The Internal Revenue Service has issued proposed regulations implementing amendments to the tax return preparer penalties.

The proposed regulations amend existing regulations defining income tax return preparers to broaden the scope of that definition to include preparers of estate, gift, and generation-skipping transfer tax returns, employment tax returns, excise tax returns, and returns of exempt organizations. The proposed regulations also revise the current regulations to amend the standards of conduct that must be met to avoid imposition of the tax return preparer penalty under Section 6694.

In addition, the proposed regulations reflect changes to the computation of the Section 6694 tax return preparer penalty made by the Small Business and Work Opportunity Tax Act of 2007. The regulations also amend the current regulations under the penalty provisions of Section 6695 to conform them with changes made by the 2007 act, expanding the scope of that statute beyond income tax returns. The Treasury Department and the IRS intend to finalize the proposed regulations by the end of 2008, with the expectation that the final regulations will be applicable to returns and refund claims filed (and advice given) after the date that final regulations are published in the Federal Register, but in no event sooner than Dec. 31, 2008.

The 2007 act amended Section 6694 to expand the definition of tax return preparer, broaden the scope of the tax return preparer penalties to include preparers of returns other than income tax returns, revise the standards of conduct that tax return preparers must meet to avoid imposition of penalties, and change the computation of the tax return preparer penalties. The Treasury Department and the IRS believe that the recent amendments to the tax return preparer penalty provisions necessitate a comprehensive review and overhaul of all the tax return preparer penalties and related regulatory provisions. The proposed regulations are the first significant step in this process.