AICPA Actions Regarding a IRC Section 6694 Preparer Penalty Standard (2007-2009)

The AICPA actively intent in both legislative and regulatory efforts in response to a May 2007 revisions to a territory 6694 preparer chastisement standards, privately with honour to a “more expected than not” standard.


I.  May 2007 Revisions to IRC Section 6694

In May 2007, a taxation lapse preparer chastisement supplies in territory 6694 of a Internal Revenue Code were recvised by a Small Business and Work Opportunity Act of 2007.  The Act (1) lifted a taxation lapse stating standards for preparers; (2) broadened a range of a penalty; and (3) increasing a volume of a penalty.

New Reporting Standards.  The taxation lapse preparer customary for an undisclosed position was lifted from “realistic possibility” of success to a “reasonable faith that a position would some-more expected than not be postulated on a merits” if challenged (RB/MLTN).  The taxation lapse preparer customary for a disclosed position was lifted from “not frivolous” to “reasonable basis.”

Broader Scope.  The range of a territory 6694 preparer chastisement was broadened to embody not usually income taxation returns, though also estate, gift, employment, and dig taxation earnings and earnings of free organizations.

Higher Penalty Amount.  The chastisement for understatements due to irrational positions was increasing from $250 to a larger of $1,000 or 50% of a income subsequent (or to be derived).  The chastisement for understatements due to bullheaded or forward control was increasing from $1,000 to a larger of $5,000 or 50% of a income subsequent or to be derived.

Effective Date.  The revisions primarily were effective for earnings prepared after May 25, 2007, a date a Act was enacted.  However, in Notice 2007-54, a IRS deferred a user dates for these rules, generally until 2008. (See below.)


II.  Transitional Relief

  • June 7, 2007 AICPA Letter.  The AICPA urged Treasury and a IRS to yield transitory service per a effective date fro a revisions to territory 6694.
  • Notice 2007-54.  Transitional service was supposing on Jun 11, 2007 in Notice 2007-54.


III.  AICPA Legislative Effort and Oct 2008 Revision to IRC Section 6694

In response to a May 2007 revsions to territory 6694, a AICPA aggressively followed a legislative bid to reduce a preparer customary for undisclosed, non-tax preserve positions to “substantial authority,” a customary germane to taxpayers for such positions.

  • July 10, 2007 AICPA Letter to a Chairmen and Ranking Members of a House Ways and Means Committee and a Senate Finance Committee.
  • July 12, 2007 AICPA Cover Letter to a Chairman and Ranking Member on a House Ways and Means Committee’s Subcommittee on Oversight and to a Chairman and Ranking Member of a Senate Finance Committee’s Subcommittee on Taxation, IRS Oversight, and Long-Term Growth.

On Oct 3, 2008, as partial of a Emergency Economic Stabilization Act of 2008, a taxation lapse stating standards for preparers were revised.  The new standards germane to preparers are: (1) for non-tax preserve items, “substantial authority” for undisclosed positions and “reasonable basis” for disclosed positions; and (2) for taxation preserve equipment and reportable transactions, in general, RB/MLTN.  For functions of a territory 6694 preparer chastisement provisions, a “tax shelter” is tangible as a partnership, entity, plan, or arrangement a poignant purpose of that is a deterrence or semblance of Federal income tax.

IV.  AICPA Regulatory Effort

The AICPA supposing comments to a IRS and Treasury per superintendence indispensable underneath a revised territory 6694 preparer chastisement provisions.  See a following letters for AICPA recommendations:

Initial AICPA Recommendations

  • September 14, 2007.  AICPA requests evident superintendence from a IRS on certain isues, to promote a transition to a new territory 6694 standards.
  • November 7, 2007.  AICPA offers comments to a IRS on: a focus of a transitory order t nonsigning preparers; avowal mandate for nonsigning preparers; and specific forms to that territory 6694 aplies.
  • March 17, 2008. AICPA offers recommendations to a IRS and Treasury per superintendence t be released underneath territory 6694 and associated provisions.
  • April 21, 2008. AICPA offers supplemental recommendations to a IRS and Treasury per territory 6694 issues that are specific to a estate, gift, and trust taxation use areas.

AICPA Comments on Proposed Regulations

  • August 7, 2008. AICPA offers comments to a IRS and Treasury on the proposed regulations released on Jun 17, 2008 per territory 6694 and associated provisions.
  • March 13, 2009. AICPA comments to a IRS on Notice 2009-5, quite assenting a IRS and Treasury on providing a halt chastisement correspondence manners contained in territory C.

About Emil Estafanous, CPA
Certified Public Accountant (CPA) Tax Professional committed in representing taxpayers and resolving their tax problems.

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