Legislation Increases Tax Preparers’ Exposure

Source: Accounting Today

Congress passed a bill requiring, in the case of an undisclosed position, a “reasonable belief that the treatment of the position be more likely than not the proper treatment.” The prior standard provided penalties only if there was no realistic possibility of having an undisclosed position sustained. The penalty, which was previously $250, has been increased to $1,000 or 50 percent of the preparer’s fees on the return, whichever is greater.

According to Bill Smith, director of CBiz tax office, “Essentially, you could advocate a position if you thought there was a reasonable possibility of success on the merits, which was defined as a one-in-three chance. By establishing a ‘more likely than not’ standard, they essentially have taken the comfort level and shoved it up 17 points.”

Practitioners complain that the standard is higher for preparers than for the taxpayers themselves.

Another complaint is that preparers may feel comfortable with a position but not know the probability of its acceptance by the IRS.

Disclosures may increase dramatically, and e-filing may diminish because it doesn’t accommodate large numbers of disclosures.

Tax preparation fees may increase to compensate preparers for additional research.

Some like the new law because it may decrease the number of unprincipled preparers and unrealistic clients.

From Accounting Today, August 20, 2007, SourceMedia Inc., One State Street Plaza, 27th Floor, New York, NY 10004, 800-221-1809. For the complete article, click here, then select the article Congress Turns on Heat on Preparers.