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Tax Return Preparer Penalties Under Sections 6694 and 6695; Correction

Document Details

Information about this document as published in the Federal Register.

Published Document

This document has been published in the Federal Register. Use the PDF linked in the document sidebar for the official electronic format.

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AGENCY:

Internal Revenue Service (IRS), Treasury.

ACTION:

Correcting amendment.

SUMMARY:

This document contains corrections to final regulations (TD 9436) that were published in the Federal Register on Monday, December 22, 2008 (73 FR 78430) implementing amendments to the tax return preparer penalties under sections 6694 and 6695 of the Internal Revenue Code and related provisions under sections 6060, 6107, 6109, 6696, and 7701(a)(36) reflecting amendments to the Code made by section 8246 of the Small Business and Work Opportunity Tax Act of 2007 and section 506 of the Tax Extenders and Alternative Minimum Tax Relief Act of 2008. The final regulations affect tax return preparers and provide guidance regarding the amended provisions.

DATES:

This correction is effective January 29, 2009, and is applicable on December 22, 2008.

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FOR FURTHER INFORMATION CONTACT:

Michael E. Hara, (202) 622-4910, and Matthew S. Cooper, (202) 622-4940 (not toll-free numbers).

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SUPPLEMENTARY INFORMATION:

Background

The final regulations that are the subject of this document are under sections 6060, 6107, 6109, 6694, 6695, 6696, and 7701 of the Internal Revenue Code.

Need for Correction

As published, final regulations (TD 9436) contains errors that may prove to be misleading and are in need of clarification.

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List of Subjects

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Correction of Publication

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Accordingly,

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PART 1—INCOME TAXES

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Authority: 26 U.S.C. 7805 * * *

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Tax return preparer must furnish copy of return or claim for refund to taxpayer and must retain a copy or record.
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(d) * * *

(1) For the civil penalty for failure to furnish a copy of the return or claim for refund to the taxpayers (or nontaxable entity) as required under paragraph (a) of this section, see section 6695(a) and § 1.6695-1(a).

(2) For the civil penalty for failure to retain a copy of the return or claim for refund, or to retain a record as required under paragraph (b) of this section, see section 6695(d) and § 1.6695-1(d).

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1. The first sentence of paragraph (b)(2) is revised.

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2. The second sentence of paragraph (f)(4)

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3. The eighth sentence of paragraph (f)(4)

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Section 6694 penalties applicable to tax return preparers.
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(b) * * *

(2) * * * If there is a signing tax return preparer within the meaning of § 301.7701-15(b)(1) of this chapter within a firm, the signing tax return preparer generally will be considered the person who is primarily responsible for all of the positions on the return or claim for refund giving rise to an understatement unless, based upon credible information from any source, it is concluded that the signing tax return preparer is not primarily responsible for the position(s) on the return or claim for refund giving rise to an understatement. * * *

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(f) * * *

(4) * * *

Example 1. * * * Of this amount, $20,000 relates to research and consultation regarding a transaction that is later reported on a return, and $1,000 is for the activities relating to the preparation of the return. * * *

Example 2. * * * Because K's signature as the signing tax return preparer is on the return, the IRS advises K that K may be subject to the section 6694(a) penalty. * * *

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Penalty for understatement due to an unreasonable position.
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(d) * * *

(1) * * * For an exception to the section 6694(a) penalty for reasonable cause and good faith, see paragraph (e) of this section.

(2) * * * For purposes of determining whether the tax return preparer has a reasonable basis for a position, a tax return preparer may rely in good faith without verification upon information furnished by the taxpayer and information and advice furnished by another advisor, another tax return preparer, or other party (including another advisor or tax return preparer at the tax return preparer's firm), as provided in §§ 1.6694-1(e) and 1.6694-2(e)(5).

(3) * * *

(ii) * * * In addition, disclosure of a position is adequate in the case of a nonsigning tax return preparer if, with respect to that position, the tax return preparer complies with the provisions of paragraph (d)(3)(ii)(A) or (B) of this section, whichever is applicable.

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Penalty for understatement due to willful, reckless, or intentional conduct.
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(c) * * *

(2) A tax return preparer is not considered to have recklessly or intentionally disregarded a rule or regulation if the position contrary to the rule or regulation has a reasonable basis as defined in § 1.6694-2(d)(2) and is adequately disclosed in accordance with §§ 1.6694-2(d)(3)(i)(A) or (C) or 1.6694-2(d)(3)(ii). In the case of a position contrary to a regulation, the position must represent a good faith challenge to the validity of the regulation and, when disclosed in accordance with §§ 1.6694-2(d)(3)(i)(A) or (C) or 1.6694-2(d)(3)(ii), the tax return preparer must identify the regulation being challenged. * * *

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Other assessable penalties with respect to the preparation of tax returns for other persons.

(a) * * *

(2) * * *

(ii) In order faithfully to carry out their official duties, have so arranged their affairs that they have less than full knowledge of the property that they hold or of the debts for which they are responsible, if information is deleted from the copy in order to preserve or maintain this arrangement.

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Claims for credit or refund by tax return preparers or appraisers.
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(g) Time for filing claim. (1)(i) Except as provided in section 6694(c)(1) and § 1.6694-4(a)(4)(ii) and (5), and in section 6694(d) and § 1.6694-1(d):

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PART 20—ESTATE TAX; ESTATES OF DECEDENTS DYING AFTER AUGUST 16, 1954

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Authority: 26 U.S.C. 7805 * * *

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Section 20.6109-1 also issued under 26 U.S.C. 6109(a). * * *

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Section 6694 penalties applicable to tax return preparer.

(a) In general. For general definitions regarding section 6694 penalties applicable to preparers of estate tax returns or claims for refund, see § 1.6694-1 of this chapter.

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PART 25—GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954

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Authority: 26 U.S.C. 7805 * * *

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Section 25.6109-1 also issued under 26 U.S.C. 6109(a). * * *

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Section 6694 penalties applicable to tax return preparer.

(a) In general. For general definitions regarding section 6694 penalties applicable to preparers of gift tax returns or claims for refund, see § 1.6694-1 of this chapter.

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PART 26—GENERATION-SKIPPING TRANSFER TAX REGULATIONS UNDER THE TAX REFORM ACT OF 1986

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Authority: 26 U.S.C. 7805 * * *

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Section 26.6109-1 also issued under 26 U.S.C. 6109(a). * * *

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Section 6694 penalties applicable to tax return preparer.

(a) In general. For general definitions regarding section 6694 penalties applicable to preparers of generation-skipping transfer tax returns or claims for refund, see § 1.6694-1 of this chapter.

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PART 31—EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT THE SOURCE

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Authority: 26 U.S.C. 7805 * * *

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Section 6694 penalties applicable to tax return preparer.

(a) In general. For general definitions regarding section 6694 penalties applicable to preparers of employment tax returns or claims for refund of employment tax under chapters 21 through 25 of subtitle C of the Internal Revenue Code, see § 1.6694-1 of this chapter.

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Penalty for understatement due to willful, reckless, or intentional conduct.

(a) In general. A person who is a tax return preparer of any return or claim for refund of employment tax under chapters 21 through 25 of subtitle C of the Internal Revenue Code (Code) shall be subject to penalties under section 6694(b) of the Code in the manner stated in § 1.6694-3 of this chapter.

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PART 40—EXCISE TAX PROCEDURAL REGULATIONS

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Authority: 26 U.S.C. 7805 * * *

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Section 40.6109-1 also issued under 26 U.S.C. 6109(a). * * *

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Reporting requirements for tax return preparers.

(a) In general. A person that employs one or more tax return preparers to prepare a return or claim for refund of any tax to which this part 40 applies other than for the person, at any time during a return period, shall satisfy the recordkeeping and inspection requirements in the manner stated in § 1.6060-1 of this chapter.

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Tax return preparer must furnish copy of return to taxpayer and must retain a copy or record.

(a) In general. A person who is a signing tax return preparer of any return or claim for refund of any tax to which this part 40 applies shall furnish a completed copy of the return or claim for refund to the taxpayer and retain a completed copy or record in the manner stated in § 1.6107-1 of this chapter.

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Tax return preparers furnishing identifying numbers for returns or claims for refund.

(a) In general. Each return or claim for refund of any tax to which this part 40 applies prepared by one or more signing tax return preparers must include the identifying number of the preparer required by § 1.6695-1(b) of this chapter Start Printed Page 5106to sign the return or claim for refund in the manner stated in § 1.6109-2 of this chapter.

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Section 6694 penalties applicable to tax return preparer.

(a) In general. For general definitions regarding section 6694 penalties applicable to preparers of returns or claims for refund of any tax to which this part 40 applies, see § 1.6694-1 of this chapter.

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Penalties for understatement due to an unreasonable position.

(a) In general. A person who is a tax return preparer of any return or claim for refund of any tax to which this part 40 applies shall be subject to penalties under section 6694(a) in the manner stated in § 1.6694-2 of this chapter.

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Penalties for understatement due to willful, reckless, or intentional conduct.

(a) In general. A person who is a tax return preparer of any return or claim for refund of any tax to which this part 40 applies shall be subject to penalties under section 6694(b) in the manner stated in § 1.6694-3 of this chapter.

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Extension of period of collection when tax return preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.

(a) In general. For rules relating to the extension of period of collection when a tax return preparer who prepared a return or claim for refund of any tax to which this part 40 applies pays 15 percent of a penalty for understatement of taxpayer's liability and procedural matters relating to the investigation, assessment and collection of the penalties under section 6694(a) and (b), the rules under § 1.6694-4 of this chapter will apply.

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Other assessable penalties with respect to the preparation of tax returns for other persons.

(a) In general. A person who is a tax return preparer of any return or claim for refund of any tax to which this part 40 applies shall be subject to penalties for failure to furnish a copy to the taxpayer under section 6695(a) of the Internal Revenue Code (Code), failure to sign the return under section 6695(b) of the Code, failure to furnish an identification number under section 6695(c) of the Code, failure to retain a copy or list under section 6695(d) of the Code, failure to file a correct information return under section 6695(e) of the Code, and negotiation of a check under section 6695(f) of the Code, in the manner stated in § 6695-1 of this chapter.

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Claims for credit or refund by tax return preparers.

(a) In general. The rules under § 1.6696-1 of this chapter will apply for claims for credit or refund by a tax return preparer who prepared a return or claim for refund of any tax to which this part 40 applies.

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PART 41—EXCISE TAX ON USE OF CERTAIN HIGHWAY MOTOR VEHICLES

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Authority: 26 U.S.C. 7805 * * *

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Other assessable penalties with respect to the preparation of tax returns for other persons.

(a) In general. A person who is a tax return preparer of any return or claim for refund of excise tax under section 4481 of the Internal Revenue Code (Code) shall be subject to penalties for failure to furnish a copy to the taxpayer under section 6695(a) of the Code, failure to sign a return under section 6695(b) of the Code, failure to furnish an identification number under section 6695(c) of the Code, failure to retain a copy or list under section 6695(d) of the Code, failure to file a correct information return under section 6695(e) of the Code, and negotiation of a check under section 6695(f) of the Code, in the manner stated in § 6695-1 of this chapter.

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PART 44—TAXES ON WAGERING; EFFECTIVE JANUARY 1, 1955

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Authority: 26 U.S.C. 7805 * * *

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Section 44.6109-1 also issued under 26 U.S.C. 6109(a). * * *

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Other assessable penalties with respect to the preparation of tax returns for other persons.

(a) In general. A person who is a tax return preparer of any return or claim for refund of tax on wagers under sections 4401 or 4411 of the Internal Revenue Code (Code) shall be subject to penalties for failure to furnish a copy to the taxpayer under section 6695(a) of the Code, failure to sign the return under section 6695(b) of the Code, failure to furnish an identification number under section 6695(c) of the Code, failure to retain a copy or list under section 6695(d) of the Code, failure to file a correct information return under section 6695(e) of the Code, and negotiation of a check under section 6695(f) of the Code, in the manner stated in § 6695-1 of this chapter.

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PART 53—FOUNDATION AND SIMILAR EXCISE TAXES

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Authority: 26 U.S.C. 7805 * * *

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Section 53.6109-1 also issued under 26 U.S.C. 6109(a). * * *

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PART 54—PENSION EXCISE TAXES

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Authority: 26 U.S.C. 7805 * * *

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Section 54.6109-1 also issued under 26 U.S.C. 6109(a). * * *

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[Corrected]

On page 78458, in the third column, in paragraph 107, the instruction “Section 56.6694-3 is added to read as follows:” is removed and the language “Section 54.6694-3 is added to read as follows:” is added in its place.

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PART 55—EXCISE TAX ON REAL ESTATE INVESTMENT TRUSTS AND REGULATED INVESTMENT COMPANIES

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Authority: 26 U.S.C. 7805 * * *

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Section 55.6109-1 also issued under 26 U.S.C. 6109(a). * * *

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PART 56—PUBLIC CHARITY EXCISE TAXES

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Authority: 26 U.S.C. 7805 * * *

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Section 56.6109-1 also issued under 26 U.S.C. 6109(a). * * *

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PART 156—EXCISE TAX ON GREENMAIL

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Authority: 26 U.S.C. 7805 * * *

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Section 156.6109-1 also issued under 26 U.S.C. 6109(a). * * *

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PART 157—EXCISE TAX ON STRUCTURED SETTLEMENT FACTORING TRANSACTIONS

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Authority: 26 U.S.C. 7805 * * *

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Section 157.6109-1 also issued under 26 U.S.C. 6109(a). * * *

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PART 301—PROCEDURE AND ADMINISTRATION

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Authority: 26 U.S.C. 7805 * * *

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Tax return preparer.
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(f) * * *

(1) * * *

(xi) * * *

(B) A waiver of restriction on assessment after initiation of an audit of the taxpayer or another taxpayer if a determination in the audit of the other taxpayer affects, directly or indirectly, the liability of the taxpayer for tax.

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LaNita Van Dyke,

Chief, Publications and Regulations Branch Legal Processing Division, Associate Chief Counsel (Procedure and Administration).

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[FR Doc. E9-1095 Filed 1-28-09; 8:45 am]

BILLING CODE 4830-01-P