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IRS Issues Final Return Preparer Regulations

Back in August, we announced that WKBK&Y attorney Matthew D. Carlson (member of the Taxation Section of the CLA, and Vice Chair of the Income and Other Tax Committee) and other members of the California Lawyers Association Taxation Section had submitted comments to the IRS and Treasury regarding proposed regulations under IRC § 6695(g), Tax Return Preparer Due Diligence Penalty.  The IRS has since issued final regulations that incorporated and responded to the submitted comments, noting that these were the only comments received on this important subject.  Specifically, some of the comments resulted in modification to regulations governing the penalties imposed on return preparers under various scenarios.

As a result of the submitted comments, 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 added clarifying guidance in the preamble to the final regulations based on the submitted comments, including making its position clear that a tax return preparer for due diligence penalty purposes includes: (i) a business entity; and (ii) persons who do not have a taxpayer identification number.

The published final regulations are located here.

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