) and adding paragraph (d) to read as follows:
Sec. 1.6060-1 Reporting requirements for tax return preparers.
(a) In general. (1) Each person who employs one or more signing tax
return
[[Page 34569]]
preparers to prepare any return of tax or claim for refund of tax,
other than for the person, at any time during a return period shall
satisfy the requirements of section 6060 of the Internal Revenue Code
by--
(i) Retaining a record of the name, taxpayer identification number,
and principal place of work during the return period of each tax return
preparer employed by the person at any time during that period; and
(ii) Making that record available for inspection upon request by
the Commissioner.
(2) The record described in this paragraph (a) must be retained and
kept available for inspection for the 3-year period following the close
of the return period to which that record relates.
(3) The person may choose any form of documentation to be used
under this section as a record of the signing tax return preparers
employed during a return period. However, the record must disclose on
its face which individuals were employed as tax return preparers during
that period.
(4) For the definition of the term ``signing tax return preparer,''
see section 7701(a)(36) and Sec. 301.7701-15(b)(1) of this chapter.
For the definition of the term ``return period,'' see paragraph (b) of
this section.
(5)(i) For purposes of this section, any individual who, in acting
as a signing tax return preparer, is not employed by another tax return
preparer shall be treated as his or her own employer. Thus, a sole
proprietor shall retain and make available a record with respect to
himself (or herself) as provided in this section.
(ii) A partnership shall, for purposes of this section, be treated
as the employer of the partners of the partnership and shall retain and
make available a record with respect to the partners and others
employed by the partnership as provided in this section.
* * * * *
(c) Penalty. For the civil penalty for failure to retain and make
available a record of the tax return preparers employed during a return
period as required under this section, or for failure to include an
item in the record required to be retained and made available under
this section, see Sec. 1.6695-1(e).
(d) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 3. Section 1.6107-1 is revised to read as follows:
Sec. 1.6107-1 Tax return preparer must furnish copy of return to
taxpayer and must retain a copy or record.
(a) Furnishing copy to taxpayer. A person who is a signing tax
return preparer of any return of tax or claim for refund of tax under
the Internal Revenue Code shall furnish a completed copy of the return
or claim for refund to the taxpayer (or nontaxable entity) not later
than the time the return or claim for refund is presented for the
signature of the taxpayer (or nontaxable entity). For electronically
filed Forms 1040EZ, ``Income Tax Return for Single Filers and Joint
Filers With No Dependents,'' and Form 1040A, ``U.S. Individual Income
Tax Return,'' filed for the 2009, 2010 and 2011 taxable years, the
information may be provided on a replica of a Form 1040, ``U.S.
Individual Income Tax Return,'' that provides all of the information.
For other electronically filed returns, the information may be provided
on a replica of an official form that provides all of the information.
The signing tax return preparer may, at its option, request a receipt
or other evidence from the taxpayer (or nontaxable entity) sufficient
to show satisfaction of the requirement of this paragraph (a).
(b) Copy or record to be retained. (1) A person who is a signing
tax return preparer of any return or claim for refund shall--
(i)(A) Retain a completed copy of the return or claim for refund;
or
(B) Retain a record, by list, card file, or otherwise of the name,
taxpayer identification number, and taxable year of the taxpayer (or
nontaxable entity) for whom the return or claim for refund was
prepared, and the type of return or claim for refund prepared;
(ii) Retain a record, by retention of a copy of the return or claim
for refund, maintenance of a list or card file, or otherwise, for each
return or claim for refund presented to the taxpayer (or nontaxable
entity), of the name of the individual tax return preparer required to
sign the return or claim for refund pursuant to Sec. 1.6695-1(b); and
(iii) Make the copy or record of returns and claims for refund and
record of the individuals required to sign available for inspection
upon request by the Commissioner.
(2) The material described in this paragraph (b) shall be retained
and kept available for inspection for the 3-year period following the
close of the return period during which the return or claim for refund
was presented for signature to the taxpayer (or nontaxable entity). In
the case of a return that becomes due (with extensions, if any) during
a return period following the return period during which the return was
presented for signature, the material shall be retained and kept
available for inspection for the 3-year period following the close of
the later return period in which the return became due. For the
definition of ``return period,'' see section 6060(c). If the person
subject to the record retention requirement of this paragraph (b) is a
corporation or a partnership that is dissolved before completion of the
3-year period, then all persons who are responsible for the winding up
of the affairs of the corporation or partnership under state law shall
be subject, on behalf of the corporation or partnership, to these
record retention requirements until completion of the 3-year period. If
state law does not specify any person or persons as responsible for
winding up, then, collectively, the directors or general partners shall
be subject, on behalf of the corporation or partnership, to the record
retention requirements of this paragraph (b). For purposes of the
penalty imposed by section 6695(d), such designated persons shall be
deemed to be the tax return preparer and will be jointly and severally
liable for each failure.
(c) Tax return preparer. For the definition of ``signing tax return
preparer,'' see section 7701(a)(36) and Sec. 301.7701-15(b)(1) of this
chapter. For purposes of applying this section, in the case of--
(1) An arrangement between two or more signing tax return
preparers, the person who employs one or more other signing tax return
preparers to prepare any return or claim for refund for compensation
other than for the person shall be considered to be the sole signing
tax return preparer; and
(2) A partnership arrangement for the preparation of returns and
claims for refund, the partnership shall be considered to be the sole
signing tax return preparer.
(d) Penalties. (1) For the civil penalty for failure to furnish a
copy of the return or claim for refund to the taxpayers (or nontaxable
entity) as required under paragraph (a) of this section, see section
6695(a) and Sec. 1.6695-1(a).
(2) For the civil penalty for failure to retain a copy of the
return or claim for refund, or to retain a record as required under
paragraph (b) of this section, see section 6695(d) and Sec. 1.6695-
1(d).
(e) Effective/applicability date. This section is applicable to
returns and claims for refund filed on the date that final regulations
are published in the Federal Register.
Par. 4. Section 1.6109-2 is amended by revising the section heading
and paragraphs (a) and (d) to read as follows:
[[Page 34570]]
Sec. 1.6109-2 Tax return preparers furnishing identifying numbers for
returns or claims for refund filed after December 31, 2008.
(a) Furnishing identifying number. (1) Each return of tax or claim
for refund of tax under the Internal Revenue Code prepared by one or
more tax return preparers must include the identifying number of the
tax return preparer required by Sec. 1.6695-1(b) to sign the return or
claim for refund. In addition, if there is an employment arrangement or
association between the individual tax return preparer and another
person (except to the extent the return prepared is for the person),
the identifying number of the other person must also appear on the
return or claim for refund. For the definition of the term ``tax return
preparer,'' see section 7701(a)(36) and Sec. 301.7701-15 of this
chapter.
(2) The identifying number of an individual tax return preparer is
that individual's social security account number, or such alternative
number as may be prescribed by the Internal Revenue Service in forms,
instructions, or other appropriate guidance.
(3) If an individual tax return preparer described in paragraph
(a)(2) of this section is employed by, or associated with, a person
(whether an individual or entity) and prepares the return or claim for
refund (other than a return prepared for the person), the identifying
number is the person's employer identification number.
* * * * *
(d) Effective/applicability date. Paragraph (a) of this section is
applicable to returns and claims for refund filed after the date that
final regulations are published in the Federal Register, but no sooner
than December 31, 2008. For returns or claims for refund filed before
January 1, 2000, see Sec. 1.6109-2A(a).
Par 5. Section 1.6694-0 is revised to read as follows:
Sec. 1.6694-0 Table of contents.
This section lists the captions that appear in Sec. Sec. 1.6694-1
through 1.6694-4.
Sec. 1.6694-1 Section 6694 penalties applicable to tax return
preparers.
(a) Overview.
(1) In general.
(2) Date return is deemed prepared.
(b) Tax return preparer.
(1) In general.
(2) Responsibility of signing tax return preparer.
(3) Responsibility of nonsigning tax return preparer.
(4) Tax return preparer and firm responsibility.
(5) Examples.
(c) Understatement of liability.
(d) Abatement of penalty where taxpayer's liability not
understated.
(e) Verification of information furnished by taxpayer or other
third party.
(1) In general.
(2) Verification of information on previously filed returns.
(3) Examples.
(f) Income derived (or to be derived) with respect to the return
or claim for refund.
(1) In general.
(2) Compensation.
(i) Multiple engagements.
(ii) Reasonable allocation.
(iii) Fee refunds.
(iv) Reduction of compensation.
(3) Individual and firm allocation.
(4) Examples.
(g) Effective/applicability date.
Sec. 1.6694-2 Penalty for understatement due to an unreasonable
position.
(a) In general.
(1) Proscribed conduct.
(2) Special rule for corporations, partnerships, and other
firms.
(b) Reasonable belief that the position would more likely than
not be sustained on its merits.
(1) In general.
(2) No unreasonable assumptions.
(3) Authorities.
(4) Examples.
(5) Written determinations.
(6) When more likely than not standard must be satisfied.
(c) Exception for adequate disclosure of positions with a
reasonable basis.
(1) In general.
(2) Reasonable basis.
(3) Adequate disclosure.
(i) Signing tax return preparers.
(ii) Nonsigning tax return preparers.
(A) Advice to taxpayers.
(B) Advice to another tax return preparer.
(iii) Requirements for advice.
(iv) Pass-through entities.
(v) Examples.
(d) Exception for reasonable cause and good faith.
(1) Nature of the error causing the understatement.
(2) Frequency of errors.
(3) Materiality of errors.
(4) Tax return preparer's normal office practice.
(5) Reliance on advice of others.
(6) Reliance on generally accepted administrative or industry
practice.
(e) Burden of proof.
(f) Effective/applicability date.
Sec. 1.6694-3 Penalty for understatement due to willful, reckless,
or intentional conduct.
(a) In general.
(1) Proscribed conduct.
(2) Special rule for corporations, partnerships, and other
firms.
(b) Willful attempt to understate liability.
(c) Reckless or intentional disregard.
(d) Examples.
(e) Rules or regulations.
(f) Section 6694(b) penalty reduced by section 6694(a) penalty.
(g) Burden of proof.
(h) Effective/applicability date.
Sec. 1.6694-4 Extension of period of collection when tax return
preparer pays 15 percent of a penalty for understatement of
taxpayer's liability and certain other procedural matters.
(a) In general.
(b) Tax return preparer must bring suit in district court to
determine liability for penalty.
(c) Suspension of running of period of limitations on
collection.
(d) Effective/applicability date.
Par. 6. Section 1.6694-1 is revised to read as follows:
Sec. 1.6694-1 Section 6694 penalties applicable to tax return
preparers.
(a) Overview--(1) In general. Sections 6694(a) and (b) impose
penalties on tax return preparers for conduct giving rise to certain
understatements of liability on a return (including an amended or
adjusted return) or claim for refund. The section 6694(a) penalty is
imposed in an amount equal to the greater of $1,000, or 50 percent of
the income derived (or to be derived) by the tax return preparer for an
understatement of liability with respect to tax that is due to an
undisclosed position for which the tax return preparer did not have a
reasonable belief that the position would more likely than not be
sustained on its merits (or due to a disclosed position for which there
is no reasonable basis). The section 6694(b) penalty is imposed in an
amount equal to the greater of $5,000, or 50 percent of the income
derived (or to be derived) by the tax return preparer for an
understatement of liability with respect to tax that is due to a
willful attempt to understate tax liability or that is due to reckless
or intentional disregard of rules or regulations. See Sec. 1.6694-2
for rules relating to the penalty under section 6694(a). See Sec.
1.6694-3 for rules relating to the penalty under section 6694(b).
(2) Date return is deemed prepared. For purposes of the penalties
under section 6694, a return or claim for refund is deemed prepared on
the date it is signed by the tax return preparer. If a signing tax
return preparer within the meaning of Sec. 301.7701-15(b)(1) of this
chapter fails to sign the return, the return is deemed prepared on the
date the return is filed. See Sec. 1.6695-1 of this section. In the
case of a nonsigning tax return preparer within the meaning of Sec.
301.7701-15(b)(2) of this chapter, the relevant date is the date the
nonsigning tax return preparer provides the tax advice with respect to
the position giving rise to the understatement. This date will be
determined based on all the facts and circumstances.
(b) Tax return preparer--(1) In general. For purposes of this
section, ``tax return preparer'' means any person who is a tax return
preparer within the meaning of section 7701(a)(36) and
[[Page 34571]]
Sec. 301.7701-15 of this chapter. An individual is a tax return
preparer subject to section 6694 if the individual is primarily
responsible for the position(s) on the return or claim for refund
giving rise to an understatement. There is only one individual within a
firm who is primarily responsible for each position on the return or
claim for refund giving rise to an understatement. In the course of
identifying the individual who is primarily responsible for the
position, the Internal Revenue Service may advise multiple individuals
within the firm that it may be concluded that they are the individual
within the firm who is primarily responsible. In some circumstances,
there may be more than one tax return preparer who is primarily
responsible for the position(s) giving rise to an understatement if
multiple tax return preparers are employed by, or associated with,
different firms.
(2) Responsibility of signing tax return preparer. The signing tax
return preparer within the meaning of Sec. 301.7701-15(b)(1) of this
chapter will generally be considered the person who is primarily
responsible for all of the positions on the return or claim for refund
giving rise to an understatement. It may be concluded, however, based
upon information received from the signing tax return preparer (or
other relevant information from a source other than the signing tax
return preparer) that another person within the signing tax return
preparer's same firm was primarily responsible for the position(s) on
the return or claim for refund giving rise to an understatement.
(3) Responsibility of nonsigning tax return preparer. If there are
one or more individuals within a firm who are nonsigning tax return
preparers within the meaning of Sec. 301.7701-15(b)(2) of this chapter
and there is no signing tax return preparer within the meaning of Sec.
301.7701-15(b)(1) of this chapter for the return or claim for refund
within that firm, the individual within the firm with overall
supervisory responsibility for the position(s) giving rise to the
understatement is the tax return preparer who is primarily responsible
for the position for purposes of section 6694. Additionally, if, after
the application of paragraph (b)(2) of this section, it is concluded
that the signing tax return preparer is not primarily responsible for
the position or the IRS cannot conclude which individual (as between
the signing tax return preparer and other persons within the firm) is
primarily responsible for the position, the individual within the firm
with overall supervisory responsibility for the position(s) giving rise
to the understatement is the tax return preparer who is primarily
responsible for the position for purposes of section 6694.
(4) Tax return preparer and firm responsibility. To the extent
provided in Sec. Sec. 1.6694-2(a)(2) and 1.6694-3(a)(2), an individual
and the firm that employs the individual, or the firm of which the
individual is a partner, member, shareholder, or other equity holder,
may both be subject to penalty under section 6694 with respect to the
position(s) on the return or claim for refund giving rise to an
understatement. If an individual (other than the sole proprietor) who
is employed by a sole proprietorship is subject to penalty under
section 6694, the sole proprietorship is considered a ``firm'' for
purposes of this paragraph (b).
(5) Examples. The provisions of paragraph (b) of this section are
illustrated by the following examples:
Example 1. Attorney A provides advice to Client C concerning the
proper treatment of an item with respect to which all events have
occurred on C's income tax return. In preparation for providing that
advice, A seeks advice regarding the proper treatment of the item
from Attorney B, who is within the same firm as A, but A is the
attorney who signs C's return as a tax return preparer. B provides
advice on the treatment of the item upon which A relies. B's advice
is reflected on C's income tax return but no disclosure was made in
accordance with Sec. 1.6694-2(c)(3). The advice constitutes
preparation of a substantial portion of the return within the
meaning of Sec. 301.7701-15(b)(3) and the IRS later challenges the
position taken on the tax return, giving rise to an understatement
of liability. For purposes of the regulations under section 6694, A
is initially considered the tax return preparer with respect to C's
return and the IRS advises A that A may be subject to the penalty
under section 6694 with respect to C's return. Based upon
information received from A or another source, it may be concluded
that B had primary responsibility for the position taken on the
return that gave rise to the understatement because B had overall
supervisory responsibility for the position giving rise to an
understatement.
Example 2. Same as Example 1, except that neither Attorney A
nor any other attorney within A's firm signs Client C's return as a
tax return preparer. Attorney B is the nonsigning tax return
preparer within the firm with overall supervisory responsibility for
the position giving rise to an understatement. Accordingly, B is the
tax return preparer who is primarily responsible for the position on
C's return giving rise to an understatement and is subject to
penalty under section 6694.
Example 3. Same as Example 1, except Attorney D, who works for a
different firm than A, also provides advice on the same position
upon which A relies. It may be concluded that D is also primarily
responsible for the position on the return.
(c) Understatement of liability. For purposes of this section, an
``understatement of liability'' exists if, viewing the return or claim
for refund as a whole, there is an understatement of the net amount
payable with respect to any tax imposed by the Internal Revenue Code
(Code), or an overstatement of the net amount creditable or refundable
with respect to any tax imposed by the Code. The net amount payable in
a taxable year with respect to the return for which the tax return
preparer engaged in conduct proscribed by section 6694 is not reduced
by any carryback. Tax imposed by the Code does not include additions to
the tax, additional amounts, and assessable penalties imposed by
subchapter 68 of the Code. Except as provided in paragraph (d) of this
section, the determination of whether an understatement of liability
exists may be made in a proceeding involving the tax return preparer
that is separate and apart from any proceeding involving the taxpayer.
(d) Abatement of penalty where taxpayer's liability not
understated. If a penalty under section 6694(a) or (b) concerning a
return or claim for refund has been assessed against one or more tax
return preparers, and if it is established at any time in a final
administrative determination or a final judicial decision that there
was no understatement of liability relating to the position(s) on the
return or claim for refund, then--
(1) The assessment shall be abated; and
(2) If any amount of the penalty was paid, that amount shall be
refunded to the person or persons who so paid, as if the payment were
an overpayment of tax, without consideration of any period of
limitations.
(e) Verification of information furnished by taxpayer or other
party--(1) In general. For purposes of sections 6694(a) and (b)
(including meeting the reasonable belief that the position would more
likely than not be sustained on its merits and reasonable basis
standards in Sec. Sec. 1.6694-2(b) and (c)(2), and demonstrating
reasonable cause and good faith under Sec. 1.6694-2(d)), the tax
return preparer generally may rely in good faith without verification
upon information furnished by the taxpayer. A tax return preparer,
however, may not rely on information provided by a taxpayer with
respect to legal conclusions on Federal tax issues. A tax return
preparer may also rely in good faith and without verification upon
information furnished by another advisor, another tax return preparer
or other party (including another advisor
[[Page 34572]]
or tax return preparer at the tax return preparer's firm). The tax
return preparer is not required to audit, examine or review books and
records, business operations, or documents or other evidence to verify
independently information provided by the taxpayer, advisor, other tax
return preparer, or other party. The tax return preparer, however, may
not ignore the implications of information furnished to the tax return
preparer or actually known by the tax return preparer. The tax return
preparer must make reasonable inquiries if the information as furnished
appears to be incorrect or incomplete. Additionally, some provisions of
the Code or regulations require that specific facts and circumstances
exist (for example, that the taxpayer maintain specific documents)
before a deduction or credit may be claimed. The tax return preparer
must make appropriate inquiries to determine the existence of facts and
circumstances required by a Code section or regulation as a condition
of the claiming of a deduction or credit.
(2) Verification of information on previously filed returns. For
purposes of section 6694(a) and (b) (including meeting the reasonable
belief that the position would more likely than not would be sustained
on its merits and reasonable basis standards in Sec. Sec. 1.6694-2(b)
and (c)(2), and demonstrating reasonable cause and good faith under
Sec. 1.6694-2(d)), a tax return preparer may rely in good faith
without verification upon a tax return that has been previously
prepared by a taxpayer or another tax return preparer and filed with
the IRS. For example, a tax return preparer who prepares an amended
return (including a claim for refund) need not verify the positions on
the original return. The tax return preparer, however, may not ignore
the implications of information furnished to the tax return preparer or
actually known by the tax return preparer. The tax return preparer must
make reasonable inquiries if the information as furnished appears to be
incorrect or incomplete. The tax return preparer must confirm that the
position being relied upon has not been adjusted by examination or
otherwise.
(3) Examples. The provisions of this paragraph (e) are illustrated
by the following examples:
Example 1. During an interview conducted by Preparer E, a
taxpayer stated that he had made a charitable contribution of real
estate in the amount of $50,000 during the tax year, when in fact he
had not made this charitable contribution. E did not inquire about
the existence of a qualified appraisal or complete a Form 8283,
Noncash Charitable Contributions, in accordance with the reporting
and substantiation requirements under section 170(f)(11). E reported
a deduction on the tax return for the charitable contribution, which
resulted in an understatement of liability for tax, and signed the
tax return as the tax return preparer. E is subject to a penalty
under section 6694.
Example 2. While preparing the 2008 tax return for an
individual taxpayer, Preparer F realizes that the taxpayer did not
provide a Form 1099 for a bank account that produced significant
taxable income in 2008. When F inquired about any other income, the
taxpayer furnished the Form 1099 to F for use in preparation of the
2008 tax return. F did not know that the taxpayer owned an
additional bank account that generated taxable income for 2008 and
the taxpayer did not reveal this information to the tax return
preparer notwithstanding F's general inquiry about any other income.
F signed the taxpayer's return as the tax return preparer. F is not
subject to a penalty under section 6694.
Example 3. In preparing a tax return, Accountant G relies on the
advice of an actuary concerning the limit on deductibility under
section 404(a)(1)(A) of a contribution by an employer to a qualified
pension trust. On the basis of this advice, G completed and signed
the tax return. It is later determined that there is an
understatement of liability for tax that resulted from the incorrect
advice provided by the actuary. G had no reason to believe that the
advice was incorrect or incomplete, and the advice appeared
reasonable on its face. G was also not aware at the time the return
was prepared of any reason why the actuary did not know all of the
relevant facts or that the advice was no longer reliable due to
developments in the law since the time the advice was given. G is
not subject to a penalty under section 6694. The actuary, however,
may be subject to penalty under section 6694 if the advice given by
the actuary constitutes a substantial portion of the tax return
within the meaning of Sec. 301.7701-15(b)(3) of this chapter.
(f) Income derived (or to be derived) with respect to the return or
claim for refund--(1) In general. For purposes of sections 6694(a) and
(b), income derived (or to be derived) means all compensation the tax
return preparer receives or expects to receive with respect to the
engagement of preparing the return or claim for refund or providing tax
advice (including research and consultation) with respect to the
position(s) taken on the return or claim for refund that gave rise to
the understatement. In the situation of a tax return preparer who is
not compensated directly by the taxpayer, but rather by a firm that
employs the tax return preparer or with whom the tax return preparer is
associated, income derived (or to be derived) means all compensation
the tax return preparer receives from the firm that can be reasonably
allocated to the engagement of preparing the return or claim for refund
or providing tax advice (including research and consultation) with
respect to the position(s) taken on the return or claim for refund that
gave rise to the understatement. In the situation where a firm that
employs the individual tax return preparer (or the firm of which the
individual tax return preparer is a partner, member, shareholder, or
other equity holder) is subject to a penalty under section 6694(a) or
(b) pursuant to the provisions in Sec. Sec. 1.6694-2(a)(2) or 1.6694-
3(a)(2), income derived (or to be derived) means all compensation the
firm receives or expects to receive with respect to the engagement of
preparing the return or claim for refund or providing tax advice
(including research and consultation) with respect to the position(s)
taken on the return or claim for refund that gave rise to the
understatement.
(2) Compensation--(i) Multiple engagements. For purposes of
applying paragraph (f)(1) of this section, if the tax return preparer
or the tax return preparer's firm has multiple engagements related to
the same return or claim for refund, only those engagements relating to
the position(s) taken on the return or claim for refund that gave rise
to the understatement are considered for purposes of calculating the
income derived (or to be derived) with respect to the return or claim
for refund.
(ii) Reasonable allocation. For purposes of applying paragraph
(f)(1) of this section, only compensation for tax advice that is given
with respect to events that have occurred at the time the advice is
rendered and that relates to the position(s) giving rise to the
understatement will be taken into account for purposes of calculating
the section 6694(a) and (b) penalties. If a lump sum fee is received
that includes amounts not taken into account under the preceding
sentence, the amount of income derived will be based on a reasonable
allocation of the lump sum fee between the tax advice giving rise to
the penalty and the advice that does not give rise to the penalty.
(iii) Fee refunds. For purposes of applying paragraph (f)(1) of
this section, a refund to the taxpayer of all or part of the amount
paid to the tax return preparer or the tax return preparer's firm will
not reduce the amount of the section 6694 penalty assessed. A refund in
this context does not include a discounted fee or alternative billing
arrangement for the services provided.
(iv) Reduction of compensation. For purposes of applying paragraph
(f)(1) of this section, it may be concluded based upon information
provided by the tax return preparer or the tax return
[[Page 34573]]
preparer's firm that an appropriate allocation of compensation
attributable to the position(s) giving rise to the understatement on
the return or claim for refund is less than the total amount of
compensation associated with the engagement. For example, the number of
hours of the engagement spent on the position(s) giving rise to the
understatement may be less than the total hours associated with the
engagement. If this is concluded, the amount of the penalty will be
calculated based upon the compensation attributable to the position(s)
giving rise to the understatement. Otherwise, the total amount of
compensation from the engagement will be the amount of income derived
for purposes of calculating the penalty under section 6694.
(3) Individual and firm allocation. If both an individual within a
firm and a firm that employs the individual (or the firm of which the
individual is a partner, member, shareholder, or other equity holder)
are subject to a penalty under section 6694(a) or (b) pursuant to the
provisions in Sec. Sec. 1.6694-2(a)(2) or 1.6694-3(a)(2), the amount
of penalties assessed against the individual and the firm shall not
exceed 50 percent of the income derived (or to be derived) by the firm
from the engagement of preparing the return or claim for refund or
providing tax advice (including research and consultation) with respect
to the position(s) taken on the return or claim for refund that gave
rise to the understatement. The portion of the total amount of the
penalty assessed against the individual tax return preparer shall not
exceed 50 percent of the individual's compensation as determined under
paragraphs (f)(1) and (2) of this section.
(4) Examples. The provisions of this paragraph (f) are illustrated
by the following examples:
Example 1. Signing Tax Return Preparer H is engaged by a
taxpayer and paid a total of $21,000. Of this amount, $20,000
relates to research and consultation regarding a transaction that is
later reported on a return, and $1,000 for the activities relating
to the preparation of the return. Based on H's hourly rates, a
reasonable allocation of the amount of compensation related to the
advice rendered prior to the occurrence of events that are the
subject of the advice is $5,000. The remaining compensation of
$16,000 is considered to be compensation related to the advice
rendered after the occurrence of events that are the subject of the
advice and return preparation. The income derived by H with respect
to the return for purposes of computing the penalty under section
6694(a) is $16,000, and the amount of the penalty imposed under
section 6694(a) is $8,000.
Example 2. Accountants I, J, and K are employed by Firm L. I is
a principal manager of Firm L and provides corporate tax advice for
the taxpayer after all events have occurred subject to an engagement
for corporate tax advice. J provides international tax advice for
the taxpayer after all events have occurred subject to a different
engagement for international tax advice. K prepares and signs the
taxpayer's return under a general tax services engagement. I's
advice is the source of an understatement on the return and the
advice constitutes preparation of a substantial portion of the
return within the meaning of Sec. 301.7701-15(b) of this chapter. I
is the nonsigning tax return preparer within the firm with overall
supervisory responsibility for the position on the taxpayer's return
giving rise to an understatement. Thus, I is the tax return preparer
who is primarily responsible for the position on the taxpayer's
return giving rise to the understatement. Because K's signature as
the signing tax return preparer is on the return, the IRS advises K
that K may be subject to the section 6694(a) penalty against K to
the understatement. K provides information that I is the tax return
preparer with primary responsibility for the position that gave rise
to the understatement and K formed a reasonable belief that the
position would more likely than not be sustained on the merits by
relying on the advice provided by I. Furthermore, K has reasonable
cause because K relied on I for the advice on the corporate tax
matter. The IRS, therefore, assesses the section 6694 penalty
against I. The portion of the total amount of the penalty allocable
to I does not exceed that part of I's compensation that is
attributable to the corporate tax advice engagement. In the event
that Firm L is also liable under the provisions in Sec. 1.6694-
2(a)(2), the IRS assesses the section 6694 penalty in an amount not
exceeding 50 percent of Firm L's firm compensation based on the
engagement relating to the corporate tax advice services provided by
I where there is no applicable reduction in compensation pursuant to
Sec. 1.6694-1(f)(2)(iii).
Example 3. Same facts as Example 2, except that I provides the
advice on the corporate matter when the events have not yet
occurred. I's advice is the cause of an understatement position on
the return but I is not a tax return preparer pursuant to Sec.
301.7701-15(b)(2) or (3) of this chapter. K has reasonable cause
because K relied on I for the advice on the corporate tax matter and
K is not limited to reliance on persons who provide post-
transactional advice if such reliance is reasonable and in good
faith. I, K and Firm L are not liable for the section 6694 penalty.
(g) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 7. Section 1.6694-2 is revised to read as follows:
Sec. 1.6694-2 Penalty for understatement due to an unreasonable
position.
(a) In general--(1) Proscribed conduct. Except as otherwise
provided in this section, a tax return preparer is liable for a penalty
under section 6694(a) equal to the greater of $1,000 or 50 percent of
the income derived (or to be derived) by the tax return preparer for
any return or claim for refund that it prepares that results in an
understatement of liability due to a position if the tax return
preparer knew (or reasonably should have known) of the position and
either--
(i) The position was not disclosed as provided in this section and
there was not a reasonable belief that the position would more likely
than not be sustained on its merits; or
(ii) The position was disclosed as provided in this section but
there was no reasonable basis for the position.
(2) Special rule for corporations, partnerships, and other firms. A
firm that employs a tax return preparer subject to a penalty under
section 6694(a) (or a firm of which the individual tax return preparer
is a partner, member, shareholder or other equity holder) is also
subject to penalty if, and only if--
(i) One or more members of the principal management (or principal
officers) of the firm or a branch office participated in or knew of the
conduct proscribed by section 6694(a);
(ii) The corporation, partnership, or other firm entity failed to
provide reasonable and appropriate procedures for review of the
position for which the penalty is imposed; or
(iii) Such review procedures were disregarded by the corporation,
partnership, or other firm entity through willfulness, recklessness, or
gross indifference (including ignoring facts that would lead a person
of reasonable prudence and competence to investigate or ascertain) in
the formulation of the advice, or the preparation of the return or
claim for refund, that included the position for which the penalty is
imposed.
(b) Reasonable belief that the position would more likely than not
be sustained on its merits--(1) In general. A tax return preparer may
``reasonably believe that a position would more likely than not be
sustained on its merits'' if the tax return preparer analyzes the
pertinent facts and authorities, and in reliance upon that analysis,
reasonably concludes in good faith that the position has a greater than
50 percent likelihood of being sustained on its merits. In reaching
this conclusion, the possibility that the position will not be
challenged by the Internal Revenue Service (IRS) (for example, because
the taxpayer's return may not be audited or because the issue may not
be raised on audit) is not to be taken into account. The
[[Page 34574]]
analysis prescribed by Sec. 1.6662-4(d)(3)(ii) (or any successor
provision) for purposes of determining whether substantial authority is
present applies for purposes of determining whether the more likely
than not standard is satisfied. Whether a tax return preparer meets
this standard will be determined based upon all facts and
circumstances, including the tax return preparer's diligence. In
determining the level of diligence in a particular situation, the tax
return preparer's experience with the area of Federal tax law and
familiarity with the taxpayer's affairs, as well as the complexity of
the issues and facts, will be taken into account. A tax return preparer
may reasonably believe that a position more likely than not would be
sustained on its merits despite the absence of other types of authority
if the position is supported by a well-reasoned construction of the
applicable statutory provision. For purposes of determining whether the
tax return preparer has a reasonable belief that the position would
more likely than not be sustained on the merits, a tax return preparer
may rely in good faith without verification upon information furnished
by the taxpayer, advisor, other tax return preparer, or other party
(including another advisor or tax return preparer at the tax return
preparer's firm), as provided in Sec. 1.6694-1(e).
(2) No unreasonable assumptions. A position must not be based on
unreasonable factual or legal assumptions (including assumptions as to
future events) and must not unreasonably rely on the representations,
statements, findings, or agreements of the taxpayer or any other
person. For example, a position must not be based on a representation
or assumption that the tax return preparer knows, or has reason to
know, is inaccurate.
(3) Authorities. The authorities considered in determining whether
a position satisfies the more likely than not standard are those
authorities provided in Sec. 1.6662-4(d)(3)(iii) (or any successor
provision).
(4) Examples. The provisions of paragraphs (b)(1) through (b)(3) of
this section are illustrated by the following examples:
Example 1. A new statute is silent as to whether the taxpayer
may take advantage of certain tax benefits. The Treasury Department
and the IRS have not issued any interpretative guidance for the
newly enacted provision. A well-reasoned construction of the
statutory text supports the position that a taxpayer may claim the
tax benefits. Preparer M may avoid the section 6694(a) penalty by
taking the position that M reasonably believed that the taxpayer's
position would more likely than not be sustained on its merits.
Example 2. After the passage of legislation containing a new
statutory provision, a taxpayer engaged in a transaction that is
adversely affected by the new provision. Prior law supported a
position favorable to the taxpayer. Preparer N believes that the new
statute is inequitable as applied to the taxpayer's situation. The
statutory language, however, is unambiguous as applied to the
transaction to deny the result claimed by the taxpayer previously.
In considering the new statutory provision as applied to the
taxpayer's position, N may not avoid the section 6694(a) penalty by
taking the position that the tax return preparer reasonably believed
that the position would more likely than not be sustained on its
merits.
Example 3. While preparing the taxpayer's return, Preparer O
determines that a statute is silent as to whether the taxpayer may
take a certain position on the taxpayer's 2007 Federal income tax
return. Three private letter rulings issued to other taxpayers in
2002 and 2003 support the taxpayer's position. Temporary regulations
issued in 2004, however, are clearly contrary to the taxpayer's
position. After the issuance of the temporary regulations, the
earlier private letter rulings cease to be authorities and are not
taken into account in determining whether the taxpayer's position
satisfies the reasonable belief that the position would more likely
than not be sustained on its merits standard. Preparer O may not
avoid the section 6694(a) penalty by taking the position that the
tax return preparer reasonably believed that the taxpayer's position
would more likely than not be sustained on its merits.
Example 4. In the course of researching whether an
interpretation of a phrase in the Internal Revenue Code (Code) is a
position that more likely than not will be sustained on its merits,
Preparer P discovers that the only relevant authorities include
decisions of five U.S. courts of appeal. Three U.S. courts of appeal
have construed the language as being taxpayer favorable. Two other
U.S. courts of appeal, however, have construed the identical
language as being favorable to the government's position. The U.S.
court of appeals in the jurisdiction where the taxpayer is located
has not addressed this issue. P reasonably believes that the
taxpayer's facts more closely parallel the facts involved in the
three U.S. courts of appeals' decisions that were taxpayer
favorable. Under the analysis prescribed by Sec. 1.6662-
4(d)(3)(ii), P may avoid the section 6694(a) penalty by taking the
position that the tax return preparer reasonably believed that a
well-reasoned position consistent with the taxpayer favorable
interpretation would more likely than not be sustained on its
merits.
(5) Written determinations. The tax return preparer may avoid the
section 6694(a) penalty by taking the position that the tax return
preparer reasonably believed that the taxpayer's position satisfies the
``more likely than not'' standard if the taxpayer is the subject of a
``written determination'' as provided in Sec. 1.6662-4(d)(3)(iv)(A).
(6) When ``more likely than not'' standard must be satisfied. For
purposes of this section, the requirement that a position satisfies the
``more likely than not'' standard must be satisfied on the date the
return is deemed prepared, as prescribed by Sec. 1.6694-1(a)(2).
(c) Exception for adequate disclosure of positions with a
reasonable basis--(1) In general. The section 6694(a) penalty will not
be imposed on a tax return preparer if the position taken has a
reasonable basis and is adequately disclosed within the meaning of
paragraph (c)(3) of this section. For an exception to the section
6694(a) penalty for reasonable cause and good faith, see paragraph (d)
of this section.
(2) Reasonable basis. For purposes of this section, ``reasonable
basis'' has the same meaning as in Sec. 1.6662-3(b)(3) or any
successor provision of the accuracy-related penalty regulations. For
purposes of determining whether the tax return preparer has a
reasonable basis for a position, a tax return preparer may rely in good
faith without verification upon information furnished by the taxpayer,
advisor, other tax return preparer, or other party (including another
advisor or tax return preparer at the tax return preparer's firm), as
provided in Sec. 1.6694-1(e).
(3) Adequate disclosure--(i) Signing tax return preparers. In the
case of a signing tax return preparer within the meaning of Sec.
301.7701-15(b)(1) of this chapter, disclosure of a position for which
there is a reasonable basis but for which the tax return preparer does
not have a reasonable belief that the position would more likely than
not be sustained on the merits is adequate if the tax return preparer
meets any of the following standards:
(A) The position is disclosed in accordance with Sec. 1.6662-4(f)
(which permits disclosure on a properly completed and filed Form 8275,
``Disclosure Statement,'' or Form 8275-R, ``Regulation Disclosure
Statement,'' as appropriate, or on the tax return in accordance with
the annual revenue procedure described in Sec. 1.6662-4(f)(2)).
(B) For income tax returns, if the position would not meet the
standard for the taxpayer to avoid a penalty under section
6662(d)(2)(B) without disclosure (no substantial authority), the tax
return preparer provides the taxpayer with the prepared tax return that
includes the disclosure in accordance with Sec. 1.6662-4(f).
(C) For income tax returns, if the position would otherwise meet
the standard for nondisclosure under section 6662(d)(2)(B)(i)
(substantial
[[Page 34575]]
authority), the tax return preparer advises the taxpayer of all the
penalty standards applicable to the taxpayer under section 6662. The
tax return preparer must also contemporaneously document the advice in
the tax return preparer's files.
(D) For income tax returns, if section 6662(d)(2)(B) does not apply
because the position may be described in section 6662(d)(2)(C) or
section 6662A (a tax shelter, reportable transaction with a significant
purpose of tax avoidance or evasion, or a listed transaction), the tax
return preparer advises the taxpayer that there needs to be at a
minimum substantial authority for the position, that the taxpayer must
possess a reasonable belief that the tax treatment was more likely than
not the proper treatment in order to avoid a penalty under section
6662(d) or section 6662A as applicable, and that disclosure will not
protect the taxpayer from assessment of an accuracy-related penalty if
either section 6662(d)(2)(C) or 6662A applies to the position. The tax
return preparer must also contemporaneously document the advice in the
tax return preparer's files.
(E) For returns or claims for refund that are subject to penalties
pursuant to section 6662 other than the substantial understatement
penalty under section 6662(b)(2) and (d), the tax return preparer
advises the taxpayer of the penalty standards applicable to the
taxpayer under sections 6662. The tax return preparer must also
contemporaneously document the advice in the tax return preparer's
files.
(ii) Nonsigning tax return preparers. In the case of a nonsigning
tax return preparer within the meaning of Sec. 301.7701-15(b)(2) of
this chapter, disclosure of a position that satisfies the reasonable
basis standard but does not satisfy the reasonable belief that a
position would more likely than not be sustained on its merits standard
is adequate if the position is disclosed in accordance with Sec.
1.6662-4(f) (which permits disclosure on a properly completed and filed
Form 8275 or Form 8275-R, as appropriate, or on the return in
accordance with an annual revenue procedure described in Sec. 1.6662-
4(f)(2)). In addition, disclosure of a position is adequate in the case
of a nonsigning tax return preparer if, with respect to that position,
the tax return preparer complies with the provisions of paragraph
(c)(3)(ii)(A) or (B) of this section, whichever is applicable.
(A) Advice to taxpayers. If a nonsigning tax return preparer
provides advice to the taxpayer with respect to a position for which
there is a reasonable basis but for which the nonsigning tax return
preparer does not have a reasonable belief that the position would more
likely than not be sustained on the merits, disclosure of that position
is adequate if the tax return preparer advises the taxpayer of any
opportunity to avoid penalties under section 6662 that could apply to
the position, if relevant, and of the standards for disclosure to the
extent applicable. The tax return preparer must also contemporaneously
document the advice in the tax return preparer's files.
(B) Advice to another tax return preparer. If a nonsigning tax
return preparer provides advice to another tax return preparer with
respect to a position for which there is a reasonable basis but for
which the nonsigning tax return preparer does not have a reasonable
belief that the position would more likely than not be sustained on the
merits, disclosure of that position is adequate if the tax return
preparer advises the other tax return preparer that disclosure under
section 6694(a) may be required. The tax return preparer must also
contemporaneously document the advice in the tax return preparer's
files.
(iii) Requirements for advice. For purposes of satisfying the
disclosure standards of paragraphs (c)(3)(i) and (ii) of this section,
each return position for which there is a reasonable basis but for
which the tax return preparer does not have a reasonable belief that
the position would more likely than not be sustained on the merits must
be addressed by the tax return preparer. The advice to the taxpayer
with respect to each position, therefore, must be particular to the
taxpayer and tailored to the taxpayer's facts and circumstances. The
tax return preparer is required to contemporaneously document the fact
that the advice was provided. There is no general pro forma language or
special format required for a tax return preparer to comply with these
rules. No form of a general boilerplate disclaimer, however, is
sufficient to satisfy these standards. A tax return preparer may choose
to comply with the documentation standard in one document covering each
position, or in multiple documents covering all of the positions.
(iv) Pass-through entities. Disclosure in the case of items
attributable to a pass-through entity is adequate if made at the entity
level in accordance with the rules in Sec. 1.6662-4(f)(5) or at the
entity level in accordance with the rules in paragraphs (c)(3)(i) or
(ii) of this section.
(v) Examples. The provisions of paragraph (c)(3) of this section
are illustrated by the following examples:
Example 1. An individual taxpayer hires Accountant Q to prepare
its income tax return. Q does not reasonably believe that a
particular position taken on the tax return would more likely than
not be sustained on its merits although there is substantial
authority for the position. Q prepares and signs the tax return
without disclosing the position taken on the tax return, but advises
the individual taxpayer of the penalty standards applicable to the
taxpayer under section 6662, and contemporaneously documents in Q's
files that this advice was provided. The individual taxpayer signs
and files the tax return without disclosing the position because the
position meets the standards for nondisclosure under section
6662(d)(2)(B)(i). The IRS later challenges the position taken on the
tax return, resulting in an understatement of liability. Q is not
subject to a penalty under section 6694.
Example 2. Attorney R advises a large corporate taxpayer
concerning the proper treatment of complex entries on the corporate
taxpayer's tax return. R has reason to know that the tax
attributable to the entries is a substantial portion of the tax
required to be shown on the tax return within the meaning of Sec.
301.7701-15(b)(3). When providing the advice, R concludes that one
position with respect to these entries does not meet the reasonable
belief that the position would more likely than not be sustained on
the merits standard and also does not have substantial authority,
although the position meets the reasonable basis standard. R, in
good faith, advises the corporate taxpayer that the position lacks
substantial authority and the taxpayer will be subject to an
accuracy-related penalty under section 6662 unless the position is
disclosed in a disclosure statement included in the return. R also
documents the fact that this advice was contemporaneously provided
to the corporate taxpayer at the time the advice was provided.
Neither R nor any other attorney within R's firm signs the corporate
taxpayer's return as a tax return preparer, but the advice by R
constitutes preparation of a substantial portion of the tax return
and R is the individual with overall supervisory responsibility for
the position giving rise to the understatement. Thus, R is a tax
return preparer for purposes of section 6694. R, however, will not
be subject to a penalty under section 6694.
(d) Exception for reasonable cause and good faith. The penalty
under section 6694(a) will not be imposed if, considering all the facts
and circumstances, it is determined that the understatement was due to
reasonable cause and that the tax return preparer acted in good faith.
Factors to consider include:
(1) Nature of the error causing the understatement. The error
resulted from a provision that was complex, uncommon, or highly
technical and a competent tax return preparer of tax returns or claims
for refund of the type at issue reasonably could have made the error.
The reasonable cause and good faith exception, however, does not
[[Page 34576]]
apply to an error that would have been apparent from a general review
of the return or claim for refund by the tax return preparer.
(2) Frequency of errors. The understatement was the result of an
isolated error (such as an inadvertent mathematical or clerical error)
rather than a number of errors. Although the reasonable cause and good
faith exception generally applies to an isolated error, it does not
apply if the isolated error is so obvious, flagrant, or material that
it should have been discovered during a review of the return or claim
for refund. Furthermore, the reasonable cause and good faith exception
does not apply if there is a pattern of errors on a return or claim for
refund even though any one error, in isolation, would have qualified
for the reasonable cause and good faith exception.
(3) Materiality of errors. The understatement was not material in
relation to the correct tax liability. The reasonable cause and good
faith exception generally applies if the understatement is of a
relatively immaterial amount. Nevertheless, even an immaterial
understatement may not qualify for the reasonable cause and good faith
exception if the error or errors creating the understatement are
sufficiently obvious or numerous.
(4) Tax return preparer's normal office practice. The tax return
preparer's normal office practice, when considered together with other
facts and circumstances, such as the knowledge of the tax return
preparer, indicates that the error in question would rarely occur and
the normal office practice was followed in preparing the return or
claim for refund in question. Such a normal office practice must be a
system for promoting accuracy and consistency in the preparation of
returns or claims for refund and generally would include, in the case
of a signing tax return preparer, checklists, methods for obtaining
necessary information from the taxpayer, a review of the prior year's
return, and review procedures. Notwithstanding these rules, the
reasonable cause and good faith exception does not apply if there is a
flagrant error on a return or claim for refund, a pattern of errors on
a return or claim for refund, or a repetition of the same or similar
errors on numerous returns or claims for refund.
(5) Reliance on advice of others. For purposes of demonstrating
reasonable cause and good faith, a tax return preparer may rely without
verification upon advice and information furnished by the taxpayer or
other party, as provided in Sec. 1.6694-1(e). The tax return preparer
may reasonably rely in good faith on the advice of, or schedules or
other documents prepared by, the taxpayer, another advisor, another tax
return preparer, or other party (including another advisor or tax
return preparer at the tax return preparer's firm), and who the tax
return preparer had reason to believe was competent to render the
advice or other information. The advice or information may be written
or oral, but in either case the burden of establishing that the advice
or information was received is on the tax return preparer. A tax return
preparer is not considered to have relied in good faith if--
(i) The advice or information is unreasonable on its face;
(ii) The tax return preparer knew or should have known that the
other party providing the advice or information was not aware of all
relevant facts; or
(iii) The tax return preparer knew or should have known (given the
nature of the tax return preparer's practice), at the time the return
or claim for refund was prepared, that the advice or information was no
longer reliable due to developments in the law since the time the
advice was given.
(6) Reliance on generally accepted administrative or industry
practice. The tax return preparer reasonably relied in good faith on
generally accepted administrative or industry practice in taking the
position that resulted in the understatement. A tax return preparer is
not considered to have relied in good faith if the tax return preparer
knew or should have known (given the nature of the tax return
preparer's practice), at the time the return or claim for refund was
prepared, that the administrative or industry practice was no longer
reliable due to developments in the law or IRS administrative practice
since the time the practice was developed.
(e) Burden of proof. In any proceeding with respect to the penalty
imposed by section 6694(a), the issues on which the tax return preparer
bears the burden of proof include whether--
(1) The tax return preparer knew or reasonably should have known
that the questioned position was taken on the return;
(2) There is reasonable cause and good faith with respect to such
position; and
(3) The position was disclosed adequately in accordance with
paragraph (c) of this section.
(f) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 8. Section 1.6694-3 is amended by revising paragraphs (a),
(c)(2) and (3), (d), (e), (f), (g) and (h) to read as follows:
Sec. 1.6694-3 Penalty for understatement due to willful, reckless, or
intentional conduct.
(a) In general--(1) Proscribed conduct. A tax return preparer is
liable for a penalty under section 6694(b) equal to the greater of
$5,000 or 50 percent of the income derived (or to be derived) by the
tax return preparer if any part of an understatement of liability for a
return or claim for refund that is prepared is due to--
(i) A willful attempt in any manner to understate the liability for
tax by a tax return preparer on the return or claim for refund; or
(ii) Any reckless or intentional disregard of rules or regulations
by any such person.
(2) Special rule for corporations, partnerships, and other firms. A
firm that employs a tax return preparer subject to a penalty under
section 6694(b) (or a firm of which the individual tax return preparer
is a partner, member, shareholder or other equity holder) is also
subject to penalty if, and only if--
(i) One or more members of the principal management (or principal
officers) of the firm or a branch office participated in or knew of the
conduct proscribed by section 6694(b);
(ii) The corporation, partnership, or other firm entity failed to
provide reasonable and appropriate procedures for review of the
position for which the penalty is imposed; or
(iii) Such review procedures were disregarded by the corporation,
partnership, or other firm entity through willfulness, recklessness, or
gross indifference (including ignoring facts that would lead a person
of reasonable prudence and competence to investigate or ascertain) in
the formulation of the advice, or the preparation of the return or
claim for refund, that included the position for which the penalty is
imposed.
* * * * *
(c) Reckless or intentional disregard--(1)* * *
(2) A tax return preparer is not considered to have recklessly or
intentionally disregarded a rule or regulation if the position contrary
to the rule or regulation has a reasonable basis as defined in Sec.
1.6694-2(c)(2) and is adequately disclosed in accordance with Sec.
1.6694-2(c)(3). In the case of a position contrary to a regulation, the
position must represent a good faith challenge to the validity of the
regulation and, when disclosed in accordance with Sec. 1.6694-2(c)(3),
the
[[Page 34577]]
tax return preparer must identify the regulation being challenged. For
purposes of this section, disclosure on the return in accordance with
an annual revenue procedure under Sec. 1.6662-4(f)(2) is not
applicable.
(3) In the case of a position contrary to a revenue ruling or
notice (other than a notice of proposed rulemaking) published by the
Internal Revenue Service in the Internal Revenue Bulletin, a tax return
preparer also is not considered to have recklessly or intentionally
disregarded the ruling or notice if the tax return preparer reasonably
believes that the position would more likely than not be sustained on
its merits in accordance with Sec. 1.6694-2(b).
(d) Examples. The provisions of paragraphs (b) and (c) of this
section are illustrated by the following examples:
Example 1. A taxpayer provided Preparer S with detailed check
registers reflecting personal and business expenses. One of the
expenses was for domestic help, and this expense was identified as
personal on the check register. S knowingly deducted the expenses of
the taxpayer's domestic help as wages paid in the taxpayer's
business. S is subject to the penalty under section 6694(b).
Example 2. A taxpayer provided Preparer T with detailed check
registers to compute the taxpayer's expenses. T, however, knowingly
overstated the expenses on the return. After adjustments by the
examiner, the tax liability increased significantly. Because T
disregarded information provided in the check registers, T is
subject to the penalty under section 6694(b).
Example 3. Preparer U prepares a taxpayer's return and
encounters certain expenses incurred in the purchase of a business.
Final regulations provide that such expenses incurred in the
purchase of a business must be capitalized. One U.S. Tax Court case
has expressly invalidated that portion of the regulations. Under
these facts, U will have a reasonable basis for the position as
defined in Sec. 1.6694-2(c)(2) and will not be subject to the
section 6694(b) penalty if the position is adequately disclosed in
accordance with paragraph (c)(2) of this section because the
position represents a good faith challenge to the validity of the
regulations.
(e) Rules or regulations. The term rules or regulations includes
the provisions of the Internal Revenue Code, temporary or final
Treasury regulations issued under the Code, and revenue rulings or
notices (other than notices of proposed rulemaking) issued by the
Internal Revenue Service and published in the Internal Revenue
Bulletin.
(f) Section 6694(b) penalty reduced by section 6694(a) penalty. The
amount of any penalty to which a tax return preparer may be subject
under section 6694(b) for a return or claim for refund is reduced by
any amount assessed and collected against the tax return preparer under
section 6694(a) for the same return or claim for refund.
(g) Burden of proof. In any proceeding with respect to the penalty
imposed by section 6694(b), the government bears the burden of proof on
the issue of whether the tax return preparer willfully attempted to
understate the liability for tax. See section 7427. The tax return
preparer bears the burden of proof on such other issues as whether--
(1) The tax return preparer recklessly or intentionally disregarded
a rule or regulation;
(2) A position contrary to a regulation represents a good faith
challenge to the validity of the regulation; and
(3) Disclosure was adequately made in accordance with Sec. 1.6694-
3(c)(2).
(h) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 9. Section 1.6694-4 is amended by revising paragraph (a) to
read as follows:
Sec. 1.6694-4 Extension of period of collection when tax return
preparer pays 15 percent of a penalty for understatement of taxpayer's
liability and certain other procedural matters.
(a) In general. (1) The Internal Revenue Service will investigate
the preparation by a tax return preparer of a return of tax under the
Internal Revenue Code (Code) or claim for refund of tax under the Code
as described in Sec. 301.7701-15(b)(4) of this chapter, and will send
a report of the examination to the tax return preparer before the
assessment of either--
(i) A penalty for understating tax liability due to a position for
which there was not a reasonable belief that the position would more
likely than not be sustained on its merits under section 6694(a) (or
not a reasonable basis for disclosed positions); or
(ii) A penalty for willful understatement of liability or reckless
or intentional disregard of rules or regulations under section 6694(b).
* * * * *
(d) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 10. Section 1.6695-1 is revised to read as follows:
Sec. 1.6695-1 Other assessable penalties with respect to the
preparation of tax returns for other persons.
(a) Failure to furnish copy to taxpayer. (1) A person who is a
signing tax return preparer as described in Sec. 301.7701-15(b)(1) of
this chapter of any return of tax or claim for refund of tax under the
Internal Revenue Code (Code), and who fails to satisfy the requirements
imposed by section 6107(a) and Sec. 1.6107-1(a) to furnish a copy of
the return or claim for refund to the taxpayer (or nontaxable entity),
shall be subject to a penalty of $50 for such failure, with a maximum
penalty of $25,000 per person imposed with respect to each calendar
year, unless it is shown that the failure is due to reasonable cause
and not due to willful neglect.
(2) No penalty may be imposed under section 6695(a) and paragraph
(a)(1) of this section upon a tax return preparer who furnishes a copy
of the return or claim for refund to taxpayers who--
(i) Hold an elected or politically appointed position with the
government of the United States or a state or political subdivision
thereof; and
(ii) In order faithfully to carry out their official duties, have
so arranged their affairs that they have less than full knowledge of
the property that they hold or of the debts for which they are
responsible, if information is deleted from the copy in order to
preserve or maintain this arrangement.
(b) Failure to sign return. (1) An individual who is a tax return
preparer as described in Sec. 301.7701-15 of this chapter with respect
to a return of tax or claim for refund of tax under the Code that is
not signed electronically shall sign the return or claim for refund
after it is completed and before it is presented to the taxpayer (or
nontaxable entity) for signature. For rules covering electronically
signed returns, see paragraph (b)(2) of this section. For purposes of
this paragraph (b), a return of tax shall not include information
returns under subpart B and subpart C of Part III of Subtitle F. If the
tax return preparer is unavailable for signature, another tax return
preparer shall review the entire preparation of the return or claim for
refund, and then shall sign the return or claim for refund. The tax
return preparer shall sign the return in the manner prescribed by the
Commissioner in forms, instructions, or other appropriate guidance.
(2) In the case of electronically signed tax returns, the tax
return preparer need not sign the return prior to presenting a
completed copy of the return to the taxpayer. The tax return preparer,
however, must furnish all of the information that will be transmitted
as
[[Page 34578]]
the electronically signed tax return to the taxpayer contemporaneously
with furnishing the Form 8879, ``IRS e-file Signature Authorization,''
or other similar Internal Revenue Service (IRS) e-file signature form.
The information may be furnished on a replica of an official form. The
tax return preparer shall electronically sign the return in the manner
prescribed by the Commissioner in forms, instructions, or other
appropriate guidance.
(3) If more than one tax return preparer is involved in the
preparation of the return or claim for refund, the individual tax
return preparer who has the primary responsibility as between or among
the tax return preparers for the overall substantive accuracy of the
preparation of such return or claim for refund shall be considered to
be the signing tax return preparer for purposes of this paragraph (b)
and Sec. 301.7701-15(b)(1) of this chapter. Any other tax return
preparer as described in Sec. 301.7701-15(b)(2) of this chapter is not
required to sign the return or claim for refund.
(4) Examples. The application of this paragraph (b) is illustrated
by the following examples:
Example 1. Law Firm A employs B, a lawyer, to prepare for
compensation estate tax returns and claims for refund of taxes. Firm
A is engaged by C to prepare a Federal estate tax return. Firm A
assigns B to prepare the return. B obtains the information necessary
for completing the return from C and makes determinations with
respect to the proper application of the tax laws to such
information in order to determine the estate's tax liability. B then
forwards such information to D, a computer tax service that performs
the mathematical computations and prints the return by means of
computer processing. D then sends the completed estate tax return to
B who reviews the accuracy of the return. B is the individual tax
return preparer who is primarily responsible for the overall
accuracy of the estate tax return. B must sign the return as tax
return preparer.
Example 2. Partnership E is a national accounting firm that
prepares returns and claims for refund of taxes for compensation. F
and G, employees of Partnership E, are involved in preparing the
Form 990-T, Exempt Organization Business Income Tax Return, for H, a
tax exempt organization. After they complete the return, including
the gathering of the necessary information, analyzing the proper
application of the tax laws to such information, and the performance
of the necessary mathematical computations, I, a supervisory
employee of Partnership E, reviews the return. As part of this
review, I reviews the information provided and the application of
the tax laws to this information. The mathematical computations and
carried-forward amounts are reviewed by J, an employee of
Partnership E. The policies and practices of Partnership E require
that K, a partner, finally review the return. The scope of K's
review includes reviewing the information provided and applying to
this information his knowledge of H's affairs, observing that
Partnership E's policies and practices have been followed, and
making the final determination with respect to the proper
application of the tax laws to determine H's tax liability. K may or
may not exercise these responsibilities, or may exercise them to a
greater or lesser extent, depending on the degree of complexity of
the return, his confidence in I (or F and G), and other factors. K
is the individual tax return preparer who is primarily responsible
for the overall accuracy of H's return. K must sign the return as
tax return preparer.
Example 3. L corporation maintains an office in Seattle,
Washington, for the purpose of preparing partnership returns for
compensation. L makes compensatory arrangements with individuals
(but provides no working facilities) in several states to collect
information from partners of a partnership and to make decisions
with respect to the proper application of the tax laws to the
information in order to prepare the partnership return and calculate
the partnership's distributive items. M, an individual, who has such
an arrangement in Los Angeles with L, collects information from N,
the general partner of a partnership, and completes a worksheet kit
supplied by L that is stamped with M's name and an identification
number assigned to M by L. In this process, M classifies this
information in appropriate categories for the preparation of the
partnership return. The completed worksheet kit signed by M is then
mailed to L. O, an employee in L's office, reviews the worksheet kit
to make sure it was properly completed. O does not review the
information obtained from N for its validity or accuracy. O may, but
did not, make the final decision with respect to the proper
application of tax laws to the information provided. The data from
the worksheet is entered into a computer and the return form is
completed. The return is prepared for submission to N with filing
instructions. M is the individual tax return preparer primarily
responsible for the overall accuracy of the partnership return. M
must sign the return as tax return preparer.
Example 4. P employs R, S, and T to prepare gift tax returns for
taxpayers. After R and S have collected the information from a
taxpayer and applied the tax laws to the information, the return
form is completed by a computer service. On the day the returns
prepared by R and S are ready for their signatures, R is away from
the city for 1 week on another assignment and S is on detail to
another office in the same city for the day. T may sign the gift tax
returns prepared by R, provided that T reviews the information
obtained by R relative to the taxpayer, and T reviews the
preparation of each return prepared by R. T may not sign the returns
prepared by S because S is available.
(5) An individual required by this paragraph (b) to sign a return
or claim for refund shall be subject to a penalty of $50 for each
failure to sign, with a maximum of $25,000 per person imposed with
respect to each calendar year, unless it is shown that the failure is
due to reasonable cause and not due to willful neglect. If the tax
return preparer asserts reasonable cause for failure to sign, the IRS
will require a written statement to substantiate the tax return
preparer's claim of reasonable cause. For purposes of this paragraph
(b), reasonable cause is a cause that arises despite ordinary care and
prudence exercised by the individual tax return preparer.
(6) Effective/applicability date. This paragraph (b) is applicable
to returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
(c) Failure to furnish identifying number. (1) A person who is a
signing tax return preparer as described in Sec. 301.7701-15(b)(1) of
this chapter of any return of tax under the Code or claim for refund of
tax under the Code, and who fails to satisfy the requirement of section
6109(a)(4) and Sec. 1.6109-2(a) to furnish one or more identifying
numbers of signing tax return preparers or persons employing the
signing tax return preparer (or with which the signing tax return
preparer is associated) on a return or claim for refund after it is
completed and before it is presented to the taxpayer (or nontaxable
entity) for signature shall be subject to a penalty of $50 for each
failure, with a maximum of $25,000 per person imposed with respect to
each calendar year, unless it is shown that the failure is due to
reasonable cause and not due to willful neglect.
(2) No more than one penalty of $50 may be imposed under section
6695(c) and paragraph (c)(1) of this section with respect to a single
return or claim for refund.
(d) Failure to retain copy or record. (1) A person who is a signing
tax return preparer as described in Sec. 301.7701-15(b)(1) of this
chapter of any return of tax under the Code or claim for refund of tax
under the Code, and who fails to satisfy the requirements imposed upon
him or her by section 6107(b) and Sec. 1.6107-1(b) and (c) (other than
the record requirement described in both Sec. 1.6107-1(b)(2) and (3))
to retain and make available for inspection a copy of the return or
claim for refund, or to include the return or claim for refund in a
record of returns and claims for refund and make the record available
for inspection, shall be subject to a penalty of $50 for the failure,
unless it is shown that the failure is due to reasonable cause and not
due to willful neglect.
(2) A person may not, for returns or claims for refund presented to
the
[[Page 34579]]
taxpayers (or nontaxable entities) during any single return period, be
subject to more than $25,000 in penalties under section 6695(d) and
paragraph (d)(1) of this section.
(e) Failure to file correct information returns. A person who is
subject to the reporting requirements of section 6060 and Sec. 1.6060-
1 and who fails to satisfy these requirements shall pay a penalty of
$50 for each such failure, with a maximum of $25,000 per person imposed
for each calendar year, unless such failure was due to reasonable cause
and not due to willful neglect.
(f) Negotiation of check. (1) No person who is a tax return
preparer as described in Sec. 301.7701-15 of this chapter may endorse
or otherwise negotiate, directly or through an agent, a check for the
refund of tax under the Code that is issued to a taxpayer other than
the tax return preparer if the person was a tax return preparer of the
return or claim for refund which gave rise to the refund check.
(2) Section 6695(f) and paragraphs (f)(1) and (3) of this section
do not apply to a tax return preparer-bank that--
(i) Cashes a refund check and remits all of the cash to the
taxpayer or accepts a refund check for deposit in full to a taxpayer's
account, so long as the bank does not initially endorse or negotiate
the check (unless the bank has made a loan to the taxpayer on the basis
of the anticipated refund); or
(ii) Endorses a refund check for deposit in full to a taxpayer's
account pursuant to a written authorization of the taxpayer (unless the
bank has made a loan to the taxpayer on the basis of the anticipated
refund).
(3) A tax return preparer-bank may also subsequently endorse or
negotiate a refund check as a part of the check-clearing process
through the financial system after initial endorsement or negotiation.
(4) The tax return preparer shall be subject to a penalty of $500
for each endorsement or negotiation of a check prohibited under section
6695(f) and paragraph (f)(1) of this section.
(g) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 11. Section 1.6695-2 is amended by revising the section
heading and paragraphs (a), (b)(3), (c) and (d) to read as follows:
Sec. 1.6695-2 Tax return preparer due diligence requirements for
determining earned income credit eligibility.
(a) Penalty for failure to meet due diligence requirements. A
person who is a signing tax return preparer of a tax return or claim
for refund under the Internal Revenue Code with respect to determining
the eligibility for, or the amount of, the earned income credit (EIC)
under section 32 and who fails to satisfy the due diligence
requirements of paragraph (b) of this section will be subject to a
penalty of $100 for each such failure.
(b) * * *
(3) Knowledge--(i) In general. The tax return preparer must not
know, or have reason to know, that any information used by the tax
return preparer in determining the taxpayer's eligibility for, or the
amount of, the EIC is incorrect. The tax return preparer may not ignore
the implications of information furnished to, or known by, the tax
return preparer, and must make reasonable inquiries if the information
furnished to the tax return preparer appears to be incorrect,
inconsistent, or incomplete. A tax return preparer must make reasonable
inquiries if a reasonable and well-informed tax return preparer
knowledgeable in the law would conclude that the information furnished
to the tax return preparer appears to be incorrect, inconsistent, or
incomplete. The tax return preparer must also contemporaneously
document in the files the reasonable inquiries made and the responses
to these inquiries.
(ii) Examples. The provisions of paragraph (b)(3)(i) of this
section are illustrated by the following examples:
Example 1. A 22 year-old taxpayer wants to claim two sons, ages
10 and 11, as qualifying children for purposes of the EIC. Preparer
A must make additional reasonable inquiries regarding the
relationship between the taxpayer and the children as the age of the
taxpayer appears inconsistent with the ages of the children claimed
as sons.
Example 2. An 18 year-old female taxpayer with an infant has
$3,000 in earned income and states that she lives with her parents.
Taxpayer wants to claim the infant as a qualifying child for the
EIC. This information appears incomplete and inconsistent because
the taxpayer lives with her parents and earns very little income.
Preparer B must make additional reasonable inquires to determine if
the taxpayer is the qualifying child of her parents and, therefore,
ineligible to claim the EIC.
Example 3. In March 2008, Mr. D has Preparer C prepare his tax
year 2007 return using Married Filing Separate filing status, and an
address of 25 Main Street, Mytown, Mystate. Two weeks later Mrs. D
has C prepare her tax year 2007 return, and she asks C to use the
Head of Household filing status, claiming two qualifying children,
and the EIC. She tells C that her address is 25 Main Street, Mytown,
Mystate. Mrs. D's filing status appears incorrect based on the
filing status used by Mr. D. Therefore, C must make additional
reasonable inquiries to determine Mrs. D's proper filing status.
Example 4. Taxpayer asks Preparer E to prepare her tax return
and tells D that she has a Schedule C business, that she has two
qualifying children and that she wants to claim the EIC. Taxpayer
indicates that she earned $10,000 from her Schedule C business, but
that she has no expenses. This information appears incomplete
because it is very unlikely that someone who is self-employed has no
business expenses. E must make additional reasonable inquiries
regarding taxpayer's business to determine whether the information
regarding both income and expenses is correct.
(c) Exception to penalty. The section 6695(g) penalty will not be
applied with respect to a particular tax return or claim for refund if
the tax return preparer can demonstrate to the satisfaction of the
Internal Revenue Service that, considering all the facts and
circumstances, the tax return preparer's normal office procedures are
reasonably designed and routinely followed to ensure compliance with
the due diligence requirements of paragraph (b) of this section, and
the failure to meet the due diligence requirements of paragraph (b) of
this section with respect to the particular return or claim for refund
was isolated and inadvertent.
(d) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 12. Section 1.6696-1 is revised to read as follows:
Sec. 1.6696-1 Claims for credit or refund by tax return preparers or
appraisers.
(a) Notice and demand. (1) The Internal Revenue Service (IRS) shall
issue to each tax return preparer or appraiser one or more statements
of notice and demand for payment for all penalties assessed against the
tax return preparer or appraiser under section 6694 and Sec. 1.6694-1,
under section 6695 and Sec. 1.6695-1, or under section 6695A (and any
subsequently issued regulations).
(2) For the definition of the term ``tax return preparer,'' see
section 7701(a)(36) and Sec. 301.7701-15 of this chapter. A person who
prepares a claim for credit or refund under this section for another
person, however, is not, with respect to that preparation, a tax return
preparer as defined in section 7701(a)(36) and Sec. 301.7701-15 of
this chapter.
(b) Claim filed by tax return preparer or appraiser. A claim for
credit or refund of a penalty (or penalties) assessed against a tax
return preparer or appraiser under section 6694 and Sec. 1.6694-1,
under section 6695 and Sec. 1.6695-1, or under section 6695A (and
[[Page 34580]]
any subsequently issued regulations) may be filed under this section
only by the tax return preparer or the appraiser (or the tax return
preparer's or appraiser's estate) against whom the penalty (or
penalties) is assessed and not by, for example, the tax return
preparer's or appraiser's employer. This paragraph (b) is not intended,
however, to impose any restrictions on the preparation of this claim
for credit or refund. The claim may be prepared by the tax return
preparer's or appraiser's employer or by other persons. In all cases,
however, the claim for credit or refund shall contain the information
specified in paragraph (d) of this section and, as required by
paragraph (d) of this section, shall be verified by a written
declaration by the tax return preparer or appraiser that the
information is provided under penalty of perjury.
(c) Separation and consolidation of claims. (1) Unless paragraph
(c)(2) of this section applies, a tax return preparer shall file a
separate claim for each penalty assessed in each statement of notice
and demand issued to the tax return preparer.
(2) A tax return preparer may file one or more consolidated claims
for any or all penalties imposed on the tax return preparer by a single
IRS Office under section 6695(a) and Sec. 1.6695-1(a) (relating to
failure to furnish copy of return to taxpayer), section 6695(b) and
Sec. 1.6695-1(b) (relating to failure to sign), section 6695(c) and
Sec. 1.6695-1(c) (relating to failure to furnish identifying number),
or under section 6695(d) and Sec. 1.6695-1(d) (relating to failure to
retain copy of return or record), whether the penalties are asserted on
a single or on separate statements of notice and demand. In addition, a
tax return preparer may file one consolidated claim for any or all
penalties imposed on the tax return preparer by a single IRS Office
under section 6695(e) and Sec. 1.6695-1(e) (relating to failure to
file correct information return), which are asserted on a single
statement of notice and demand.
(d) Content of claim. Each claim for credit or refund for any
penalty (or penalties) paid by a tax return preparer under section 6694
and Sec. 1.6694-1, or under section 6695 and Sec. 1.6695-1, or paid
by an appraiser under section 6695A (and any subsequently issued
regulations) shall include the following information, verified by a
written declaration by the tax return preparer or appraiser that the
information is provided under penalty of perjury:
(1) The tax return preparer's or appraiser's name.
(2) The tax return preparer's or appraiser's identification number.
If the tax return preparer or appraiser is--
(i) An individual (not described in paragraph (d)(2)(iii) of this
section) who is a citizen or resident of the United States, the tax
return preparer's or appraiser's social security account number (or
such alternative number as may be prescribed by the IRS in forms,
instructions, or other appropriate guidance) shall be provided;
(ii) An individual who is not a citizen or resident of the United
States and also was not employed by another tax return preparer or
appraiser to prepare the document (or documents) with respect to which
the penalty (or penalties) was assessed, the tax return preparer's or
appraiser's employer identification number shall be provided; or
(iii) A person (whether an individual, corporation, or partnership)
that employed one or more persons to prepare the document (or
documents) with respect to which the penalty (or penalties) was
assessed, the tax return preparer's or appraiser's employer
identification number shall be provided.
(3) The tax return preparer's or appraiser's address where the IRS
mailed the statement (or statements) of notice and demand and, if
different, the tax return preparer's or appraiser's address shown on
the document (or documents) with respect to which the penalty (or
penalties) was assessed.
(4)(i) The address of the IRS campus or office that issued the
statement (or statements) of notice and demand for payment of the
penalty (or penalties).
(ii) The date (or dates) and identifying number (or numbers) of the
statement (or statements) of notice and demand.
(5)(i) The identification, by amount, type, and document to which
related, of each penalty included in the claim. Each document referred
to in the preceding sentence shall be identified by the form title or
number, by the taxpayer's (or nontaxable entity's) name and taxpayer
identification number, and by the taxable year to which the document
relates.
(ii) The date (or dates) of payment of the amount (or amounts) of
the penalty (or penalties) included in the claim.
(iii) The total amount claimed.
(6) A statement setting forth in detail--
(i) Each ground upon which each penalty overpayment claim is based;
and
(ii) Facts sufficient to apprise the IRS of the exact basis of each
such claim.
(e) Form for filing claim. Notwithstanding Sec. 301.6402(c) of
this chapter, Form 6118, ``Claim for Refund of Tax Return Preparer
Penalties,'' is the form prescribed for making a claim as provided in
this section.
(f) Place for filing claim. A claim filed under this section shall
be filed with the IRS campus or office that issued to the tax return
preparer or appraiser the statement (or statements) of notice and
demand for payment of the penalty (or penalties) included in the claim.
(g) Time for filing claim. (1)(i) Except as provided in section
6694(c)(1) and Sec. 1.6694-2(a)(3)(ii) and (4), and in section 6694(d)
and Sec. 1.6694-1(c):
(A) A claim for a penalty paid by a tax return preparer under
section 6694 and Sec. 1.6694-1, or under section 6695 and Sec.
1.6695-1, or by a appraiser under section 6695A (and any subsequently
issued regulations) shall be filed within three years from the date the
payment was made.
(B) A consolidated claim, permitted under paragraph (c)(2) of this
section, shall be filed within three years from the first date of
payment of any penalty included in the claim.
(ii) For purposes of this paragraph (g)(1), payment is considered
made on the date payment is received by the IRS or, if applicable, on
the date an amount is credited in satisfaction of the penalty.
(2) For purposes of determining whether a claim is timely filed,
the rules under sections 7502 and 7503 and the provisions of Sec. Sec.
1.7502-1, 1.7502-2, and 1.7503-1 apply.
(h) Application of refund to outstanding liability of tax return
preparer or appraiser. The IRS may, within the applicable period of
limitations, credit any amount of an overpayment by a tax return
preparer or appraiser of a penalty (or penalties) paid under section
6694 and Sec. 1.6694-1, under section 6695 and Sec. 1.6695-1, or
under section 6695A (and any subsequently issued regulations) against
any outstanding liability for any tax (or for any interest, additional
amount, addition to the tax, or assessable penalty) owed by the tax
return preparer or appraiser making the overpayment. If a portion of an
overpayment is so credited, only the balance will be refunded to the
tax return preparer or appraiser.
(i) Interest. (1) Section 6611 and Sec. 301.6611-1 of this chapter
apply to the payment by the IRS of interest on an overpayment by a tax
return preparer or appraiser of a penalty (or penalties) paid under
section 6694 and Sec. 1.6694-1, under section 6695 and Sec. 1.6695-1,
or under section 6695A (and any subsequently issued regulations).
(2) Section 6601 and Sec. 301.6601-1 of this chapter apply to the
payment of interest by a tax return preparer or appraiser to the IRS on
any penalty (or
[[Page 34581]]
penalties) assessed against the tax return preparer under section 6694
and Sec. 1.6694-1, under section 6695 and Sec. 1.6695-1, or under
section 6695A (and any subsequently issued regulations).
(j) Suits for refund of penalty. (1) A tax return preparer or
appraiser may not maintain a civil action for the recovery of any
penalty paid under section 6694 and Sec. 1.6694-1, under section 6695
and Sec. 1.6695-1, or under section 6695A (and any subsequently issued
regulations), unless the tax return preparer or appraiser has
previously filed a claim for credit or refund of the penalty as
provided in this section (and the court has jurisdiction of the
proceeding). See sections 6694(c) and 7422.
(2)(i) Except as provided in section 6694(c)(2) and Sec. 1.6694-
2(b), the periods of limitation contained in section 6532 and Sec.
301.6532-1 of this chapter apply to a tax return preparer's or
appraiser's suit for the recovery of any penalty paid under section
6694 and Sec. 1.6694-1, under section 6695 and Sec. 1.6695-1, or
under section 6695A (and any subsequently issued regulations).
(ii) The rules under section 7503 and Sec. 301.7503-1 of this
chapter apply to the timely commencement by a tax return preparer or
appraiser of a suit for the recovery of any penalty paid under section
6694 and Sec. 1.6694-1, under section 6695 and Sec. 1.6695-1, or
under section 6695A (and any subsequently issued regulations).
(k) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
PART 20--ESTATE TAX; ESTATES OF DECEDENTS DYING AFTER AUGUST 16,
1954
Par. 13. The authority citation for part 20 is amended by adding
entries in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 20.6060-1 also issued under 26 U.S.C. 6060(a). * * *
Section 20.6109-2 also issued under 26 U.S.C. 6109(a). * * *
Section 20.6695-1 also issued under 26 U.S.C. 6695(b). * * *
Section 20.6695-2 also issued under 26 U.S.C. 6695(g). * * *
Par. 14. Section 20.6060-1 is added to read as follows:
Sec. 20.6060-1 Reporting requirements for tax return preparers.
(a) In general. A person that employs (or engages) one or more tax
return preparers to prepare a return or claim for refund of estate tax
under chapter 11 of subtitle B of the Internal Revenue Code, other than
for the person, at any time during a return period, shall satisfy the
recordkeeping and inspection requirements in the manner stated in Sec.
1.6060-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 15. Section 20.6107-1 is added to read as follows:
Sec. 20.6107-1 Tax return preparer must furnish copy of return to
taxpayer and must retain a copy or record.
(a) In general. A person who is a signing tax return preparer of
any return or claim for refund of estate tax under chapter 11 of
subtitle B of the Internal Revenue Code shall furnish a completed copy
of the return or claim for refund to the estate, and retain a completed
copy or record in the manner stated in Sec. 1.6107-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 16. Section 20.6109-1 is added to read as follows:
Sec. 20.6109-1 Tax return preparers furnishing identifying numbers
for returns or claims for refund.
(a) In general. Each estate tax return or claim for refund prepared
by one or more signing tax return preparers must include the
identifying number of the preparer required by Sec. 1.6695-1(b) of
this chapter to sign the return or claim for refund in the manner
stated in Sec. 1.6109-2 of this chapter.
(b) Effective/applicability date. Paragraph (a) of this section is
applicable to returns and claims for refund filed after the date that
final regulations are published in the Federal Register.
Par. 17. Section 20.6694-1 is added to read as follows:
Sec. 20.6694-1 Section 6694 penalties applicable to tax return
preparer.
(a) In general. For general definitions regarding section 6694
penalties applicable to preparers of estate tax returns or claims see
Sec. 1.6694-1 of this chapter.
(b) Effective/applicability date. Paragraph (a) of this section is
applicable to returns and claims for refund filed, and advice provided,
after the date that final regulations are published in the Federal
Register.
Par. 18. Section 20.6694-2 is added to read as follows:
Sec. 20.6694-2 Penalties for understatement due to an unreasonable
position.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of estate tax under chapter 11 of subtitle B of the
Internal Revenue Code (Code) shall be subject to penalties under
section 6694(a) of the Code in the manner stated in Sec. 1.6694-2 of
this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 19. Section 20.6694-3 is added to read as follows:
Sec. 20.6694-3 Penalty for understatement due to willful, reckless,
or intentional conduct.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of estate tax under chapter 11 of subtitle B of the
Internal Revenue Code (Code) shall be subject to penalties under
section 6694(b) of the Code in the manner stated in Sec. 1.6694-3 of
this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 20. Section 20.6694-4 is added to read as follows:
Sec. 20.6694-4 Extension of period of collection when preparer pays
15 percent of a penalty for understatement of taxpayer's liability and
certain other procedural matters.
(a) In general. For rules relating to the extension of the period
of collection when a tax return preparer who prepared a return or claim
for refund for estate tax under chapter 11 of subtitle B of the
Internal Revenue Code pays 15 percent of a penalty for understatement
of the taxpayer's liability, and procedural matters relating to the
investigation, assessment and collection of the penalties under
sections 6694(a) and (b), the rules under Sec. 1.6694-4 of this
chapter will apply.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 21. Section 20.6695-1 is added to read as follows:
Sec. 20.6695-1 Other assessable penalties with respect to the
preparation of tax returns for other persons.
(a) In general. A person who is a tax return preparer of any return
or claim
[[Page 34582]]
for refund of estate tax under chapter 11 of subtitle B of the Internal
Revenue Code (Code) shall be subject to penalties for failure to
furnish a copy to the taxpayer under section 6695(a) of the Code,
failure to sign the return under section 6695(b) of the Code, failure
to furnish an identification number under section 6695(c) of the Code,
failure to retain a copy or list under section 6695(d) of the Code,
failure to file a correct information return under section 6695(e) of
the Code, and negotiation of a check under section 6695(f) of the Code,
in the manner stated in Sec. 1.6695-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 22. Section 20.6696-1 is added to read as follows:
Sec. 20.6696-1 Claims for credit or refund by tax return preparers or
appraisers.
(a) In general. For rules for claims for credit or refund by a tax
return preparer who prepared a return or claim for refund for estate
tax under chapter 11 of subtitle B of the Internal Revenue Code, or by
an appraiser that prepared an appraisal in connection with such a
return or claim for refund under section 6695A, the rules under Sec.
1.6696-1 of this chapter will apply.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 23. Section 20.7701-1 is added to read as follows:
Sec. 20.7701-1 Tax return preparer.
(a) In general. For the definition of a tax return preparer, see
Sec. 301.7701-15 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
PART 25--GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954
Par. 24. The authority citation for part 25 is amended by adding
entries in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 25.6060-1 also issued under 26 U.S.C. 6060(a). * * *
Section 25.6109-2 also issued under 26 U.S.C. 6109(a). * * *
Section 25.6695-1 also issued under 26 U.S.C. 6695(b). * * *
Section 25.6695-2 also issued under 26 U.S.C. 6695(g). * * *
Par. 25. Section 25.6060-1 is added to read as follows:
Sec. 25.6060-1 Reporting requirements for tax return preparers.
(a) In general. A person that employs (or engages) one or more tax
return preparers to prepare a return or claim for refund of gift tax
under chapter 12 of subtitle B of the Internal Revenue Code, other than
for the person, at any time during a return period, shall satisfy the
record keeping and inspection requirements in the manner stated in
Sec. 1.6060-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 26. Section 25.6107-1 is added to read as follows:
Sec. 25.6107-1 Tax return preparer must furnish copy of return to
taxpayer and must retain a copy or record.
(a) In general. A person who is a signing tax return preparer of
any return or claim for refund of gift tax under chapter 12 of subtitle
B of the Internal Revenue Code shall furnish a completed copy of the
return or claim for refund to the taxpayer, and retain a completed copy
or record in the manner stated in Sec. 1.6107-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 27. Section 25.6109-1 is added to read as follows:
Sec. 25.6109-1 Tax return preparers furnishing identifying numbers
for returns or claims for refund.
(a) In general. Each gift tax return or claim for refund prepared
by one or more signing tax return preparers must include the
identifying number of the preparer required by Sec. 1.6695-1(b) of
this chapter to sign the return or claim for refund in the manner
stated in Sec. 1.6109-2 of this chapter.
(b) Effective/applicability date. Paragraph (a) of this section is
applicable to returns and claims for refund filed after the date that
final regulations are published in the Federal Register.
Par. 28. Section 25.6694-1 is added to read as follows:
Sec. 25.6694-1 Section 6694 penalties applicable to tax return
preparer.
(a) In general. For general definitions regarding section 6694
penalties applicable to preparers of gift tax returns or claims see
Sec. 1.6694-1 of this chapter.
(b) Effective/applicability date. Paragraph (a) of this section is
applicable to returns and claims for refund filed, and advice provided,
after the date that final regulations are published in the Federal
Register.
Par. 29. Section 25.6694-2 is added to read as follows:
Sec. 25.6694-2 Penalties for understatement due to an unreasonable
position.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of gift tax under chapter 12 of subtitle B of the
Internal Revenue Code (Code) shall be subject to penalties under
section 6694(a) of the Code in the manner stated in Sec. 1.6694-2 of
this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 30. Section 25.6694-3 is added to read as follows:
Sec. 25.6694-3 Penalty for understatement due to willful, reckless,
or intentional conduct.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of gift tax under chapter 12 of subtitle B of the
Internal Revenue Code (Code) shall be subject to penalties under
section 6694(b) of the Code in the manner stated in Sec. 1.6694-3 of
this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 31. Section 25.6694-4 is added to read as follows:
Sec. 25.6694-4 Extension of period of collection when tax return
preparer pays 15 percent of a penalty for understatement of taxpayer's
liability and certain other procedural matters.
(a) In general. For rules for the extension of period of collection
when a tax return preparer who prepared a return or claim for refund
for gift tax under chapter 12 of subtitle B of the Internal Revenue
Code pays 15 percent of a penalty for understatement of taxpayer's
liability, and procedural matters relating to the investigation of ,
assessment and collection of the penalties under section 6694(a) and
(b), the rules under Sec. 1.6694-4 of this chapter will apply.
(b) Effective/applicability date. This section is applicable to
returns and
[[Page 34583]]
claims for refund filed, and advice provided, after the date that final
regulations are published in the Federal Register.
Par. 32. Section 25.6695-1 is added to read as follows:
Sec. 25.6695-1 Other assessable penalties with respect to the
preparation of tax returns for other persons.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of gift tax under chapter 12 of subtitle B of the
Internal Revenue Code (Code) shall be subject to penalties for failure
to furnish a copy to the taxpayer under section 6695(a) of the Code,
failure to sign the return under section 6695(b) of the Code, failure
to furnish an identification number under section 6695(c) of the Code,
failure to retain a copy or list under section 6695(d) of the Code,
failure to file a correct information return under section 6695(e) of
the Code, and negotiation of a check under section 6695(f) of the Code,
in the manner stated in Sec. 1.6695-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 33. Section 25.6696-1 is added to read as follows:
Sec. 25.6696-1 Claims for credit or refund by tax return preparers.
(a) In general. For rules for claims for credit or refund by a tax
return preparer who prepared a return or claim for refund for gift tax
under chapter 12 of subtitle B of the Internal Revenue Code, or by an
appraiser that prepared an appraisal in connection with such a return
or claim for refund under section 6695A, the rules under Sec. 1.6696-1
of this chapter will apply.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 34. Section 25.7701-1 is added to read as follows:
Sec. 25.7701-1 Tax return preparer.
(a) In general. For the definition of a tax return preparer, see
Sec. 301.7701-15 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
PART 26--GENERATION-SKIPPING TRANSFER TAX REGULATIONS UNDER THE TAX
REFORM ACT OF 1986
Par. 35. The authority citation for part 26 is amended by adding
entries in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 26.6060-1 also issued under 26 U.S.C. 6060(a).* * *
Section 26.6109-2 also issued under 26 U.S.C. 6109(a).* * *
Section 26.6695-1 also issued under 26 U.S.C. 6695(b).* * *
Section 26.6695-2 also issued under 26 U.S.C. 6695(g).* * *
Par. 36. Section 26.6060-1 is added to read as follows:
Sec. 26.6060-1 Reporting requirements for tax return preparers.
(a) In general. A person that employs (or engages) one or more tax
return preparers to prepare a return or claim for refund of generation-
skipping transfer tax under chapter 13 of subtitle B of the Internal
Revenue Code, other than for the person, at any time during a return
period, shall satisfy the record keeping and inspection requirements in
the manner stated in Sec. 1.6060-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 37. Section 26.6107-1 is added to read as follows:
Sec. 26.6107-1 Tax return preparer must furnish copy of return to
taxpayer and must retain a copy or record.
(a) In general. A person who is a signing tax return preparer of
any return or claim for refund of generation-skipping transfer tax
under chapter 13 of subtitle B of the Internal Revenue Code shall
furnish a completed copy of the return or claim for refund to the
estate, and retain a completed copy or record in the manner stated in
Sec. 1.6107-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 38. Section 26.6109-1 is added to read as follows:
Sec. 26.6109-1 Tax return preparers furnishing identifying numbers
for returns or claims for refund.
(a) In general. Each generation-skipping transfer tax return or
claim for refund prepared by one or more signing tax return preparers
must include the identifying number of the preparer required by Sec.
1.6695-1(b) of this chapter to sign the return or claim for refund in
the manner stated in Sec. 1.6109-2 of this chapter.
(b) Effective/applicability date. Paragraph (a) of this section is
applicable to returns and claims for refund filed after the date that
final regulations are published in the Federal Register.
Par. 39. Section 26.6694-1 is added to read as follows:
Sec. 26.6694-1 Section 6694 penalties applicable to tax return
preparer.
(a) In general. For general definitions regarding section 6694
penalties applicable to preparers of generation-skipping transfer tax
returns or claims see Sec. 1.66994-1 of this chapter.
(b) Effective/applicability date. Paragraph (a) of this section is
applicable to returns and claims for refund filed, and advice provided,
after the date that final regulations are published in the Federal
Register.
Par. 40. Section 26.6694-2 is added to read as follows:
Sec. 26.6694-2 Penalties for understatement due to an unreasonable
position.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of generation-skipping transfer tax under chapter
13 of subtitle B of the Internal Revenue Code (Code) shall be subject
to penalties under section 6694(a) of the Code in the manner stated in
Sec. 1.6694-2 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 41. Section 26.6694-3 is added to read as follows:
Sec. 26.6694-3 Penalty for understatement due to willful, reckless,
or intentional conduct.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of generation-skipping transfer tax under chapter
13 of subtitle B of the Internal Revenue Code (Code) shall be subject
to penalties under section 6694(b) of the Code in the manner stated in
Sec. 1.6694-3 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 42. Section 26.6694-4 is added to read as follows:
[[Page 34584]]
Sec. 26.6694-4 Extension of period of collection when preparer pays
15 percent of a penalty for understatement of taxpayer's liability and
certain other procedural matters.
(a) In general. For rules relating to the extension of period of
collection when a tax return preparer who prepared a return or claim
for refund for generation-skipping transfer tax under chapter 13 of
subtitle B of the Internal Revenue Code pays 15 percent of a penalty
for understatement of taxpayer's liability, and procedural matters
relating to the investigation, assessment and collection of the
penalties under section 6694(a) and (b), the rules under Sec. 1.6694-4
of this chapter will apply.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 43. Section 26.6695-1 is added to read as follows:
Sec. 26.6695-1 Other assessable penalties with respect to the
preparation of tax returns for other persons.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of generation-skipping transfer tax under chapter
13 of subtitle B of the Internal Revenue Code (Code) shall be subject
to penalties for failure to a furnish copy to the taxpayer under
section 6695(a) of the Code, failure to sign the return under section
6695(b) of the Code, failure to furnish an identification number under
section 6695(c) of the Code, failure to retain a copy or list under
section 6695(d) of the Code, failure to file a correct information
return under section 6695(e) of the Code, and negotiation of a check
under section 6695(f) of the Code, in the manner stated in Sec.
1.6695-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 44. Section 26.6696-1 is added to read as follows:
Sec. 26.6696-1 Claims for credit or refund by tax return preparers.
(a) In general. For rules for claims for credit or refund by a tax
return preparer who prepared a return or claim for refund for
generation-skipping transfer tax under chapter 13 of subtitle B of the
Internal Revenue Code, or by an appraiser that prepared an appraisal in
connection with such a return or claim for refund under section 6695A,
the rules under Sec. 1.6696-1 of this chapter will apply.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 45. Section 26.7701-1 is added to read as follows:
Sec. 26.7701-1 Tax return preparer.
(a) In general. For the definition of a tax return preparer, see
Sec. 301.7701-15 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT THE
SOURCE
Par. 46. The authority citation for part 31 is amended by adding
entries in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 31.6060-1 also issued under 26 U.S.C. 6060(a). * * *
Section 31.6109-2 also issued under 26 U.S.C. 6109(a). * * *
Section 31.6695-1 also issued under 26 U.S.C. 6695(b). * * *
Section 31.6695-2 also issued under 26 U.S.C. 6695(g). * * *
Par. 47. Section 31.6060-1 is added to read as follows:
Sec. 31.6060-1 Reporting requirements for tax return preparers.
(a) In general. A person that employs (or engages) one or more tax
return preparers to prepare a return or claim for refund of employment
tax under chapters 21 through 25 of subtitle C of the Internal Revenue
Code, other than for the person, at any time during a return period,
shall satisfy the record keeping and inspection requirements in the
manner stated in Sec. 1.6060-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 48. Section 31.6107-1 is added to read as follows:
Sec. 31.6107-1 Tax return preparer must furnish copy of return to
taxpayer and must retain a copy or record.
(a) In general. A person who is a signing tax return preparer of
any return or claim for refund of employment tax under chapters 21
through 25 of subtitle C of the Internal Revenue Code shall furnish a
completed copy of the return or claim for refund to the taxpayer, and
retain a completed copy or record in the manner stated in Sec. 1.6107-
1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 49. Section 31.6109-2 is added to read as follows:
Sec. 31.6109-2 Tax return preparers furnishing identifying numbers
for returns or claims for refund.
(a) In general. Each employment tax return or claim for refund of
employment tax under chapters 21 through 25 of subtitle C of the
Internal Revenue Code prepared by one or more signing tax return
preparers must include the identifying number of the preparer required
by Sec. 1.6695-1(b) of this chapter to sign the return or claim for
refund in the manner stated in Sec. 1.6109-2 of this chapter.
(b) Effective/applicability date. Paragraph (a) of this section is
applicable to returns and claims for refund filed after the date that
final regulations are published in the Federal Register.
Par. 50. Section 31.6694-1 is added to read as follows:
Sec. 31.6694-1 Section 6694 penalties applicable to tax return
preparer.
(a) In general. For general definitions regarding section 6694
penalties applicable to preparers of employment tax returns or claims
of employment tax under chapters 21 through 25 of subtitle C of the
Internal Revenue Code, see Sec. 1.6694-1 of this chapter.
(b) Effective/applicability date. Paragraph (a) of this section is
applicable to returns and claims for refund filed, and advice provided,
after the date that final regulations are published in the Federal
Register.
Par. 51. Section 31.6694-2 is added to read as follows:
Sec. 31.6694-2 Penalties for understatement due to an unreasonable
position.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of employment tax under chapters 21 through 25 of
subtitle C of the Internal Revenue Code (Code) shall be subject to
penalties under section 6694(a) of the Code in the manner stated in
Sec. 1.6694-2 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
[[Page 34585]]
Par. 52. Section 31.6694-3 is added to read as follows:
Sec. 31.6694-3 Penalty for understatement due to willful, reckless,
or intentional conduct.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of employment tax under chapters 21 through 25 of
subtitle C of the Internal Revenue Code (Code) shall be subject to
penalties under section 6694(b) of the Code in the manner stated in
1.6694-3 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 53. Section 31.6694-4 is added to read as follows:
Sec. 31.6694-4 Extension of period of collection when tax return
preparer pays 15 percent of a penalty for understatement of taxpayer's
liability and certain other procedural matters.
(a) In general. For rules relating to the extension of period of
collection when a tax return preparer who prepared a return or claim
for refund for employment tax under chapters 21 through 25 of subtitle
C of the Internal Revenue Code pays 15 percent of a penalty for
understatement of taxpayer's liability, and procedural matters relating
to the investigation, assessment and collection of the penalties under
section 6694(a) and (b), the rules under Sec. 1.6694-4 of this chapter
will apply.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 54. Section 31.6695-1 is added to read as follows:
Sec. 31.6695-1 Other assessable penalties with respect to the
preparation of tax returns for other persons.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of employment tax under chapters 21 through 25 of
subtitle C of the Internal Revenue Code (Code) shall be subject to
penalties for failure to furnish a copy to the taxpayer under section
6695(a) of the Code, failure to sign the return under section 6695(b)
of the Code, failure to furnish an identification number under section
6695(c) of the Code, failure to retain a copy or list under section
6695(d) of the Code, failure to file a correct information return under
section 6695(e) of the Code, and negotiation of a check under section
6695(f) of the Code, in the manner stated in Sec. 1.6695-1 of this
chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 55. Section 31.6696-1 is added to read as follows:
Sec. 31.6696-1 Claims for credit or refund by tax return preparers.
(a) In general. For rules for claims for credit or refund by a tax
return preparer who prepared a return or claim for refund for
employment tax under chapters 21 through 25 of subtitle C of the
Internal Revenue Code, the rules under Sec. 1.6696-1 of this chapter
will apply.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 56. Section 31.7701-1 is added to read as follows:
Sec. 31.7701-1 Tax return preparer.
(a) In general. For the definition of a tax return preparer, see
Sec. 301.7701-15 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
PART 40--EXCISE TAX PROCEDURAL REGULATIONS
Par. 57. The authority citation for part 40 is amended by adding
entries in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 40.6060-1 also issued under 26 U.S.C. 6060(a). * * *
Section 40.6109-2 also issued under 26 U.S.C. 6109(a). * * *
Section 40.6695-1 also issued under 26 U.S.C. 6695(b). * * *
Section 40.6695-2 also issued under 26 U.S.C. 6695(g). * * *
Par. 58. Section 40.6060-1 is added to read as follows:
Sec. 40.6060-1 Reporting requirements for tax return preparers.
(a) In general. A person that employs (or engages) one or more tax
return preparers to prepare a return or claim for refund of excise tax
under chapters 31, 32 (other than section 4181), 33, 34, 36 (other than
section 4461), 38, and 39 of subtitle D of the Internal Revenue Code,
other than for the person, at any time during a return period, shall
satisfy the recordkeeping and inspection requirements in the manner
stated in Sec. 1.6060-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 59. Section 40.6107-1 is added to read as follows:
Sec. 40.6107-1 Tax return preparer must furnish copy of return to
taxpayer and must retain a copy or record.
(a) In general. A person who is a signing tax return preparer of
any return or claim for refund of excise tax under chapters 31, 32
(other than section 4181), 33, 34, 36 (other than section 4461), 38,
and 39 of subtitle D of the Internal Revenue Code shall furnish a
completed copy of the return or claim for refund to the taxpayer, and
retain a completed copy or record in the manner stated in Sec. 1.6107-
1 of this chapter.
(b) Effective/applicability date. This section is applicable for
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 60. Section 40.6109-1 is added to read as follows:
Sec. 40.6109-1 Tax return preparers furnishing identifying numbers
for returns or claims for refund.
(a) In general. Each return or claim for refund of excise tax under
chapters 31, 32 (other than section 4181), 33, 34, 36 (other than
section 4461), 38, and 39 of subtitle D of the Internal Revenue Code
prepared by one or more signing tax return preparers must include the
identifying number of the preparer required by Sec. 1.6695-1(b) of
this chapter to sign the return or claim for refund in the manner
stated in Sec. 1.6109-2 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 61. Section 40.6694-1 is added to read as follows:
Sec. 40.6694-1 Section 6694 penalties applicable to tax return
preparer.
(a) In general. For general definitions regarding section 6694
penalties applicable to preparers of returns or claims for refund of
excise tax under chapters 31, 32 (other than section 4181), 33, 34, 36
(other than section 4461), 38, and 39 of subtitle D of the Internal
Revenue Code, see Sec. 1.6694-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice
[[Page 34586]]
provided, after the date that final regulations are published in the
Federal Register.
Par. 62. Section 40.6694-2 is added to read as follows:
Sec. 40.6694-2 Penalties for understatement due to an unreasonable
position.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of excise tax under chapters 31, 32 (other than
section 4181), 33, 34, 36 (other than section 4461), 38, and 39 of
subtitle D of the Internal Revenue Code (Code) shall be subject to
penalties under section 6694(a) of the Code in the manner stated in
Sec. 1.6694-2 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 63. Section 40.6694-3 is added to read as follows:
Sec. 40.6694-3 Penalty for understatement due to willful, reckless,
or intentional conduct.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of excise tax under chapters 31, 32 (other than
section 4181), 33, 34, 36 (other than section 4461), 38, and 39 of
subtitle D of the Internal Revenue Code (Code) shall be subject to
penalties under section 6694(b) of the Code in the manner stated in
Sec. 1.6694-3 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 64. Section 40.6694-4 is added to read as follows:
Sec. 40.6694-4 Extension of period of collection when tax return
preparer pays 15 percent of a penalty for understatement of taxpayer's
liability and certain other procedural matters.
(a) In general. For rules relating to the extension of period of
collection when a tax return preparer who prepared a return or claim
for refund for excise tax under chapters 31, 32 (other than section
4181), 33, 34, 36 (other than section 4461), 38, and 39 of subtitle D
of the Internal Revenue Code pays 15 percent of a penalty for
understatement of taxpayer's liability, and procedural matters relating
to the investigation, assessment and collection of the penalties under
section 6694(a) and (b), the rules under Sec. 1.6694-4 of this chapter
will apply.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 65. Section 40.6695-1 is added to read as follows:
Sec. 40.6695-1 Other assessable penalties with respect to the
preparation of tax returns for other persons.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of excise tax under chapters 31, 32 (other than
section 4181), 33, 34, 36 (other than section 4461), 38, and 39 of
subtitle D of the Internal Revenue Code (Code) shall be subject to
penalties for failure to furnish a copy to the taxpayer under section
6695(a) of the Code, failure to sign the return under section 6695(b)
of the Code, failure to furnish an identification number under section
6695(c) of the Code, failure to retain a copy or list under section
6695(d) of the Code, failure to file a correct information return under
section 6695(e) of the Code, and negotiation of a check under section
6695(f) of the Code, in the manner stated in Sec. 1.6695-1 of this
chapter.
(b) Effective/applicability date. This section is applicable for
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 66. Section 40.6696-1 is added to read as follows:
Sec. 40.6696-1 Claims for credit or refund by tax return preparers.
(a) In general. For rules for claims for credit or refund by a tax
return preparer who prepared a return or claim for refund for excise
tax under chapters 31, 32 (other than section 4181), 33, 34, 36 (other
than section 4461), 38, and 39 of subtitle D of the Internal Revenue
Code, the rules under Sec. 1.6696-1 of this chapter will apply.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 67. Section 40.7701-1 is added to read as follows:
Sec. 40.7701-1 Tax return preparer.
(a) In general. For the definition of a tax return preparer, see
Sec. 301.7701-15 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
PART 41--EXCISE TAX ON USE OF CERTAIN HIGHWAY MOTOR VEHICLES
(a) In general. For the definition of a tax return preparer, see
Sec. 301.7701-15 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
PART 41--EXCISE TAX ON USE OF CERTAIN HIGHWAY MOTOR VEHICLES
Par. 68. The authority citation for part 41 is amended by adding
entries in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 41.6060-1 also issued under 26 U.S.C. 6060(a). * * *
Section 41.6109-2 also issued under 26 U.S.C. 6109(a). * * *
Section 41.6695-1 also issued under 26 U.S.C. 6695(b). * * *
Section 41.6695-2 also issued under 26 U.S.C. 6695(g). * * *
Par. 69. Section 41.6060-1 is added to read as follows:
Sec. 41.6060-1 Reporting requirements for tax return preparers.
(a) In general. A person that employs (or engages) one or more tax
return preparers to prepare a return or claim for refund of excise tax
under section 4481 of the Internal Revenue Code, other than for the
person, at any time during a return period, shall satisfy the record
keeping and inspection requirements in the manner stated in Sec.
1.6060-1 of this chapter.
(b) Effective/applicability date. This section is applicable for
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 70. Section 41.6107-1 is added to read as follows:
Sec. 41.6107-1 Tax return preparer must furnish copy of return to
taxpayer and must retain a copy or record.
(a) In general. A person who is a signing tax return preparer of
any return or claim for refund of excise tax section 4481 of the
Internal Revenue Code shall furnish a completed copy of the return or
claim for refund to the taxpayer, and retain a completed copy or record
in the manner stated in Sec. 1.6107-1 of this chapter.
(b) Effective/applicability date. This section is applicable for
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
[[Page 34587]]
Par. 71. Section 41.6109-2 is added to read as follows:
Sec. 41.6109-2 Tax return preparers furnishing identifying numbers
for returns or claims for refund filed after December 31, 2008.
(a) In general. Each excise tax return or claim for refund under
section 4481 prepared by one or more signing tax return preparers must
include the identifying number of the preparer required by Sec.
1.6695-1(b) of this chapter to sign the return or claim for refund in
the manner stated in Sec. 1.6109-2 of this chapter.
(b) Effective/applicability date. This section is applicable for
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 72. Section 41.6694-1 is added to read as follows:
Sec. 41.6694-1 Section 6694 penalties applicable to tax return
preparer.
(a) In general. For general definitions regarding section 6694
penalties applicable to preparers of tax returns or claims for refund,
see Sec. 1.6694-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 73. Section 41.6694-2 is added to read as follows:
Sec. 41.6694-2 Penalties for understatement due to an unreasonable
position.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of excise tax under section 4481 of the Internal
Revenue Code (Code) shall be subject to penalties under section 6694(a)
of the Code in the manner stated in Sec. 1.6694-2 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 74. Section 41.6694-3 is added to read as follows:
Sec. 41.6694-3 Penalty for understatement due to willful, reckless,
or intentional conduct.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of excise tax under section 4481 of the Internal
Revenue Code (Code) shall be subject to penalties under section 6694(b)
of the Code in the manner stated in Sec. 1.6694-3 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 75. Section 41.6694-4 is added to read as follows:
Sec. 41.6694-4 Extension of period of collection when preparer pays
15 percent of a penalty for understatement of taxpayer's liability and
certain other procedural matters.
(a) In general. For rules relating to the extension of period of
collection when a tax return preparer who prepared a return or claim
for refund for excise tax under section 4481 of the Internal Revenue
Code pays 15 percent of a penalty for understatement of taxpayer's
liability, and procedural matters relating to the investigation,
assessment and collection of the penalties under section 6694(a) and
(b), the rules under Sec. 1.6694-4 of this chapter will apply.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 76. Section 41.6695-1 is added to read as follows:
Sec. 41.6695-1 Other assessable penalties with respect to the
preparation of tax returns for other persons.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of excise tax under section 4481 of the Internal
Revenue Code (Code) shall be subject to penalties for failure to
furnish a copy to the taxpayer under section 6695(a) of the Code,
failure to sign a return under section 6695(b) of the Code, failure to
furnish an identification number under section 6695(c) of the Code,
failure to retain a copy or list under section 6695(d) of the Code,
failure to file a correct information return under section 6695(e) of
the Code, and negotiation of a check under section 6695(f) of the Code,
in the manner stated in Sec. 1.6695-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 77. Section 41.6696-1 is added to read as follows:
Sec. 41.6696-1 Claims for credit or refund by tax return preparers.
(a) In general. For rules for claims for credit or refund by a tax
return preparer who prepared a return or claim for refund for excise
tax under section 4481 of the Internal Revenue Code, the rules under
Sec. 1.6696-1 of this chapter will apply.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 78. Section 41.7701-1 is added to read as follows:
Sec. 41.7701-1 Tax return preparer.
(a) In general. For the definition of a tax return preparer, see
Sec. 301.7701-15 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
PART 44--TAXES ON WAGERING; EFFECTIVE JANUARY 1, 1955
Par. 79. The authority citation for part 44 is amended by adding
entries in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 44.6060-1 also issued under 26 U.S.C. 6060(a). * * *
Section 44.6109-2 also issued under 26 U.S.C. 6109(a). * * *
Section 44.6695-1 also issued under 26 U.S.C. 6695(b). * * *
Section 44.6695-2 also issued under 26 U.S.C. 6695(g). * * *
Par. 80. Section 44.6060-1 is added to read as follows:
Sec. 44.6060-1 Reporting requirements for tax return preparers.
(a) In general. A person that employs (or engages) one or more tax
return preparers to prepare a return or claim for refund of tax on
wagers under sections 4401 or 4411 of the Internal Revenue Code, other
than for the person, at any time during a return period, shall satisfy
the record keeping and inspection requirements in the manner stated in
Sec. 1.6060-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 81. Section 44.6107-1 is added to read as follows:
Sec. 44.6107-1 Tax return preparer must furnish copy of return to
taxpayer and must retain a copy or record.
(a) In general. A person who is a signing tax return preparer of
any return or claim for refund of tax on wagers under sections 4401 or
4411 of the
[[Page 34588]]
Internal Revenue Code shall furnish a completed copy of the return or
claim for refund to the taxpayer, and retain a completed copy or record
in the manner stated in Sec. 1.6107-1 of this chapter.
(b) Effective/applicability date. This section is applicable for
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 82. Section 44.6109-1 is added to read as follows:
Sec. 44.6109-1 Tax return preparers furnishing identifying numbers
for returns or claims for refund.
(a) In general. Each tax return or claim for refund of tax under
sections 4401 or 4411 prepared by one or more signing tax return
preparers must include the identifying number of the preparer required
by Sec. 1.6695-1(b) of this chapter to sign the return or claim for
refund in the manner stated in Sec. 1.6109-2 of this chapter.
(b) Effective/applicability date. This section is applicable for
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 83. Section 44.6694-1 is added to read as follows:
Sec. 44.6694-1 Section 6694 penalties applicable to tax return
preparer.
(a) In general. For general definitions regarding section 6694
penalties applicable to preparers of wagering tax returns or claims for
refund under sections 4401 or 4411, see Sec. 1.6694-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 84. Section 44.6694-2 is added to read as follows:
Sec. 44.6694-2 Penalties for understatement due to an unreasonable
position.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of tax on wagers under sections 4401 or 4411 of the
Internal Revenue Code (Code) shall be subject to penalties under
section 6694(a) of the Code in the manner stated in Sec. 1.6694-2 of
this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 85. Section 44.6694-3 is added to read as follows:
Sec. 44.6694-3 Penalty for understatement due to willful, reckless,
or intentional conduct.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of tax on wagers under sections 4401 or 4411 of the
Internal Revenue Code (Code) shall be subject to penalties under
section 6694(b) of the Code in the manner stated in Sec. 1.6694-3 of
this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 86. Section 44.6694-4 is added to read as follows:
Sec. 44.6694-4 Extension of period of collection when preparer pays
15 percent of a penalty for understatement of taxpayer's liability and
certain other procedural matters.
(a) In general. For rules relating to the extension of period of
collection when a tax return preparer who prepared a return or claim
for refund for tax on wagers under sections 4401 or 4411 of the
Internal Revenue Code pays 15 percent of a penalty for understatement
of taxpayer's liability, and procedural matters relating to the
investigation, assessment and collection of the penalties under section
6694(a) and (b), the rules under Sec. 1.6694-4 of this chapter will
apply.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 87. Section 44.6695-1 is added to read as follows:
Sec. 44.6695-1 Other assessable penalties with respect to the
preparation of tax returns for other persons.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of tax on wagers under sections 4401 or 4411 of the
Internal Revenue Code (Code) shall be subject to penalties for failure
to furnish a copy to the taxpayer under section 6695(a) of the Code,
failure to sign the return under section 6695(b) of the Code, failure
to furnish an identification number under section 6695(c) of the Code,
failure to retain a copy or list under section 6695(d) of the Code,
failure to file a correct information return under section 6695(e) of
the Code, and negotiation of a check under section 6695(f) of the Code,
in the manner stated in Sec. 1.6695-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 88. Section 44.6696-1 is added to read as follows:
Sec. 44.6696-1 Claims for credit or refund by tax return preparers.
(a) In general. For rules for claims for credit or refund by a tax
return preparer who prepared a return or claim for refund for tax on
wagers under sections 4401 or 4411 of the Internal Revenue Code, the
rules under Sec. 1.6696-1 of this chapter will apply.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 89. Section 44.7701-1 is added to read as follows:
Sec. 44.7701-1 Tax return preparer.
(a) In general. For the definition of a tax return preparer, see
Sec. 301.7701-15 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
PART 53--FOUNDATION AND SIMILAR EXCISE TAXES
Par. 90. The authority citation for part 53 is amended by adding
entries in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 53.6060-1 also issued under 26 U.S.C. 6060(a). * * *
Section 53.6109-2 also issued under 26 U.S.C. 6109(a). * * *
Section 53.6695-1 also issued under 26 U.S.C. 6695(b). * * *
Section 53.6695-2 also issued under 26 U.S.C. 6695(g). * * *
Par. 91. Section 53.6060-1 is added to read as follows:
Sec. 53.6060-1 Reporting requirements for tax return preparers.
(a) In general. A person that employs (or engages) one or more tax
return preparers to prepare a return or claim for refund of tax under
Chapter 42 of the Internal Revenue Code, other than for the person, at
any time during a return period, shall satisfy the record keeping and
inspection requirements in the manner stated in Sec. 1.6060-1 of this
chapter.
(b) Effective/applicability date. This section is applicable to
returns and
[[Page 34589]]
claims for refund filed after the date that final regulations are
published in the Federal Register.
Par. 92. Section 53.6107-1 is added to read as follows:
Sec. 53.6107-1 Tax return preparer must furnish copy of return to
taxpayer and must retain a copy or record.
(a) In general. A person who is a signing tax return preparer of
any return or claim for refund of tax under Chapter 42 of the Internal
Revenue Code shall furnish a completed copy of the return or claim for
refund to the taxpayer, and retain a completed copy or record in the
manner stated in Sec. 1.6107-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 93. Section 53.6109-1 is added to read as follows:
Sec. 53.6109-1 Tax return preparers furnishing identifying numbers
for returns or claims for refund filed.
(a) In general. Each tax return or claim for refund under Chapter
42 of the Internal Revenue Code prepared by one or more signing tax
return preparers must include the identifying number of the preparer
required by Sec. 1.6695-1(b) of this chapter to sign the return or
claim for refund in the manner stated in Sec. 1.6109-2 of this
chapter.
(b) Effective/applicability date. Paragraph (a) of this section is
applicable to returns and claims for refund filed after the date that
final regulations are published in the Federal Register.
Par. 94. Section 53.6694-1 is added to read as follows:
Sec. 53.6694-1 Section 6694 penalties applicable to tax return
preparer.
(a) In general. For general definitions regarding section 6694
penalties applicable to preparers of tax returns or claims for refund
under Chapter 42 of the Internal Revenue Code, see Sec. 1.6694-1 of
this chapter.
(b) Effective/applicability date. Paragraph (a) of this section is
applicable to returns and claims for refund filed, and advice provided,
after the date that final regulations are published in the Federal
Register.
Par. 95. Section 53.6694-2 is added to read as follows:
Sec. 53.6694-2 Penalties for understatement due to an unreasonable
position.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of tax under Chapter 42 of the Internal Revenue
Code (Code) shall be subject to penalties under section 6694(a) of the
Code in the manner stated in Sec. 1.6694-2 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 96. Section 53.6694-3 is added to read as follows:
Sec. 53.6694-3 Penalty for understatement due to willful, reckless,
or intentional conduct.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of tax under Chapter 42 of the Internal Revenue
Code (Code) shall be subject to penalties under section 6694(b) of the
Code in the manner stated in Sec. 1.6694-3 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 97. Section 53.6694-4 is added to read as follows:
Sec. 53.6694-4 Extension of period of collection when tax return
preparer pays 15 percent of a penalty for understatement of taxpayer's
liability and certain other procedural matters.
(a) In general. For rules relating to the extension of period of
collection when a tax return preparer who prepared a return or claim
for refund of tax under Chapter 42 of the Internal Revenue Code pays 15
percent of a penalty for understatement of taxpayer's liability, and
procedural matters relating to the investigation, assessment and
collection of the penalties under section 6694(a) and (b), the rules
under Sec. 1.6694-4 of this chapter will apply.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 98. Section 53.6695-1 is added to read as follows:
Sec. 53.6695-1 Other assessable penalties with respect to the
preparation of tax returns for other persons.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of tax under Chapter 42 of the Internal Revenue
Code (Code) shall be subject to penalties for failure to furnish a copy
to the taxpayer under section 6695(a) of the Code, failure to sign the
return under section 6695(b) of the Code, failure to furnish an
identification number under section 6695(c) of the Code, failure to
retain a copy or list under section 6695(d) of the Code, failure to
file a correct information return under section 6695(e) of the Code,
and negotiation of a check under section 6695(f) of the Code, in the
manner stated in Sec. 1.6695-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 99. Section 53.6696-1 is added to read as follows:
Sec. 53.6696-1 Claims for credit or refund by tax return preparers.
(a) In general. For rules for claims for credit or refund by a tax
return preparer who prepared a return or claim for refund for tax under
Chapter 42 of the Internal Revenue Code, the rules under Sec. 1.6696-1
of this chapter will apply.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 100. Section 53.7701-1 is added to read as follows:
Sec. 53.7701-1 Tax return preparer.
(a) In general. For the definition of a tax return preparer, see
Sec. 301.7701-15 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
PART 54--PENSION EXCISE TAXES
Par. 101. The authority citation for part 54 is amended by adding
entries in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 54.6060-1 also issued under 26 U.S.C. 6060(a). * * *
Section 54.6109-2 also issued under 26 U.S.C. 6109(a). * * *
Section 54.6695-1 also issued under 26 U.S.C. 6695(b). * * *
Section 54.6695-2 also issued under 26 U.S.C. 6695(g). * * *
Par. 102. Section 54.6060-1 is added to read as follows:
Sec. 54.6060-1 Reporting requirements for tax return preparers.
(a) In general. A person that employs (or engages) one or more tax
return preparers to prepare a return or claim for refund under Chapter
43 of subtitle D of the Internal Revenue Code, other than for the
person, at any time during
[[Page 34590]]
a return period, shall satisfy the record keeping and inspection
requirements in the manner stated in Sec. 1.6060-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 103. Section 54.6107-1 is added to read as follows:
Sec. 54.6107-1 Tax return preparer must furnish copy of return to
taxpayer and must retain a copy or record.
(a) In general. A person who is a signing tax return preparer of
any return or claim for refund of tax under Chapter 43 of subtitle D of
the Internal Revenue Code, shall furnish a completed copy of the return
or claim for refund to the taxpayer, and retain a completed copy or
record in the manner stated in Sec. 1.6107-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 104. Section 54.6109-1 is added to read as follows:
Sec. 54.6109-1 Tax return preparers furnishing identifying numbers
for returns or claims for refund filed.
(a) In general. Each tax return or claim for refund of tax under
Chapter 43 of subtitle D prepared by one or more signing tax return
preparers must include the identifying number of the preparer required
by Sec. 1.6695-1(b) of this chapter to sign the return or claim for
refund in the manner stated in Sec. 1.6109-2 of this chapter.
(b) Effective/applicability date. Paragraph (a) of this section is
applicable to returns and claims for refund filed after the date that
final regulations are published in the Federal Register.
Par. 105. Section 54.6694-1 is added to read as follows:
Sec. 54.6694-1 Section 6694 penalties applicable to tax return
preparer.
(a) In general. For general definitions regarding section 6694
penalties applicable to preparers of tax returns or claims for refund
of tax under Chapter 43 of subtitle D, see Sec. 1.6694-1 of this
chapter.
(b) Effective/applicability date. Paragraph (a) of this section is
applicable to returns and claims for refund filed, and advice provided,
after the date that final regulations are published in the Federal
Register.
Par. 106. Section 54.6694-2 is added to read as follows:
Sec. 54.6694-2 Penalties for understatement due to an unreasonable
position.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of tax under chapter 43 of subtitle D of the
Internal Revenue Code (Code) shall be subject to penalties under
section 6694(a) of the Code in the manner stated in Sec. 1.6694-2 of
this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 107. Section 56.6694-3 is added to read as follows:
Sec. 54.6694-3 Penalty for understatement due to willful, reckless,
or intentional conduct.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of excise tax under chapter 43 of subtitle D of the
Internal Revenue Code (Code) shall be subject to penalties under
section 6694(b) of the Code in the manner stated in Sec. 1.6694-3 of
this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 108. Section 54.6694-4 is added to read as follows:
Sec. 54.6694-4 Extension of period of collection when tax return
preparer pays 15 percent of a penalty for understatement of taxpayer's
liability and certain other procedural matters.
(a) In general. For rules relating to the extension of period of
collection when a tax return preparer who prepared a return or claim
for refund for tax under chapter 43 of subtitle D of the Internal
Revenue Code pays 15 percent of a penalty for understatement of
taxpayer's liability, and procedural matters relating to the
investigation, assessment and collection of the penalties under section
6694(a) and (b), the rules under Sec. 1.6694-4 of this chapter will
apply.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 109. Section 54.6695-1 is added to read as follows:
Sec. 54.6695-1 Other assessable penalties with respect to the
preparation of tax returns for other persons.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of tax under chapter 43 of subtitle D of the
Internal Revenue Code (Code) shall be subject to penalties for failure
to furnish a copy to the taxpayer under section 6695(a) of the Code,
failure to sign the return under section 6695(b) of the Code, failure
to furnish an identification number under section 6695(c) of the Code,
failure to retain a copy or list under section 6695(d) of the Code,
failure to file a correct information return under section 6695(e) of
the Code, and negotiation of a check under section 6695(f) of the Code,
in the manner stated in Sec. 1.6695-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 110. Section 54.6696-1 is added to read as follows:
Sec. 54.6696-1 Claims for credit or refund by tax return preparers.
(a) In general. For rules for claims for credit or refund by a tax
return preparer who prepared a return or claim for refund for excise
tax under chapter 43 of subtitle D of the Internal Revenue Code, the
rules under Sec. 1.6696-1 of this chapter will apply.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 111. Section 54.7701-1 is added to read as follows:
Sec. 54.7701-1 Tax return preparer.
(a) In general. For the definition of a tax return preparer, see
Sec. 301.7701-15 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
PART 55--EXCISE TAX ON REAL ESTATE INVESTMENT TRUSTS AND REGULATED
INVESTMENT COMPANIES
Par. 112. The authority citation for part 55 is amended by adding
entries in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 55.6060-1 also issued under 26 U.S.C. 6060(a). * * *
Section 55.6109-2 also issued under 26 U.S.C. 6109(a). * * *
Section 55.6695-1 also issued under 26 U.S.C. 6695(b). * * *
[[Page 34591]]
Section 55.6695-2 also issued under 26 U.S.C. 6695(g). * * *
Par. 113. Section 55.6060-1 is added to read as follows:
Sec. 55.6060-1 Reporting requirements for tax return preparers.
(a) In general. A person that employs (or engages) one or more tax
return preparers to prepare a return or claim for refund under chapter
44 of subtitle D of the Internal Revenue Code, other than for the
person, at any time during a return period, shall satisfy the record
keeping and inspection requirements in the manner stated in Sec.
1.6060-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 114. Section 55.6107-1 is added to read as follows:
Sec. 55.6107-1 Tax return preparer must furnish copy of return to
taxpayer and must retain a copy or record.
(a) In general. A person who is a signing tax return preparer of
any return or claim for refund of tax under Chapter 44 of subtitle D of
the Internal Revenue Code shall furnish a completed copy of the return
or claim for refund to the taxpayer, and retain a completed copy or
record in the manner stated in Sec. 1.6107-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 115. Section 55.6109-1 is added to read as follows:
Sec. 55.6109-1 Tax return preparers furnishing identifying numbers
for returns or claims for refund.
(a) In general. Each tax return or claim for refund of tax under
chapter 44 of Subtitle D prepared by one or more signing tax return
preparers must include the identifying number of the preparer required
by Sec. 1.6695-1(b) of this chapter to sign the return or claim for
refund in the manner stated in Sec. 1.6109-2 of this chapter.
(b) Effective/applicability date. Paragraph (a) of this section is
applicable to returns and claims for refund filed after the date that
final regulations are published in the Federal Register.
Par. 116. Section 55.6694-1 is added to read as follows:
Sec. 55.6694-1 Section 6694 penalties applicable to tax return
preparer.
(a) In general. For general definitions regarding section 6694
penalties applicable to preparers of tax returns or claims for refund
of tax under chapter 44 of Subtitle D see Sec. 1.6694-1 of this
chapter.
(b) Effective/applicability date. Paragraph (a) of this section is
applicable to returns and claims for refund filed, and advice provided,
after the date that final regulations are published in the Federal
Register.
Par. 117. Section 55.6694-2 is added to read as follows:
Sec. 55.6694-2 Penalties for understatement due to an unreasonable
position.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of excise tax under chapter 44 of subtitle D of the
Internal Revenue Code (Code) shall be subject to penalties under
section 6694(a) of the Code in the manner stated in Sec. 1.6694-2 of
this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 118. Section 55.6694-3 is added to read as follows:
Sec. 55.6694-3 Penalty for understatement due to willful, reckless,
or intentional conduct.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of tax under chapter 44 of subtitle D of the
Internal Revenue Code (Code) shall be subject to penalties under
section 6694(b) of the Code in the manner stated in Sec. 1.6694-3 of
this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 119. Section 55.6694-4 is added to read as follows:
Sec. 55.6694-4 Extension of period of collection when tax return
preparer pays 15 percent of a penalty for understatement of taxpayer's
liability and certain other procedural matters.
(a) In general. For rules relating to the extension of period of
collection when a tax return preparer who prepared a return or claim
for refund for excise tax under chapter 44 of subtitle D of the
Internal Revenue Code pays 15 percent of a penalty for understatement
of taxpayer's liability, and procedural matters relating to the
investigation, assessment and collection of the penalties under section
6694(a) and (b), the rules under Sec. 1.6694-4 of this chapter will
apply.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 120. Section 55.6695-1 is added to read as follows:
Sec. 55.6695-1 Other assessable penalties with respect to the
preparation of tax returns for other persons.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of tax under chapter 44 of subtitle D of the
Internal Revenue Code (Code) shall be subject to penalties for failure
to furnish a copy to the taxpayer under section 6695(a) of the Code,
failure to sign the return under section 6695(b) of the Code, failure
to furnish an identification number under section 6695(c) of the Code,
failure to retain a copy or list under section 6695(d) of the Code,
failure to file a correct information return under section 6695(e) of
the Code, and negotiation of a check under section 6695(f) of the Code,
in the manner stated in Sec. 1.6695-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 121. Section 55.6696-1 is added to read as follows:
Sec. 55.6696-1 Claims for credit or refund by tax return preparers.
(a) In general. For rules for claims for credit or refund by a tax
return preparer who prepared a return or claim for refund for tax under
chapter 44 of subtitle D of the Internal Revenue Code, the rules under
Sec. 1.6696-1 of this chapter will apply.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 122. Section 55.7701-1 is added to read as follows:
Sec. 55.7701-1 Tax return preparer.
(a) In general. For the definition of a tax return preparer, see
Sec. 301.7701-15 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
[[Page 34592]]
PART 56--PUBLIC CHARITY EXCISE TAXES
Par. 123. The authority citation for part 56 is amended by adding
entries in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 56.6060-1 also issued under 26 U.S.C. 6060(a). * * *
Section 56.6109-2 also issued under 26 U.S.C. 6109(a). * * *
Section 56.6695-1 also issued under 26 U.S.C. 6695(b). * * *
Section 56.6695-2 also issued under 26 U.S.C. 6695(g).* * *
Par. 124. Section 56.6060-1 is added to read as follows:
Sec. 56.6060-1 Reporting requirements for tax return preparers.
(a) In general. A person that employs (or engages) one or more tax
return preparers to prepare a return or claim for refund of tax under
chapter 41 of subtitle D of the Internal Revenue Code, other than for
the person, at any time during a return period, shall satisfy the
record keeping and inspection requirements in the manner stated in
Sec. 1.6060-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 125. Section 56.6107-1 is added to read as follows:
Sec. 56.6107-1 Tax return preparer must furnish copy of return to
taxpayer and must retain a copy or record.
(a) In general. A person who is a signing tax return preparer of
any return or claim for refund of tax under Chapter 41 of subtitle D of
the Internal Revenue Code shall furnish a completed copy of the return
or claim for refund to the estate, and retain a completed copy or
record in the manner stated in Sec. 1.6107-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 126. Section 56.6109-1 is added to read as follows:
Sec. 56.6109-1 Tax return preparers furnishing identifying numbers
for returns or claims for refund.
(a) In general. Each tax return or claim for refund for tax under
chapter 41 of subtitle D prepared by one or more tax signing return
preparers must include the identifying number of the preparer required
by Sec. 1.6695-1(b) of this chapter to sign the return or claim for
refund in the manner stated in Sec. 1.6109-2 of this chapter.
(b) Effective/applicability date. Paragraph (a) of this section is
applicable to returns and claims for refund filed after the date that
final regulations are published in the Federal Register.
Par. 127. Section 56.6694-1 is added to read as follows:
Sec. 56.6694-1 Section 6694 penalties applicable to tax return
preparer.
(a) In general. For general definitions regarding section 6694
penalties applicable to preparers of tax returns or claims for refund
of tax under chapter 41 of subtitle D see Sec. 1.6694-1 of this
chapter.
(b) Effective/applicability date. Paragraph (a) of this section is
applicable to returns and claims for refund filed, and advice provided,
after the date that final regulations are published in the Federal
Register.
Par. 128. Section 56.6694-2 is added to read as follows:
Sec. 56.6694-2 Penalties for understatement due to an unreasonable
position.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of excise tax under chapter 41 of subtitle D of the
Internal Revenue Code (Code) shall be subject to penalties under
section 6694(a) of the Code in the manner stated in Sec. 1.6694-2 of
this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 129. Section 56.6694-3 is added to read as follows:
Sec. 56.6694-3 Penalty for understatement due to willful, reckless,
or intentional conduct.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of tax under chapter 41 of subtitle D of the
Internal Revenue Code (Code) shall be subject to penalties under
section 6694(b) of the Code in the manner stated in Sec. 1.6694-3 of
this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 130. Section 56.6694-4 is added to read as follows:
Sec. 56.6694-4 Extension of period of collection when tax return
preparer pays 15 percent of a penalty for understatement of taxpayer's
liability and certain other procedural matters.
(a) In general. For rules relating to the extension of period of
collection when a tax return preparer who prepared a return or claim
for refund for tax under chapter 41 of subtitle D of the Internal
Revenue Code pays 15 percent of a penalty for understatement of
taxpayer's liability, and procedural matters relating to the
investigation, assessment and collection of the penalties under section
6694(a) and (b), the rules under Sec. 1.6694-4 of this chapter will
apply.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 131. Section 56.6695-1 is added to read as follows:
Sec. 56.6695-1 Other assessable penalties with respect to the
preparation of tax returns for other persons.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of tax under chapter 41 of subtitle D of the
Internal Revenue Code (Code) shall be subject to penalties for failure
to furnish a copy to the taxpayer under section 6695(a) of the Code,
failure to sign the return under section 6695(b) of the Code, failure
to furnish an identification number under section 6695(c) of the Code,
failure to retain a copy or list under section 6695(d) of the Code,
failure to file a correct information return under section 6695(e) of
the Code, and negotiation of a check under section 6695(f) of the Code,
in the manner stated in Sec. 1.6695-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 132. Section 56.6696-1 is added to read as follows:
Sec. 56.6696-1 Claims for credit or refund by tax return preparers.
(a) In general. For rules relating to claims for credit or refund
by a tax return preparer who prepared a return or claim for refund for
tax under chapter 41 of subtitle D of the Internal Revenue Code, the
rules under Sec. 1.6696-1 of this chapter will apply.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
[[Page 34593]]
Par. 133. Section 56.7701-1 is added to read as follows:
Sec. 56.7701-1 Tax return preparer.
(a) In general. For the definition of a tax return preparer, see
Sec. 301.7701-15 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
PART 156--EXCISE TAX ON GREENMAIL
Par. 134. The authority citation for part 156 is amended by adding
entries in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 156.6060-1 also issued under 26 U.S.C. 6060(a). * * *
Section 156.6109-2 also issued under 26 U.S.C. 6109(a). * * *
Section 156.6695-1 also issued under 26 U.S.C. 6695(b). * * *
Section 156.6695-2 also issued under 26 U.S.C. 6695(g). * * *
Par. 135. Section 156.6060-1 is added to read as follows:
Sec. 156.6060-1 Reporting requirements for tax return preparers.
(a) In general. A person that employs (or engages) one or more tax
return preparers to prepare a return or claim for refund under section
5881 of the Internal Revenue Code, other than for the person, at any
time during a return period, shall satisfy the record keeping and
inspection requirements in the manner stated in Sec. 1.6060-1 of this
chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 136. Section 156.6107-1 is added to read as follows:
Sec. 156.6107-1 Tax return preparer must furnish copy of return to
taxpayer and must retain a copy or record.
(a) In general. A person who is a signing tax return preparer of
any return or claim for refund of tax under Section 5881 of the
Internal Revenue Code shall furnish a completed copy of the return or
claim for refund to the taxpayer, and retain a completed copy or record
in the manner stated in Sec. 1.6107-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 137. Section 156.6109-1 is added to read as follows:
Sec. 156.6109-1 Tax return preparers furnishing identifying numbers
for returns or claims for refund.
(a) In general. Each tax return or claim for refund for tax under
section 5881 of the Internal Revenue Code prepared by one or more
signing tax return preparers must include the identifying number of the
preparer required by Sec. 1.6695-1(b) of this chapter to sign the
return or claim for refund in the manner stated in Sec. 1.6109-2 of
this chapter.
(b) Effective/applicability date. Paragraph (a) of this section is
applicable to returns and claims for refund filed after the date that
final regulations are published in the Federal Register.
Par. 138. Section 156.6694-1 is added to read as follows:
Sec. 156.6694-1 Section 6694 penalties applicable to tax return
preparer.
(a) In general. For general definitions regarding section 6694
penalties applicable to preparers of tax returns or claims for refund
for tax under section 5881 of the Internal Revenue Code, see Sec.
1.6694-1 of this chapter.
(b) Effective/applicability date. Paragraph (a) of this section is
applicable to returns and claims for refund filed, and advice provided,
after the date that final regulations are published in the Federal
Register.
Par. 139. Section 156.6694-2 is added to read as follows:
Sec. 156.6694-2 Penalties for understatement due to an unreasonable
position.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of tax under section 5881 of the Internal Revenue
Code (Code) shall be subject to penalties under section 6694(a) of the
Code in the manner stated in Sec. 1.6694-2 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 140. Section 156.6694-3 is added to read as follows:
Sec. 156.6694-3 Penalty for understatement due to willful, reckless,
or intentional conduct.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of tax under section 5881 of the Internal Revenue
Code (Code) shall be subject to penalties under section 6694(b) of the
Code in the manner stated in Sec. 1.6694-3 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 141. Section 156.6694-4 is added to read as follows:
Sec. 156.6694-4 Extension of period of collection when tax return
preparer pays 15 percent of a penalty for understatement of taxpayer's
liability and certain other procedural matters.
(a) In general. For rules relating to the extension of period of
collection when a tax return preparer who prepared a return or claim
for refund for tax under section 5881 of the Internal Revenue Code pays
15 percent of a penalty for understatement of taxpayer's liability, and
procedural matters relating to the investigation, assessment and
collection of the penalties under section 6694(a) and (b), the rules
under Sec. 1.6694-4 of this chapter will apply.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 142. Section 156.6695-1 is added to read as follows:
Sec. 156.6695-1 Other assessable penalties with respect to the
preparation of tax returns for other persons.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of tax under section 5881 of the Internal Revenue
Code (Code) shall be subject to penalties for failure to furnish a copy
to the taxpayer under section 6695(a) of the Code, failure to sign the
return under section 6695(b) of the Code, failure to furnish an
identification number under section 6695(c) of the Code, failure to
retain a copy or list under section 6695(d) of the Code, failure to
file a correct information return under section 6695(e) of the Code,
and negotiation of a check under section 6695(f) of the Code, in the
manner stated in Sec. 1.6695-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 143. Section 156.6696-1 is added to read as follows:
Sec. 156.6696-1 Claims for credit or refund by tax return preparers.
(a) In general. For rules for claims for credit or refund by a tax
return preparer who prepared a return or claim for refund for tax under
section 5881 of the Internal Revenue Code, the rules under Sec.
1.6696-1 of this chapter will apply.
[[Page 34594]]
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 144. Section 156.7701-1 is added to read as follows:
Sec. 156.7701-1 Tax return preparer.
(a) In general. For the definition of a tax return preparer, see
Sec. 301.7701-15 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
PART 157--EXCISE TAX ON STRUCTURED SETTLEMENT FACTORING
TRANSACTIONS
Par. 145. The authority citation for part 157 is amended by adding
entries in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 157.6060-1 also issued under 26 U.S.C. 6060(a). * * *
Section 157.6109-2 also issued under 26 U.S.C. 6109(a). * * *
Section 157.6695-1 also issued under 26 U.S.C. 6695(b). * * *
Section 157.6695-2 also issued under 26 U.S.C. 6695(g). * * *
Par. 146. Section 157.6060-1 is added to read as follows:
Sec. 157.6060-1 Reporting requirements for tax return preparers.
(a) In general. A person that employs (or engages) one or more tax
return preparers to prepare a return or claim for refund for tax under
section 5891 of the Internal Revenue Code, other than for the person,
at any time during a return period, shall satisfy the record keeping
and inspection requirements in the manner stated in Sec. 1.6060-1 of
this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 147. Section 157.6107-1 is added to read as follows:
Sec. 157.6107-1 Tax return preparer must furnish copy of return to
taxpayer and must retain a copy or record.
(a) In general. A person who is a signing tax return preparer of
any return or claim for refund of tax under section 5891 of the
Internal Revenue Code shall furnish a completed copy of the return or
claim for refund to the taxpayer, and retain a completed copy or record
in the manner stated in Sec. 1.6107-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 148. Section 157.6109-1 is added to read as follows:
Sec. 157.6109-1 Tax return preparers furnishing identifying numbers
for returns or claims for refund.
(a) In general. Each tax return or claim for refund for tax under
section 5891 of the Internal Revenue Code prepared by one or more
signing tax return preparers must include the identifying number of the
preparer required by Sec. 1.6695-1(b) of this chapter to sign the
return or claim for refund in the manner stated in Sec. 1.6109-2 of
this chapter.
(b) Effective/applicability date. Paragraph (a) of this section is
applicable to returns and claims for refund filed after the date that
final regulations are published in the Federal Register.
Par. 149. Section 157.6694-1 is added to read as follows:
Sec. 157.6694-1 Section 6694 penalties applicable to tax return
preparer.
(a) In general. For general definitions regarding section 6694
penalties applicable to preparers of tax returns or claims for refund
for tax under section 5891 of the Internal Revenue Code see Sec.
1.6694-1 of this chapter.
(b) Effective/applicability date. Paragraph (a) of this section is
applicable to returns and claims for refund filed, and advice provided,
after the date that final regulations are published in the Federal
Register.
Par. 150. Section 157.6694-2 is added to read as follows:
Sec. 157.6694-2 Penalties for understatement due to an unreasonable
position.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of tax under section 5891 of the Internal Revenue
Code (Code) shall be subject to penalties under section 6694(a) of the
Code in the manner stated in Sec. 1.6694-2 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 151. Section 157.6694-3 is added to read as follows:
Sec. 157.6694-3 Penalty for understatement due to willful, reckless,
or intentional conduct.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of tax under section 5891 of the Internal Revenue
Code (Code) shall be subject to penalties under section 6694(b) of the
Code in the manner stated in Sec. 1.6694-3 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 152. Section 157.6694-4 is added to read as follows:
Sec. 157.6694-4 Extension of period of collection when preparer pays
15 percent of a penalty for understatement of taxpayer's liability and
certain other procedural matters.
(a) In general. For rules relating to the extension of period of
collection when a tax return preparer who prepared a return or claim
for refund for tax under section 5891 of the Internal Revenue Code pays
15 percent of a penalty for understatement of taxpayer's liability, and
procedural matters relating to the investigation, assessment and
collection of the penalties under section 6694(a) and (b), the rules
under Sec. 1.6694-4 of this chapter will apply.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 153. Section 157.6695-1 is added to read as follows:
Sec. 157.6695-1 Other assessable penalties with respect to the
preparation of tax returns for other persons.
(a) In general. A person who is a tax return preparer of any return
or claim for refund of tax under section 5891 of the Internal Revenue
Code (Code) shall be subject to penalties for failure to furnish a copy
to the taxpayer under section 6695(a) of the Code, failure to sign the
return under section 6695(b) of the Code, failure to furnish an
identification number under section 6695(c) of the Code, failure to
retain a copy or list under section 6695(d) of the Code, failure to
file a correct information return under section 6695(e) of the Code,
and negotiation of a check under section 6695(f) of the Code, in the
manner stated in Sec. 1.6695-1 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed after the date that final
regulations are published in the Federal Register.
Par. 154. Section 157.6696-1 is added to read as follows:
[[Page 34595]]
Sec. 157.6696-1 Claims for credit or refund by tax return preparers.
(a) In general. For rules for claims for credit or refund by a tax
return preparer who prepared a return or claim for refund for tax under
section 5891 of the Internal Revenue Code, the rules under Sec.
1.6696-1 of this chapter will apply.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Par. 155. Section 157.7701-1 is added to read as follows:
Sec. 157.7701-1 Tax return preparer.
(a) In general. For the definition of a tax return preparer, see
Sec. 301.7701-15 of this chapter.
(b) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
PART 301--PROCEDURE AND ADMINISTRATION
Par. 156. The authority citation for part 301 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 157. Section 301.7701-15 is amended to read as follows:
Sec. 301.7701-15 Tax return preparer.
(a) In general. A tax return preparer is any person who prepares
for compensation, or who employs one or more persons to prepare for
compensation, all or a substantial portion of any return of tax or any
claim for refund of tax under the Internal Revenue Code (Code).
(b) Definitions--(1) Signing tax return preparer. A signing tax
return preparer is any tax return preparer who signs or who is required
to sign a return or claim for refund as a tax return preparer pursuant
to Sec. 1.6695-1(b) of this chapter.
(2) Nonsigning tax return preparer--(i) In general. A nonsigning
tax return preparer is any tax return preparer who is not a signing tax
return preparer but who prepares all or a substantial portion of a
return or claim for refund within the meaning of paragraph(b)(3) of
this section with respect to events that have occurred at the time the
advice is rendered. In determining whether an individual is a
nonsigning tax return preparer, time spent on advice that is given
after events have occurred that represents less than 5 percent of the
aggregate time incurred by such individual with respect to the
position(s) giving rise to the understatement shall not be taken into
account. Examples of nonsigning tax return preparers are tax return
preparers who provide advice (written or oral) to a taxpayer (or to
another tax return preparer) when that advice constitutes a substantial
portion of the return within the meaning of paragraph (b)(3) of this
section.
(ii) Examples. The provisions of this paragraph (b)(2) are
illustrated by the following examples:
Example 1. Attorney A, an attorney in a law firm, provides legal
advice to a large corporate taxpayer regarding a completed corporate
transaction. The advice provided by A is directly relevant to the
determination of an entry on the taxpayer's return and this advice
constitutes a substantial portion of the return. A, however, does
not prepare any other portion of the taxpayer's return and is not
the signing tax return preparer of this return. A is considered a
tax return preparer.
Example 2. Attorney B, an attorney in a law firm, provides legal
advice to a large corporate taxpayer regarding the tax consequences
of a proposed corporate transaction. Based upon this advice, the
corporate taxpayer enters into the transaction. Once the transaction
is completed, the corporate taxpayer does not receive any additional
advice from B with respect to the transaction. B did not provide
advice with respect to events that have occurred and is not
considered a tax return preparer.
Example 3. The facts are the same as Example 2, except that
Attorney B provides supplemental advice to the corporate taxpayer on
a phone call after the transaction is completed. The time incurred
on this supplemental advice by B represented less than 5 percent of
the aggregate amount of time spent by B providing tax advice on the
position. B is not considered a tax return preparer.
(3) Substantial portion. (i) Only a person who prepares all or a
substantial portion of a return or claim for refund shall be considered
to be a tax return preparer of the return or claim for refund. A person
who renders tax advice on a position that is directly relevant to the
determination of the existence, characterization, or amount of an entry
on a return or claim for refund will be regarded as having prepared
that entry. Whether a schedule, entry, or other portion of a return or
claim for refund is a substantial portion is determined based upon
whether the person knows or reasonably should know that the tax
attributable to the schedule, entry, or other portion of a return or
claim for refund is a substantial portion of the tax required to be
shown on the return or claim for refund. A single tax entry may
constitute a substantial portion of the tax required to be shown on a
return. Factors to consider in determining whether a schedule, entry,
or other portion of a return or claim for refund is a substantial
portion include but are not limited to--
(A) The size and complexity of the item relative to the taxpayer's
gross income; and
(B) The size of the understatement attributable to the item
compared to the taxpayer's reported tax liability.
(ii)(A) For purposes of applying the rules of paragraph (b)(3)(i)
of this section to a nonsigning tax return preparer within the meaning
of paragraph (b)(2) of this section only, if the schedule, entry, or
other portion of the return or claim for refund involves amounts of
gross income, amounts of deductions, or amounts on the basis of which
credits are determined that are--
(1) Less than $10,000; or
(2) Less than $400,000 and also less than 20 percent of the gross
income as shown on the return or claim for refund (or, for an
individual, the individual's adjusted gross income), then the schedule
or other portion is not considered to be a substantial portion.
(B) If more than one schedule, entry or other portion is involved,
all schedules, entries or other portions shall be aggregated in
applying this rule. This paragraph shall not apply to a signing tax
return preparer within the meaning of paragraph (b)(1) of this section.
(iii) A tax return preparer with respect to one return is not
considered to be a tax return preparer of another return merely because
an entry or entries reported on the first return may affect an entry
reported on the other return, unless the entry or entries reported on
the first return are directly reflected on the other return and
constitute a substantial portion of the other return. For example, the
sole preparer of a partnership return of income or small business
corporation income tax return is considered a tax return preparer of a
partner's or a shareholder's return if the entry or entries on the
partnership or small business corporation return reportable on the
partner's or shareholder's return constitute a substantial portion of
the partner's or shareholder's return.
(iv) Examples. The provisions of this paragraph (b)(3) are
illustrated by the following examples:
Example 1. Accountant C prepares a Form 8886, ``Reportable
Transaction Disclosure Statement'', that is used to disclose
reportable transactions. C does not prepare the tax return or advise
the taxpayer regarding the tax return reporting position of the
transaction to which the Form 8886
[[Page 34596]]
relates. The preparation of the Form 8886 is not directly relevant
to the determination of the existence, characterization, or amount
of an entry on a tax return or claim for refund. Rather, the Form
8886 is prepared by C to disclose a reportable transaction. C has
not prepared a substantial portion of the tax return and is not
considered a tax return preparer under section 6694.
Example 2. Accountant D prepares a schedule for an individual
taxpayer's Form 1040, ``U.S. Individual Income Tax Return'',
reporting $4,000 in dividend income and gives oral or written advice
about Schedule A, which results in a claim of a medical expense
deduction totaling $5,000, but does not sign the tax return. D is
not a tax return preparer because the total aggregate amount of the
deductions is less than $10,000.
(4) Return and claim for refund--(i) Return. For purposes of this
section, a return of tax is a return (including an amended or adjusted
return) filed by or on behalf of a taxpayer reporting the liability of
the taxpayer for tax under the Code, if the type of return is
identified in published guidance in the Internal Revenue Bulletin. A
return of tax also includes any information return or other document
identified in published guidance in the Internal Revenue Bulletin, and
that reports information that is or may be reported on another
taxpayer's return under the Code if the information reported on the
information return or other document constitutes a substantial portion
of the taxpayer's return within the meaning of paragraph (b)(3) of this
section.
(ii) Claim for refund. For purposes of this section, a claim for
refund of tax includes a claim for credit against any tax that is
included in published guidance in the Internal Revenue Bulletin. A
claim for refund also includes a claim for payment under section 6420,
6421, or 6427.
(c) Mechanical or clerical assistance. A person who furnishes to a
taxpayer or other tax return preparer sufficient information and advice
so that completion of the return or claim for refund is largely a
mechanical or clerical matter is considered a tax return preparer, even
though that person does not actually place or review placement of
information on the return or claim for refund. See also paragraph
(b)(3) of this section.
(d) Qualifications. A person may be a tax return preparer without
regard to educational qualifications and professional status
requirements.
(e) Outside the United States. A person who prepares a return or
claim for refund outside the United States is a tax return preparer,
regardless of the person's nationality, residence, or the location of
the person's place of business, if the person otherwise satisfies the
definition of tax return preparer. Notwithstanding the provisions of
Sec. 301.6109-1(g), the person shall secure an employer identification
number if the person is an employer of another tax return preparer, is
a partnership in which one or more of the general partners is a tax
return preparer, is a firm entity in which one or more of the equity
holders is a tax return preparer, or is an individual not employed by
another tax return preparer.
(f) Persons who are not tax return preparers. (1) The following
persons are not tax return preparers:
(i) An official or employee of the Internal Revenue Service (IRS)
performing their official duties.
(ii) Any individual who provides tax assistance under a Volunteer
Income Tax Assistance (VITA) program established by the IRS, but only
with respect to those returns prepared as part of the VITA program.
(iii) Any organization sponsoring or administering a VITA program
established by the IRS, but only with respect to that sponsorship or
administration.
(iv) Any individual who provides tax counseling for the elderly
under a program established pursuant to section 163 of the Revenue Act
of 1978, but only with respect to those returns prepared as part of
that program.
(v) Any organization sponsoring or administering a program to
provide tax counseling for the elderly established pursuant to section
163 of the Revenue Act of 1978, but only with respect to that
sponsorship or administration.
(vi) Any individual who provides tax assistance as part of a
qualified Low-Income Taxpayer Clinic (LITC), as defined by section
7526, subject to the requirements of paragraphs (f)(2) and (3) of this
section, but only with respect to those returns prepared as part of the
LITC program.
(vii) Any organization that is a qualified LITC, as defined by
section 7526, subject to the requirements of paragraphs (h)(2) and (3)
of this section.
(viii) An individual providing only typing, reproduction, or other
mechanical assistance in the preparation of a return or claim for
refund.
(ix) An individual preparing a return or claim for refund of a
person, or an officer, a general partner, member, shareholder, or
employee of a person, by whom the individual is regularly and
continuously employed or compensated or in which the individual is a
general partner.
(x) An individual preparing a return or claim for refund for a
trust, estate, or other entity of which the person either is a
fiduciary or is an officer, general partner, or employee of the
fiduciary.
(xi) An individual preparing a claim for refund for a taxpayer in
response to--
(A) A notice of deficiency issued to the taxpayer; or
(B) A waiver of restriction on assessment after initiation of an
audit of the taxpayer or another taxpayer if a determination in the
audit of the other taxpayer affects, directly or indirectly, the
liability of the taxpayer for tax under subtitle A.
(xii) A person who prepares a return or claim for refund for a
taxpayer with no explicit or implicit agreement for compensation, even
if the person receives an insubstantial gift, return service, or favor.
(2) Paragraphs (f)(1) (vi) and (vii) of this section apply only if
any assistance with a return of tax or claim for refund is directly
related to a controversy with the IRS for which the qualified LITC is
providing assistance, or is an ancillary part of an LITC program to
inform individuals for whom English is a second language about their
rights and responsibilities under the Code.
(3) Notwithstanding paragraph (f)(2) of this section, paragraphs
(f)(1)(vi) and (f)(1)(vii) of this section do not apply if an LITC
charges a separate fee or varies a fee based on whether the LITC
provides assistance with a return of tax or claim for refund under the
Code, or if the LITC charges more than a nominal fee for its services.
(4) For purposes of paragraph (f)(1)(ix) of this section, the
employee of a corporation owning more than 50 percent of the voting
power of another corporation, or the employee of a corporation more
than 50 percent of the voting power of which is owned by another
corporation, is considered the employee of the other corporation as
well.
(5) For purposes of paragraph (f)(1)(x) of this section, an estate,
guardianship, conservatorship, committee, or any similar arrangement
for a taxpayer under a legal disability (such as a minor, an
incompetent, or an infirm individual) is considered a trust or estate.
(6) Examples. The mechanical assistance exception described in
paragraph (f)(1)(viii) of this section is illustrated by the following
examples:
Example 1. A reporting agent received employment tax information
from a client from the client's business records. The reporting
agent did not render any tax advice to the client or exercise any
discretion or independent judgment on the client's underlying tax
positions. The reporting agent processed the client's information,
signed the
[[Page 34597]]
return as authorized by the client pursuant to Form 8655, Reporting
Agent Authorization, and filed the client's return using the
information supplied by the client. The reporting agent is not a tax
return preparer.
Example 2. A reporting agent rendered tax advice to a client on
determining whether its workers are employees or independent
contractors for Federal tax purposes. For compensation, the
reporting agent received employment tax information from the client,
processed the client's information and filed the client's return
using the information supplied by the client. The reporting agent is
a tax return preparer.
(g) Effective/applicability date. This section is applicable to
returns and claims for refund filed, and advice provided, after the
date that final regulations are published in the Federal Register.
Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
[FR Doc. E8-12898 Filed 6-16-08; 8:45 am]
BILLING CODE 4830-01-P