IRS Proposes Modification of Tax Return Preparer Penalty Provisions

IRS has proposed new regulations that amend Circular 230 and address the tax return preparer penalty provisions under I.R.C. § 6694. In Notice 2007-54 IRS provides guidance on the proposed amendments.

Here is an excerpt from Prof. Roger A. McEowen’s discussion on this issue:

The proposed regulations, when final, would amend section 10.34 of Circular 230.  Changes to the standards of practice were triggered by the Act, which became law in May and effectively extended the application of the return preparer penalties to all tax return preparers, altered the standards of conduct that must be met to avoid imposition of the penalties for preparing a return showing an understatement of liability, and increased applicable penalties.* * *

Under the proposed regulations, IRS says that the standards of practice under Circular 230 should conform to the civil penalty standards for return preparers. That means a practitioner may not sign a tax return as a preparer unless the practitioner has a reasonable belief that the tax treatment of each position on the return would more likely than not be sustained on its merits, or there is a reasonable basis for each position and each position is adequately disclosed.  The proposed regulations say that the definitions of “more likely than not” and “reasonable basis” are to be defined by the way those phrases are defined under I.R.C. § 6662.