IRS Releases Tax Return Preparer Penalty Regulations
The Internal Revenue Service Dec. 15 issued final regulations on tax preparer penalties relating to standards for disclosing tax positions to IRS. The final regulations provide that, with respect to a signing preparer, for a tax position for which there is a “reasonable basis,” but for which substantial authority does not exist, disclosure can consist of:

• filling out Form 8275;
• giving the taxpayer a return that includes the appropriate disclosure under Section 6662 on accuracy-related penalties on underpayments; or
• giving the taxpayer a speech advising him or her of penalties that apply under Section 6662 (only if the disclosure involves something other than an accuracy-related penalty)

On defining a preparer within a firm, the regulations finalized the position that the individual who signs the return or claim for refund as the tax return preparer generally will be considered to be the person within a firm who is primarily responsible for all the positions on the return with an understatement.  If there is no signing tax preparer for the return within the firm, or if it is concluded that the signing preparer is not primarily responsible for the position, the nonsigning preparer within the firm with overall supervisory responsibility for the position generally will be considered to be the responsible tax preparer.

Tax Preparer Penalties under Sections 6694 and 6695

WORKER, RETIREE, AND EMPLOYER RECOVERY ACT OF 2008—Congress Passes Emergency Pension Tax Relief/Technical Corrections

President Signs Financial Markets Rescue Plan, AMT Patch, Extenders, Disaster Relief And More
Congress passed and President Bush signed a historic financial markets rescue bill, the Emergency Economic Stabilization Act of 2008, that includes over 100 tax provisions and over $150 billion in separate tax breaks. In addition to the major tax provisions that directly address current financial bailout measures, the new law includes a much-anticipated alternative minimum tax (AMT) patch, an extensive package of tax extenders, energy incentives, disaster relief, and more. The Emergency Economic Stabilization Act’s $150 billion in tax incentives impacts both individuals and businesses. Approximately $44 billion in offsets, however, mean tax increases for certain groups.

Although the new law’s primary purpose is to solve the credit crunch in the financial markets, it also serves as one of the largest tax bills in recent years. The new law makes almost 300 changes to the Internal Revenue Code. While roughly $150 billion in tax breaks had to be computed over a requisite 10-year period for budget scoring purposes, the lion’s share of that outlay provides taxpayer relief immediately in 2008 and 2009. Consequently, year-end tax planning takes on a special urgency this year to maximize taxpayer use of these new tax breaks both before 2008 ends and immediately at the start of 2009. For more information, click here: Emergency Economic Stabilization Act of 2008.

Tax and Accounting Professionals See Impact of Financial Crisis and Uncertainty of Legislation Up Close

By way of background, NSAlert readers will recall that the Small Business and Work Opportunity Act of 2007 (who makes up these names?) changed the disclosure standards for tax preparers but not for taxpayers themselves. Taxpayers are required to disclose tax positions if there is substantial authority for the position, but tax preparers are required by the Act to disclose a position unless there is a more likely than not possibility that the position would be upheld by the IRS.

The proposed regulations have attempted to deal with the different disclosure standards by allowing the tax preparer to make any required disclosure to the taxpayer rather than the IRS.  Accordingly, a tax preparer who makes the disclosure to his client can avoid penalties without having to actually file Form 8275 with the IRS.

The proposed regulations provide five options for a tax preparer to make adequate disclosure regarding a tax position.  The five options are:
- A tax preparer can disclose the position on a Form 8275 filed with the IRS;
- The preparer may provide the taxpayer with a prepared tax return that includes appropriate disclosures;
- If the tax position taken on a tax return meets the substantial authority standard, the disclosure is considered adequate if the tax preparer advised the taxpayer of all of the penalty standards applicable under Section 6662 of the Internal Revenue Code;
- If the position can be considered a tax shelter under Section 6662, discloser is adequate if the tax preparer advised the taxpayer that there needs to be "substantial authority" for the position, that the taxpayer has a reasonable belief that the position was "more like than not" the proper position, and that the disclosure of the position will nevertheless not protect the taxpayer from the assessment of an accuracy-related penalty.

In essence, the proposed regulations redefine adequate disclosure to mean disclosure by the tax preparer to the taxpayer, not to the IRS. A public hearing on the proposed regulations has been scheduled for August 18.  The NSA Federal Tax Committee will be reviewing the document in anticipation of the hearing.  You can review the proposed regulations here:  Proposed Disclosure Regulations for Tax Preparers.

Amendments to Circular 230 Made Final; 'Limited Practice Rights' Retained
The Treasury Department on Tuesday, September 25 issued final rules making amendments to Circular 230. NSA Members will recall that proposed rules had been issued on February 8, 2006. NSA is pleased that the Treasury Department has agreed with our objection to the proposal to do away with the so-called "limit practice rights" for those individuals who prepared a return. Under the proposal, these individuals, who are not otherwise covered by Circular 230 because they are not attorneys, CPAs, EAs or PAs, could not even respond to IRS questions about a return they had prepared. This provision has not been retained in the final rules and we applaud Treasury for heeding the advice of practitioners to drop this rule. To quote the Treasury: 
   "the authorization in §10.7(c)(viii), which allows an individual, who was not otherwise a practitioner, to represent a taxpayer during an examination if that individual prepared the return for the taxable period under examination, is retained. An unenrolled return preparer who prepared the taxpayer's return for the year under examination, therefore, may continue to negotiate with the IRS on behalf of that taxpayer during an examination or bind that taxpayer to a position during an examination."
Click here for a copy of the regulation.

NSA Urges Senate to Ban Tax Strategy Patents
NSA praised the U.S. House of Representatives for passing H.R. 1980, the Patent Reform Act of 2007, which includes a section that would prohibit patents on tax strategies, which are allowed under current law, and urged the Senate to act promptly on this matter as well.

NSA Urges U.S. Senate Finance Committee to Enact Tax Preparer Legislation
Proposed legislation would require tax preparers to demonstrate expertise; national exams offered by credentialing organizations would demonstrate proficiency.

National Society of Accountants Statement for the Record to the Senate Finance Committee: Filing Your Taxes: An Ounce of Prevention is Worth a Pound of Cure

Click here for: National Society of Accountants Model Bill on Tax Preparer Registration

Special Web Section Unveiled for Homeowners Who Lose Homes; Foreclosure Tax Relief Available to Many
In IR-2007-159, the IRS unveiled a new section on IRS.gov for people who have lost their homes due to foreclosure. The IRS reassured homeowners that, although mortgage workouts and foreclosures can have tax consequences, special relief provisions can often reduce or eliminate the tax bite for financially strapped borrowers who lose their homes. The new section of IRS.gov includes a worksheet designed to help borrowers determine whether any of the foreclosure-related relief provisions apply to them. For those taxpayers who find they owe additional tax, it also includes a form they can use to request a payment agreement with the IRS.  In some cases, eligible taxpayers may qualify to settle their tax debt for less than the full amount due using an offer-in-compromise.

Large Tax "Simplification" Bill in the Fall – Possible Tax Preparer Legislation?
House Ways and Means Committee Chairman Charles Rangel stated to reporters that the Committee will hold a hearing during September and the alternative minimum tax but that and change in the AMT would likely be part of a larger tax reform bill.  The Senate Finance Committee is also looking at tax changes as part of a "good government" bill, and committee sources have told NSA that tax preparer registration will likely be a component of such a bill.  The Senate and House bills will likely be combined into one tax package before it is sent to the President, assuming it gets to that point.

NSA has kept a steady eye on tax preparer legislation.  NSA representatives have met, and will continue to meet, with key Senators, Representatives and congressional and Treasury Department staff to discuss essential elements of such legislation, including an exemption from any testing requirement for those who have passed any comprehensive national tax examination such as the examination associated with the Accredited Tax Preparer or Accredited Business Accountant credentials offered by ACAT.

With respect to the AMT, a straight repeal would deprive the IRS with billions of dollars in tax revenues, so Rangel stated his committee would look at any all means of making up the revenue. He also indicated that he had not closed the door on revamping the AMT–an approach favored by the Senate–if the revenue offsets could not be found or would not receive committee approval.

Tax Accounting Guidelines for Small Business ^©
Over the years, many small businesses have seen the need for an alternative method of accounting that would serve their purposes but without the unnecessary regulatory burden and expense often associated with GAAP. NSA is pleased to make available the Tax Accounting Guidelines for Small Business© (TAGSB) to NSA members only. TAGSB—intended for those practitioners not directly licensed by their state board of accountancy or similar regulatory entity—provides guidance for the preparation of financial statements presented in conformity with the principles of accounting used in the preparation of tax returns.  In contrast to GAAP-based financial statements, it requires the entity to maintain only one set of financial records.  If you are an NSA member, please review TAGSB and see if these guidelines can help you serve your small business clients.

NSA ConnectED Webinars
New IRS Sec. 6694 Preparer Penalty Rules: How to Protect You & Your Practice
Thursday, January 8, 2009
2:30-3:30pm EST
CPE: 1 Hour/Ethics
Registration Closes at 1:00pm EST on 1/8

IRS Sec. 7216 Disclosure Rules: Your Client's Privacy & Your Practice
Tuesday, January 13, 2009
2:30-3:30pm EST
CPE: 1 Hour/Ethics
Registration Closes at 1:00pm EST on 1/13

NSA Annual Meeting
August  12-15, 2009
San Diego, CA
Are you a speaker?
Click here to download NSA's Call for Presentations

2008 Leadership Networking & Training Conference and Legislative Strategy Resources

2008 NSA Income & Fee Survey Report Now Available for Download
Find out how your practice compares in term of fees, salaries, business mix and more. For the highlights and press release, click here: NSA 2008 Fee Survey 

NSA Learning Gateway
Education and CPE Your Way!
Quality, affordable education & CPE available online and/or CD-ROM.
Enrolled Agent Review Course Now Available!

Affiliate News—December 2008
The online monthly newsletter designed for NSA's Affiliated State Organizations.

The NSA WorldPoints™ Credit Card. Rewards you can really get into.

Online Job Bank!