Recent Updates to Tax Return Preparer Penalties
By Kevin Young, Christiane Wolfe and Mark Lange
As taxpayers, tax return preparers and tax advisors prepare to file returns for the calendar 2008 tax year, they can rest assured that the penalty standards they are held to under the Internal Revenue Code have finally come to rest. After remaining in flux for almost two years, Congress amended Code Section 6694s tax return preparer penalty in October 2008 to provide that a return preparer need only have substantial authority for non-disclosed tax return positions in order to avoid penalty. As the year came to a close, the Internal Revenue Service (the IRS) and the Treasury Department (the Treasury) issued Notice 2009-5, Rev. Proc. 2009-11 and final regulations under T.D. 9436, which became effective on December 22, 2008 (the 2008 Guidance), all of which provided guidance on the new standard and its impact on tax return preparers. The 2008 Guidance addresses and clarifies several issues that arose with the October 2008 changes to Section 6694, such as penalty standards for tax shelters versus reportable transactions, what constitutes adequate disclosure for non-signing tax return preparers and the one preparer per firm rule.