Breaking News on Return Preparer Penalties
Hello Everyone
As you're all aware, the President signed the Emergency Economic Stabilization Act of 2008 into law last Friday. As with most laws, some provisions are inserted that have little or nothing to do with the primary purpose of the legislation. The Small Business Work Opportunity Act of 2007 changed the IRC 6694(a) position standard for return preparers. Prior to this Act, the preparer could be subject to a return preparer penalty if a challenged return position that was undisclosed did not meet the realistic possibility standard (widely interpreted to be around the 33% level of confidence). Subsequently, the position standard was raised to "more likely than not" which was termed "reasonable belief) which means more than a 50% level of confidence. This change meant that, with respect to undisclosed return positions, that return preparers were placed at a higher standard than their clients, who are subject to the "substantial authority" standard pursuant to IRC 6662, which is a lower confidence level that "reasonable belief." This disparity had the potential to create a conflict between the taxpayer and the return preparer with respect to whether to disclose a return position. During 2008, both the House and the Senate introduced legislation to revise the new IRC 6694(a), proposing to change the "reasonable belief" position standard to conform to the taxpayer's "substantial authority" standard. Good News! Contained within the EESA 2008 is a provision that does exactly this with respect to most undisclosed position situations, and it is retroactive to May 2007 (the original enactment of the SBWOA 2007, although the return preparer penalty positions were eventually deferred until 1/1/2008). Now, both the taxpayer and the return preparer will be held to the same standard, "substantial authority," with respect to whether a return position should be disclosed. I've attached the CCH Briefing for the Emergency Economic Stabilization Act of 2008 so that you can read a synopsis of this important change, in addition to the AMT patch, extender legislation and the rest of the Act's provisions. Thank you, Marc J. Zine Marc J. Zine , CPASr. Stakeholder Liaison Specialist Internal Revenue Service 3 94-03510 (Badge #) ? 4330 Watt Ave., SA-3318 Sacramento, CA 95821 ( 916-974-5281 (Office) 9 916-974-5281 (VMS) È 916-205-9720 (Mobile) Ê 916-974-5907 (Fax) - Marc.Zine@irs.gov (E-Mail)
