Dealing with the new return preparer penalties

The Small Business Tax Act amended Code Sec. 6694 to increase tax return preparer penalties, the types of returns to which the penalties apply, and the support required for the position taken on the return. The provision was to be effective for tax returns prepared after May 25, 2007.However, based on requests from the return preparation community, the Internal Revenue Service has provided transitional relief that generally applies the prior standards to returns and refund claims due before Jan. 1, 2008, estimated tax returns due on or before Jan. 15, 2008, and employment and excise tax returns due on or before Jan. 31, 2008. The transitional relief does not apply to willful or reckless conduct.

Tax practitioners have also pointed out that the support standard required for tax return preparers is now higher than the support standard required for taxpayers, creating an obvious conflict situation. While Congress may well act to create a uniform standard, most commentators feel that Congress would raise the taxpayer standard, rather than lower the return preparer standard.