TD 9436 contains final 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 and section 506 of the Tax Extenders and Alternative Minimum Tax Relief Act of 2008.These regulations are the culmination of a long process conducted by the IRS, through successive statutory enactments and periodic administrative regulations (temporary, proposed, or final).
The final regulations affect tax return preparers and provide guidance regarding the amended provisions.
These regulations are effective on December 22, 2008. * * *
In addition to new standards of preparation of federal tax returns, a preparer will also be required to generate more "paperwork", according to the Paperwork Reduction Act Summary, provided in T.D. 9436:
This information is necessaryFind updated information (summaries and legislative text) regarding the 2007 Tax Act and the 2008 Tax Act posted on the Legislation page of the website of the U.S. Senate Finance Committee.
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 and section 506 of the Tax Extenders and Alternative Minimum Tax Relief Act of 2008. [Links & formatting added.]
- to make the record of the name, taxpayer identification number, and principal place of work of each tax return preparer,
- [to] 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 scheduled publication of T.D. 9436 in the Federal Register followed its announcement on December 16, 2008, by the IRS, together with related guidance regarding return preparer penalties:
- T.D. 9436 (PDF, 211 pages) -- Final regulations under IRC §§ 6694 and 6695A
- Notice 2009-5 (PDF, 10 pages) -- Interim guidance on the application of T.D. 9436
- Rev. Proc. 2009-11 (PDF, 22 pages) -- List of forms subject to the return preparer penalties
According to the "Background" section of T.D. 9436, the 2007 Tax Act had changed the standards affecting tax preparers on both disclosed positions and undisclosed positions:
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.The 2008 Tax Act further altered the standards regarding tax returns with undisclosed positions or for tax shelters:
For undisclosed positions, the 2007 Act replaced the "realistic possibility'' standard with a standard requiring the tax return preparer to have a "reasonable belief that the position would more likely than not be sustained on its merits.''
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. * * * [Formatting added.]
On October 3, 2008, section 506 of the 2008 Act modified the standards of conduct that tax return preparers must meet in order to avoid imposition of the section 6694(a) penalty.T.D. 9436 was based upon proposed regulations recently published. See: PA EE&F Law Blog posting "IRS Proposes Final Preparer Penalty Regs"(07/02/08).
Specifically, the 2008 Act changed the standard for undisclosed positions from "reasonable belief that the position more likely than not will be sustained on the
merits'' to "substantial authority for the position.''
The 2008 Act maintained the "reasonable basis'' standard for disclosed positions.
If a position is with respect to a tax shelter (as defined in section 6662(d)(2)(C)(ii)) or a reportable transaction to which section 6662A applies, it must be "reasonable to believe that the position more likely than not will be sustained on the merits.'' * * * [Formatting added.]
There were some changes reflecting public comments, as explained under its heading "Summary of Comments and Explanation of Revisions."
T.D. 9436 also provides "interim guidance" regarding new provisions in the 2008 Tax Act. Those interim regulations will be finalized through future federal rule-making procedures.
After consideration of the public comments and the amendments made by the 2008 Act, the proposed regulations are adopted as revised by this Treasury decision.Few accountants, attorneys, or tax preparation officers remain unfamiliar with these substantial duties and significant penalties involving returns they sign as "preparer" for filing with the IRS.
Section 1.6694-2 of these final regulations does not provide substantive guidance reflecting amendments to the Code made by the 2008 Act.
Rather, the Treasury Department and the IRS are reserving Sec. 1.6694-2(c) in these final regulations and are simultaneously issuing a notice in the Internal Revenue Bulletin providing interim guidance on the amendments to the Code made by the 2008 Act.* * * [Formatting added.]
In 2009, many taxpayers will learn from their tax preparers that the rules of the game for tax returns have changed.
Estimated total annual [paperwork] reporting burden:
Estimated average annual burden per respondent:
-- Internal Revenue Service, T.D. 9436 (12/22/08)