Transitional Relief for Changes to Preparer Penalty

Transitional relief has been granted through the end of the year for changes to the tax return preparer penalty under IRC § 6694(a) that were enacted as part of the Small Business and Work Opportunity Tax Act of 2007. The changes originally were to take effect May 26. The act extended the scope of the penalty to include estate and gift tax, excise tax and employment tax returns and returns of exempt organizations and increased the required preparer standards. The act provided that a penalty can be imposed on a preparer if an undisclosed tax return position does not meet the more-likely-than-not standard and if there is no reasonable basis for a disclosed position. It also increases monetary penalties from $250 to the greater of $1,000 or half of the return-preparation fee.

The AICPA, in a June 7 letter from Jeffrey R. Hoops, chairman of the Tax Executive Committee, urged Treasury and the IRS to provide transitional relief to allow preparers, taxpayers and the IRS time to understand and implement the changes. Notice 2007-54, issued June 11, provided that for income tax returns, amended returns and refund claims, the IRS will apply the preparer standards during the transition period under prior law. For other returns, the IRS will apply the reasonable basis standard under the section 6662 regulations, without regard to the disclosure requirements. In general, the transition relief is provided for income tax returns due by Dec. 31, 2007, as well as 2007 estimated tax returns due by Jan. 15, 2008, and 2007 employment and excise tax returns due by Jan. 31, 2008.

For the notice, see www.irs.gov/pub/irs-drop/n-07-54.pdf . For the AICPA letter, see http://tax.aicpa.org/Resources/.