Rules for Tax Return Preparers

Brian C. Bernhardt (partner, McGuireWoods LLP) has recently published his article entitled Tax Return Preparer Penalties: The New Rules of Code Sec. 6694, Part I, Prob. & Prop., July/Aug. 2009, at 63.

Below is the introduction to the article:

Until May 2007, Internal Revenue Code Sec. 6694, which imposes monetary penalties on certain tax advisors, was largely ignored. On May 25, 2007, however, Congress substantially revised Code sec. 6694, and the changes caused a great gnashing of teeth and wringing of hands amount tax advisors for more than a year. Under the new rules, even if a tax advisor never signs a clients tax return, never looks at a client's tax return, and never answers a specific tax return question, the IRS may subject the tax advisor to these rules.

The IRS quickly provided interim guidance and Proposed Regulations, at first, to delay implementation of the new rules and then to provide initial rules for compliance.

On October 31, 2008, Congress further revised Code Sec. 6694 to mitigate the most objectionable aspect of the 2007 revisions. On December 15, 2008, the IRS issued Final Regulations, a revenue procedure, and administrative guidance explaining the application and operation of revised Code Sec. 6694.

This article provides a summary and overview of the new rules, their application, and some practical concerns that remain.