Docstoc

Proposed Regulations 1 6694 2 A Penalty Amount 1 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 prepar

Document Sample
Proposed Regulations 1 6694 2 A Penalty Amount 1 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 prepar Powered By Docstoc
					Proposed Regulations 1.6694-2
A. Penalty Amount
1. 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

B. When Penalty Imposed
1. If "disclosure" a) Penalty if no "reasonable basis" for the position (1) “reasonable basis” has the same meaning as in §1.6662-3(b)(3) or any successor provision of the accuracy-related penalty regulations (a) May rely on taxpayer provided information 2. If no "disclosure" a) Penalty if there was not a "reasonable belief" that the position would more likely than not be sustained on its merit (1) Meaning, the 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 (a) The possibility that the position will not be challenged by the Internal Revenue Service (IRS) is not to be taken into account (b) The analysis prescribed by §1.6662-4(d)(3)(ii) for purposes of determining whether "substantial authority" is present applies (c) Diligence and expertise of preparer is considered (d) Can rely on reasonable statutory analysis alone, in the absence of other authority (e) May rely on representations made to the preparer (f) No unreasonable assumptions or unreasonable reliance on representations allowed (g) Fact that a new statute is "inequitable" in the circumstances of the taxpayer is not enough to meet the standard (h) Test is applicable as of the day the return is filed

3. What is adequate "disclosure" for this purpose? a) Signing tax return preparer: (1) Disclosed in accordance with §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 §1.6662-4(f)(2)); OR (2) For income tax returns: (a) If there is no "substantial authority" for the taxpayer to avoid penalty under §6662(b): (i) The tax return preparer provides the taxpayer with the prepared tax return that includes the disclosure in accordance with §1.6662-4(f) (b) If there is "substantial authority" for the taxpayer to avoid penalty under §6662(b) (i) The tax return preparer advises the taxpayer of all the penalty standards applicable to the taxpayer under section 6662 (ii) The tax return preparer must also contemporaneously document the advice in the tax return preparer's files (c) If §6662(d)(2)(B) does not apply because the position may be described in §6662(d)(2)(C) or §6662A (a tax shelter, reportable transaction with a significant purpose of tax avoidance or evasion, or a listed transaction): (i) 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 (ii) The tax return preparer must also contemporaneously document the advice in the tax return preparer's files. (3) 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): (a) The tax return preparer advises the taxpayer of the penalty standards applicable to the taxpayer under sections 6662

(b) The tax return preparer must also contemporaneously document the advice in the tax return preparer's files b) Nonsigning tax return preparer (1) Disclosed in accordance with § 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 §1.6662-4(f)(2)), OR (2) 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, OR (a) The tax return preparer must also contemporaneously document the advice in the tax return preparer's files (3) If the tax return preparer is advising another tax return preparer on the issue, the tax return preparer advises the other tax return preparer that disclosure under section 6694(a) may be required (a) The tax return preparer must also contemporaneously document the advice in the tax return preparer's files. c) Misc requirements relating to advice meant to satisfy "disclosure" rules (1) Must be particular to the taxpayer and tailored to the taxpayer's facts and circumstances (2) The tax return preparer is required to contemporaneously document the fact that the advice was provided (3) A general boilerplate form of disclosure form is not acceptable to satisfy these requirements. 4. Exception if the understatement was due to reasonable cause and that the tax return preparer acted in good faith a) Factors: (1) Nature of the error, such as complexity (2) Frequency of errors (3) Materiality of errors (4) Whether preparer's normal office practice would catch errors (5) Reliance on the advice of others under allowable circumstances (6) Reliance on generally accepted industry or administrative practice

©2008 Charles D. Rubin www.rubinontax.blogspot.com - www.floridatax.com


				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:12718
posted:7/6/2008
language:English
pages:4