Earlier this week we discussed some dynamics regarding the new tax return preparer penalties. Subsequent to that posting, the IRS issued several Notices regarding the expanded penalties.
Notice 2008-13 has the key provisions. One provision notes that persons who give advice on a return position can be penalized - not just traditional return preparers. Thus, for example, an attorney who advises the taxpayer or a preparer on how to prepare a return may be subject to the penalty. However, such a person will be subject to these rules only if the item(s) advised on represent a significant portion of the tax liability reported on the tax return.
That Notice also provides some relief to preparers and advisors in regard to items for which there is a reasonable basis for a position, but not enough of a basis to meet the "more likely than not" standard of correctness. As discussed in the previous blog post, preparers are encouraged to seek qualified disclosure of the issue to protect themselves from penalties, even though such disclosures are not needed to protect the taxpayer from penalties due to lower standards. The Notice allows a preparer to obtain the same protection as actually disclosing the issue on the tax return without doing so, by providing required notices to the taxpayer regarding penalties and the need for disclosure. This helps eliminate a conflict of interest that might otherwise arise between the taxpayer and the preparer.
For more information on the new rules, I have posted a brief summary at http://www.box.net/shared/mvobnp6gw0 (after clicking the link, click the Download button on the webpage, and then you can either "open" or "save" the file).