Brian Katusian comments on Proposed IRS Tax Preparer Regulations
As Vice Chair of the Income and Other Taxes Committee of the California Lawyers Association Taxation Section, SCMV shareholder Brian Katusian has co-written a comment paper to the Internal Revenue Service (IRS) regarding the agency’s proposed regulations for tax return preparer due diligence penalty under 6695(g) of the IRS Internal Revenue Code.
Paid tax-return preparers must exercise due diligence, conduct interviews and ask adequate questions to determine whether a taxpayer meets all the eligibility requirements for various tax credits under the Internal Revenue Code, including the Earned Income Tax Credit (EITC), Child Tax Credit (CTC) and American Opportunity Tax Credit (AOTC).
As a result of recent tax legislation commonly referred to as the 2017 Tax Cuts and Jobs Act, these due diligence requirements were expanded to cover tax returns where head of household filing status is claimed on the return. Currently set at $510 per failure, the penalties for failure to meet the “due diligence requirements” can potentially be severe.
Given the penalty amount, and the fact that the IRS typically audits numerous returns prepared by return preparers, a single return claiming the EITC, CTC, AOTC and head of household filing status could generate $2,040 in penalties.
When the IRS proposes regulations, it solicits public comments and, after considering the feedback, conducts further research and makes changes before publishing its final regulations. Due to the severity of 6695(g) penalties on tax return preparers, Brian and his CLA colleagues have taken the opportunity to comment on the IRS’s proposed regulations in a constructive and practical fashion that may potentially influence the final regulations issued by the IRS.
The authors addressed common situations, such as the impact of a return preparer’s preexisting personal or professional relationship with clients—and the preexisting knowledge that often comes along with it—on their exercise of due diligence, as well as the scope and depth of inquiries that need to be undertaken by the return preparer and other adjunct issues.