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June 2007
NEWS FROM
BP&S
BPS Seminars
You invited to join us for
the 2007 BPS “In-House” seminars. Tentative dates are
September 28 and October 26 (both Fridays). As in the
past, the seminars will be for half days—4 hours of
credit. We’ll send out the agendas in the August
newsletter. If you have not joined us before, this is a
good way to pick up some continuing professional
education. Not only is it free--not only will you get
to spend quality time with your favorite BPS
professionals--but we will provide you with lunch.
Seminar teaser---In
September, Aaron Blackmor will be leading a discussion
of “fraud detection using Benford’s Law”. In October,
Dana O’Shields will cover “asset retirement
obligations”. Anticipating the high level of interest,
we’ve added extra seating.
Softball News
BPS is trading in the
green visors for baseball caps this month as we return
to the softball field after a one year hiatus. The
“Phat Assets” feature a revamped roster after finishing
the 2005 season with a .500 record (more or less). The
upgrade in talent is aided by a switch to an
accounting-only league. The team looks to keep its 12
month streak of zero losses going when it plays the
first game of the season later this month.
TECHNICAL ISSUES
2007 Small Business Act
Broadens the Scope of Tax Return Preparer
Penalties,
Increases Penalty Amounts and Modifies Standards for
Avoiding Penalties
Under pre-2007 Small Business
Act law, an income tax return preparer was any person who
prepared for compensation, or who employed other people to
prepare for compensation, all or a substantial portion of an
income tax return or refund claim. The definition of an
income tax return preparer
did not include
a person preparing non-income tax returns, such as estate,
gift, excise, or employment tax returns. An income tax
return preparer for a given return or refund claim was
liable for a $250 penalty for that return or refund claim if
all of the following applied:
-
any part of the tax
understatement shown on the return or claim was due to a
position for which there wasn't a realistic possibility
of being sustained on its merits,
-
the preparer knew (or
reasonably should have known) of this position, and
-
the position wasn't
disclosed as provided in the
substantial-understatement-of-income-tax-penalty
disclosure rules, or the position was frivolous.
For purposes of the penalty,
an understatement was generally defined as any
understatement for any tax imposed by subtitle A of the Code
(i.e., income taxes). An income tax return preparer who
prepared a return or claim and engaged in specified willful
or reckless conduct in preparing the return or claim was
liable for a $1,000 penalty.
New Law.
A tax return preparer
who prepares a return or refund claim for which any part of
a tax liability understatement is due to an “unreasonable
position” (defined below) must pay a penalty for each return
or claim equal to the greater of
... $1,000 or
... 50% of the income derived
(or to be derived) by the tax return preparer for preparing
the return or claim.
A position is “unreasonable”
if:
... the tax return preparer
knew (or reasonably should have known) of the position,
... there was not a reasonable
belief that the position would more likely than not be
sustained on its merits, and
... the position was not
disclosed or there was no reasonable basis for the
position.
Items for which there is
adequate disclosure are treated as if they were shown
properly on the return for the tax year for purposes of
computing the amount of the tax shown on the return. Thus,
for purposes of the understatement penalty, the tax
attributable to these items isn't included in the
understatement for that year.
However, no penalty will be imposed if it is shown that
there is reasonable cause for the understatement and the tax
return preparer acted in good faith.
A
tax return preparer who prepares a return or refund claim
for which any part of a tax liability understatement is due
to “willful or reckless conduct” (defined below) must pay a
penalty for each return or claim equal to the greater of
... $5,000 or
... 50% of the income derived
(or to be derived) by the tax return preparer for preparing
the return or claim.
“Willful or reckless conduct” is conduct by the tax return
preparer which is:
... a willful attempt to
understate the tax liability on the return or claim, or
... a reckless or intentional
disregard of rules or regulations.
Any penalty payable by a person due to willful or reckless
conduct in connection with a return or refund claim will be
reduced by the penalty paid by that person due to an
unreasonable position.
In
addition, the provision amends the definition of tax return
preparer to include preparers of estate, gift, employment
and excise tax returns, and exempt organization returns. The
2007 Small Business Act also makes conforming amendments to
replace the term “income tax return preparer” with the term
“tax return preparer.”.
Besides increasing the penalty amounts, the above provision
ensures that the pre-2007 Small Business Act income tax
return
preparer
penalties
apply to all tax return preparers, i.e., estate, gift,
employment, excise tax, and exempt organization return
preparers.
Effective:
For returns prepared
after May 25, 2007.
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