A memo from the Internal Revenue Service's Large and Mid-Sized Business Division introduces new LMSB Procedures for tax return preparer penalty cases.

The Small Business and Work Opportunity Tax Act of 2007 broadened the definition of a tax return preparer to include any person that has prepared a substantial portion of any tax return or claim for refund. The law change will greatly expand the number of practitioners subject to consideration of return preparer penalties, said the IRS.

The purpose of asserting the penalties on preparers is to increase compliance, the IRS noted. When examining a return, it is an IRS examiner's responsibility to ensure that the identification and conduct provisions of the Tax Code were followed. If the provisions are not followed, it is the examiner's responsibility to assert the penalties.

During every field examination, examiners should determine if any return preparer violations exist. The determination will be made based on oral testimony or written evidence during the examination process. If a preparer's misconduct appears to be pervasive and widespread, consideration will be given to opening a program action case.

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