Preparer Penalties: The Thin Line Between Tax Advisor and Return Preparer

The IRS has given out over 1.8 million tax preparer ID numbers since 2010, with almost 700,000 still active. Anyone who gets paid to prepare tax returns is considered a “tax return preparer.” Even if you’re a lawyer giving legal advice that ends up in a tax return, you’re also considered a preparer. The IRS doesn’t care about fancy degrees or where the preparer is from. Even if your cousin does your uncle’s taxes for $50 and some beer, they’re still a tax preparer and have to follow the rules and face penalties if they mess up. A tax return preparer is someone who gets paid to help people fill out their tax forms or to claim a refund from the government. Even if you don’t actually fill in the numbers on the forms, if you give advice on a big part of the tax return, you’re still considered a preparer. This means you could be held responsible if anything goes wrong with the tax return. If someone helps with a tax return but doesn’t have the main responsibility for it, they’re not considered a preparer. There are two types of preparers: signing, who are responsible for the accuracy of the whole return, and non-signing, who prepare a big part of the return. If a preparer makes a mistake that causes the taxpayer to pay less tax than they should, they can be fined. But if they had a good reason for the mistake and acted in good faith, they won’t be fined. If a business knew about the mistake and didn’t do anything about it, they might also be fined. If a tax preparer knowingly tries to help a taxpayer cheat on their taxes or doesn’t follow the tax rules on purpose, they can be fined a lot of money. The fine is either $5,000 or 75% of the money they made from preparing the tax return, whichever is more. If a tax preparer doesn’t follow the rules, they can’t just say they didn’t know about the rules. They have to make an effort to follow the rules that other tax preparers follow. There are some exceptions where a tax preparer can challenge a rule, but they have to show they have a good reason and tell the taxpayer about it. If a tax preparer’s firm is responsible for breaking the rules, they can also be fined. But it looks like the firm might not have to pay as much if the preparer also gets fined. If a tax preparer is found responsible for a penalty, they can pay at least 15% of the penalty within 30 days and file a claim for a refund to challenge it. This puts a hold on any enforced collection by the IRS until the refund claim is resolved. If the claim is denied and the preparer doesn’t challenge it in court, the IRS can then start collecting the remaining penalty. The IRS has 10 years to collect the penalty, and this time period is paused while they’re unable to collect it. There are also other penalties that preparers can face for breaking tax rules. Tax preparers have to follow strict rules when preparing tax returns. They must sign a paper return before giving it to the taxpayer, or provide all the necessary information if filing electronically. They also need to keep copies of the returns for at least three years. If they don’t follow these rules, they can be fined. Preparers also need to check if their clients are eligible for certain tax benefits and keep records of their findings. If they make a mistake in this process, they can also be fined. There are other penalties for preparers who promote abusive tax shelters, aid in understating tax liabilities, or disclose information improperly. It’s important for tax preparers to understand these rules and follow them carefully to avoid getting in trouble. The main point of this article is that tax attorneys could be considered as preparers if they give substantial advice to a taxpayer that the taxpayer uses on their tax return. This means tax attorneys and their firms need to understand the rules and penalties for preparers to avoid getting in trouble. In the US, the internal revenue service has statistics on tax return preparers. The article explains the rules and penalties for preparers, giving examples from the Internal Revenue Code. The Treasury Regulations provide rules for tax preparers to follow when preparing tax returns. These rules help ensure that the tax preparer has a good reason for the positions taken on the tax return and that they disclose certain information when necessary. If the preparer doesn’t follow these rules, they could face penalties. If a tax preparer gives you bad advice and you file your taxes wrong, they can get in trouble and have to pay a penalty. This penalty also applies to the tax preparation firm the preparer works for. The penalty can be for giving the wrong advice or for not following IRS rules. If you want to sue the preparer for the penalty, you don’t have to pay it first. The penalty also applies if the preparer doesn’t sign your tax return or if they don’t give you a copy of what they sent to the IRS. The text discusses regulations and penalties related to tax return preparers. It also mentions a tax attorney, Scott St. Amand, who is knowledgeable about tax law and runs a blog called Briefly Taxing. The column is submitted on behalf of the Tax Section, with Harris L. Bonnette as the chair and Taso Milonas, Charlotte A. Erdmann, Daniel W. Hudson, and Angie Miller as editors. The Florida Bar’s mission is to promote the principles of duty and service to the public, improve the administration of justice, and advance the science of jurisprudence.

Source: https://www.floridabar.org/the-florida-bar-journal/preparer-penalties-the-thin-line-between-tax-advisor-and-return-preparer/