In November, we devoted a column to the issues surrounding the new return preparer penalty standards under Internal Revenue Code Sec. 6694 enacted as part of the Small Business and Work Opportunity Act of 2007. Those changes focused on the expansion of coverage of Code Section 6694 to tax returns beyond income tax returns; an increase in the penalties imposed, including penalties based on 50 percent of fees derived from return preparation; and an increase in the disclosure standard required to avoid penalties to more likely than not (greater than 50 percent) from a realistic possibility of prevailing on the merits (greater than one third).

Concerns were immediately raised about the impact of the changes, particularly the increase in the penalty standard to a higher standard than that imposed on taxpayers under Sec. 6662 -- a substantial authority standard (greater than 40 percent). Commentators pointed out that this could create conflicts between taxpayers and preparers, and the forced shift in the role of the return preparer from an advocate for the taxpayer to an advisor to the taxpayer.

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