Preparer-Penalty Statute Amended by Emergency Economic Stabilization Act of 2008
11/03/2008Section 506 of the Emergency Economic Stabilization Act of 2008 includes an extensive amendment to Internal Revenue Code § 6694, the preparer-penalty statute. Generally speaking, the standard applicable to preparers has been harmonized with the standard applicable to taxpayers. That is, the “reasonable belief that the position is more likely than not” correct (RBMLTN) standard set out in the amendment made to § 6694 in May 2007, has been discarded. In its place, the familiar “substantial authority” standard has been inserted, effecting a harmonization of the standards applicable to return preparers and taxpayers.
Under the new provision, as before, if a disclosure is made on the return, the applicable standard for preparers and taxpayers is “reasonable basis.”
This amendment is applicable to returns prepared after May 25, 2007, i.e., the new provision is retroactive to the date of the legislation that caused the original furor.
Under the amendment, however, the standard applicable to preparers with respect to “tax shelters” and reportable transactions remains at RBMLTN. This special provision is applicable to income tax returns prepared for taxable years ending after the enactment of the new provision.
Section 6694 continues to provide that if the understatement is due to reasonable cause and the preparer acted in good faith, there is no penalty on the preparer. The proposed regulations issued in June 2007, which address the definition of return preparer and the scope of § 6694, will require some revision to reflect this new legislation.
