Shifting sands under preparers' feet: waiting for the last word on tax return preparer penalties

Legislative proposals have been introduced to subject paid return preparers to regulation/ the Treasury Department and the IRS have tightened the practitioner ethics rules under Circular 230, and increased government resources have been focused on pursuing problematic preparers. Changes have expanded the statute beyond preparers of income tax returns to include paid preparers of all returns, raised the confidence standards preparers are required to meet to avoid penalties and substantially increased the amount of the preparer penalty. The 2007 changes generated an immediate outcry from preparers, who argued that the new statute could actually hurt compliance by driving preparers out of business, forcing taxpayers to prepare their own returns or retain unscrupulous preparers who were not deterred by the increased penalty exposure. Given the critical role that paid return preparers play in facilitating compliance and the shortcomings of the current preparer penalty regime, new proposals to modify Section 6694 can be expected.