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Proposed Tax Preparer Due Diligence Penalty - IRS Issues Final Regulations

Back in September, we posted that SCMV shareholder Brian Katusian (Chair of the Income and Other Taxes Committee) and other members of the California Lawyers Association Taxation Section had submitted comments to the IRS and Treasury regarding the IRS’s proposed regulations for tax return preparer due diligence penalty. The IRS has since issued final regulations that address these comments. Some of the comments submitted resulted in modification to the proposed regulations to the penalty outlined in 6695(g) of the IRS Internal Revenue Code.

The group’s comments addressed common situations such as the need for guidance on the impact of a return preparer’s preexisting personal or professional relationship with clients. As a result, the IRS revised example 5 and added new example 6 to the final regulations, which clarifies that a tax return preparer who possesses pre-existing knowledge that was acquired outside the context of the preparer’s tax return preparation practice cannot rely on that pre-existing knowledge and must make reasonable inquiries and contemporaneously document those inquiries in the tax return preparer’s files.  

The IRS also provided additional clarifying guidance in the preamble to the final regulations based on the comments submitted, including making its position clear that a tax return preparer for due diligence penalty purposes includes a business entity (not just an individual), and includes persons who do not have a taxpayer identification number.  The published final regulations addressing IRS responses to the comments submitted can be located here.

November 8th, 2018  |  Categories: