Td 9436

Monday,
December 22, 2008

Part II

Department of the
Treasury
Internal Revenue Service

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26 CFR Parts 1, 20, 25, et al.
Tax Return Preparer Penalties Under
Sections 6694 and 6695; Final Rule

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Federal Register / Vol. 73, No. 246 / Monday, December 22, 2008 / Rules and Regulations

DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 20, 25, 26, 31, 40, 41,
44, 53, 54, 55, 56, 156, 157, 301, and
602
[TD 9436]
RIN 1545–BG83

Tax Return Preparer Penalties Under
Sections 6694 and 6695

sroberts on PROD1PC70 with RULES

AGENCY: Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations.
SUMMARY: This document contains final
regulations implementing amendments
to the tax return preparer penalties
under sections 6694 and 6695 of the
Internal Revenue Code (Code) and
related provisions under sections 6060,
6107, 6109, 6696, and 7701(a)(36)
reflecting amendments to the Code
made by section 8246 of the Small
Business and Work Opportunity Tax
Act of 2007 and section 506 of the Tax
Extenders and Alternative Minimum
Tax Relief Act of 2008. The final
regulations affect tax return preparers
and provide guidance regarding the
amended provisions.
DATES: Effective Date: These regulations
are effective on December 22, 2008.
Applicability Date: For dates of
applicability, see §§ 1.6060–1(d),
1.6107–1(e), 1.6109–2(d), 1.6694–1(g),
1.6694–2(f), 1.6694–3(g), 1.6694–4(d),
1.6695–1(g), 1.6695–2(d), 1.6696–1(k),
20.6060–1(b), 20.6107–1(b), 20.6109–
1(b), 20.6694–1(b), 20.6694–2(b),
20.6694–3(b), 20.6694–4(b), 20.6695–
1(b), 20.6696–1(b), 20.7701–1(b),
25.6060–1(b), 25.6107–1(b), 25.6109–
1(b), 25.6694–1(b), 25.6694–2(b),
25.6694–3(b), 25.6694–4(b), 25.6695–
1(b), 25.6696–1(b), 25.7701–1(b),
26.6060–1(b), 26.6107–1(b), 26.6109–
1(b), 26.6694–1(b), 26.6694–2(b),
26.6694–3(b), 26.6694–4(b), 26.6695–
1(b), 26.6696–1(b), 26.7701–1(b),
31.6060–1(b), 31.6107–1(b), 31.6109–
2(b), 31.6694–1(b), 31.6694–2(b),
31.6694–3(b), 31.6694–4(b), 31.6695–
1(b), 31.6696–1(b), 31.7701–1(b),
40.6060–1(b), 40.6107–1(b), 40.6109–
1(b), 40.6694–1(b), 40.6694–2(b),
40.6694–3(b), 40.6694–4(b), 40.6695–
1(b), 40.6696–1(b), 40.7701–1(b),
41.6060–1(b), 41.6107–1(b), 41.6109–
2(b), 41.6694–1(b), 41.6694–2(b),
41.6694–3(b), 41.6694–4(b), 41.6695–
1(b), 41.6696–1(b), 41.7701–1(b),
44.6060–1(b), 44.6107–1(b), 44.6109–
1(b), 44.6694–1(b), 44.6694–2(b),
44.6694–3(b), 44.6694–4(b), 44.6695–
1(b), 44.6696–1(b), 44.7701–1(b),

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53.6060–1(b), 53.6107–1(b), 53.6109–
1(b), 53.6694–1(b), 53.6694–2(b),
53.6694–3(b), 53.6694–4(b), 53.6695–
1(b), 53.6696–1(b), 53.7701–1(b),
54.6060–1(b), 54.6107–1(b), 54.6109–
1(b), 54.6694–1(b), 54.6694–2(b),
54.6694–3(b), 54.6694–4(b), 54.6695–
1(b), 54.6696–1(b), 54.7701–1(b),
55.6060–1(b), 55.6107–1(b), 55.6109–
1(b), 55.6694–1(b), 55.6694–2(b),
55.6694–3(b), 55.6694–4(b), 55.6695–
1(b), 55.6696–1(b), 55.7701–1(b),
56.6060–1(b), 56.6107–1(b), 56.6109–
1(b), 56.6694–1(b), 56.6694–2(b),
56.6694–3(b), 56.6694–4(b), 56.6695–
1(b), 56.6696–1(b), 56.7701–1(b),
156.6060–1(b), 156.6107–1(b),
156.6109–1(b), 156.6694–1(b),
156.6694–2(b), 156.6694–3(b),
156.6694–4(b), 156.6695–1(b),
156.6696–1(b), 156.7701–1(b),
157.6060–1(b), 157.6107–1(b),
157.6109–1(b), 157.6694–1(b),
157.6694–2(b), 157.6694–3(b),
157.6694–4(b), 157.6695–1(b),
157.6696–1(b), 157.7701–1(b), and
301.7701–15(g).
FOR FURTHER INFORMATION CONTACT:
Michael E. Hara, (202) 622–4910, and
Matthew S. Cooper, (202) 622–4940 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information
contained in these final regulations
were previously reviewed and approved
by the Office of Management and
Budget in accordance with the
Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)) under control number
1545–1231. The collections of
information in this final regulation are
in §§ 1.6060–1(a)(1), 1.6107–1, 1.6694–
2(d)(3), 20.6060–1(a)(1), 20.6107–1,
25.6060–1(a)(1), 25.6107–1, 26.6060–
1(a)(1), 26.6107–1, 31.6060–1(a)(1),
31.6107–1, 40.6060–1(a)(1), 40.6107–1,
41.6060–1(a)(1), 41.6107–1, 44.6060–
1(a)(1), 44.6107–1, 53.6060–1(a)(1),
53.6107–1, 54.6060–1(a)(1), 54.6107–1,
55.6060–1(a)(1), 55.6107–1, 56.6060–
1(a)(1), 56.6107–1, 156.6060–1(a)(1),
156.6107–1, 157.6060–1(a)(1), and
157.6107–1. This information is
necessary to make the record of the
name, taxpayer identification number,
and principal place of work of each tax
return preparer, make each return or
claim for refund prepared available for
inspection by the Commissioner of
Internal Revenue, and to document that
the tax return preparer advised the
taxpayer of the penalty standards
applicable to the taxpayer in order for
the tax return preparer to avoid
penalties under section 6694. The
collection of information is required to

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comply with the provisions of section
8246 of the Small Business and Work
Opportunity Tax Act of 2007 and
section 506 of the Tax Extenders and
Alternative Minimum Tax Relief Act of
2008. The likely respondents are tax
return preparers and their employers.
Estimated total annual reporting
burden: 10,679,320 hours.
Estimated average annual burden per
respondent: 15.6 hours.
Estimated number of respondents:
684,268.
Estimated frequency of responses:
127,801,426.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a valid control
number assigned by the Office of
Management and Budget.
Background
This document contains final
amendments to the Income Tax
Regulations (26 CFR part 1), the Estate
Tax Regulations (26 CFR part 20), the
Gift Tax Regulations (26 CFR part 25),
the Generation-Skipping Transfer Tax
Regulations (26 CFR part 26), the
Employment Tax and Collection of
Income Tax at Source Regulations (26
CFR part 31), the Excise Tax Procedural
Regulations (26 CFR part 40), the
Highway Use Tax Regulations, (26 CFR
part 41), the Wagering Tax Regulations
(26 CFR part 44), the Foundation and
Similar Excise Tax Regulations (26 CFR
part 53), the Pension Excise Tax
Regulations (26 CFR part 54), the Excise
Tax on Real Estate Investment Trusts
and Regulated Investment Companies
Regulations (26 CFR part 55), the Public
Charity Excise Tax Regulations (26 CFR
part 56), the Excise Tax on Greenmail
Regulations (26 CFR part 156), the
Excise Tax on Structured Settlement
Factoring Transactions Regulations (26
CFR part 157), and the Regulations on
Procedure and Administration (26 CFR
part 301) implementing the
amendments to tax return preparer
penalties under sections 6694 and 6695
(and the related provisions under
sections 6060, 6107, 6109, 6696, and
7701(a)(36)) made by section 8246 of the
Small Business and Work Opportunity
Tax Act of 2007, Title VIII–B of Public
Law 110–28 (121 Stat. 190) (May 25,
2007) (the 2007 Act) and section 506 of
the Tax Extenders and Alternative
Minimum Tax Relief Act of 2008, Div.
C of Public Law 110–343 (122 Stat.
3765) (October 3, 2008) (the 2008 Act).
Section 8246 of the 2007 Act
amended sections 6694 and 7701(a)(36)
and made conforming changes to other
Code provisions to make tax return
preparer penalties applicable to a

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Federal Register / Vol. 73, No. 246 / Monday, December 22, 2008 / Rules and Regulations
broader range of tax returns and claims
for refund. The 2007 Act’s amendments
to section 6694 also changed the
standards of conduct that tax return
preparers must meet in order to avoid
imposition of penalties in the event that
a return prepared results in an
understatement of tax. For undisclosed
positions, the 2007 Act replaced the
‘‘realistic possibility’’ standard with a
standard requiring the tax return
preparer to have a ‘‘reasonable belief
that the position would more likely than
not be sustained on its merits.’’ For
disclosed positions, the 2007 Act
replaced the ‘‘not-frivolous’’ standard
with a standard requiring the tax return
preparer to have a ‘‘reasonable basis’’ for
the tax treatment of the position.
The 2007 Act also increased the firsttier penalty under section 6694(a) from
$250 to the greater of $1,000 or 50
percent of the income derived (or to be
derived) by the tax return preparer from
the preparation of a return or claim for
refund with respect to which the
penalty was imposed. In addition, the
2007 Act increased the second-tier
penalty under section 6694(b) from
$1,000 to the greater of $5,000 or 50
percent of the income derived (or to be
derived) by the tax return preparer. The
amendments made by the 2007 Act were
effective for tax returns prepared after
the date of enactment, May 25, 2007.
The Treasury Department and the IRS
released Notice 2008–13 (2008–3 IRB
282) on December 31, 2007, to provide
interim guidance under the 2007 Act.
Additional guidance was
simultaneously provided in Notice
2008–12 (2008–3 IRB 280) with respect
to the implementation of the tax return
preparer signature requirement of
section 6695(b), and in Notice 2008–11
(2008–3 IRB 279), which clarified the
earlier transition relief provided in
Notice 2007–54 (2007–27 IRB 12 (July 2,
2007)). Notice 2008–46 (2008–18 IRB
868) was released on April 16, 2008, to
add certain returns and documents to
Exhibits 1, 2, and 3 of Notice 2008–13.
On June 17, 2008, the Treasury
Department and the IRS published in
the Federal Register (73 FR 34560)
proposed amendments to the
regulations (REG–129243–07) reflecting
amendments made by the 2007 Act and
comments received on the notices. A
public hearing was held on these
proposals on August 18, 2008. Written
public comments responding to the
proposed regulations were received.
On October 3, 2008, section 506 of the
2008 Act modified the standards of
conduct that tax return preparers must
meet in order to avoid imposition of the
section 6694(a) penalty. Specifically, the
2008 Act changed the standard for

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undisclosed positions from ‘‘reasonable
belief that the position more likely than
not will be sustained on the merits’’ to
‘‘substantial authority for the position.’’
The 2008 Act maintained the
‘‘reasonable basis’’ standard for
disclosed positions. If a position is with
respect to a tax shelter (as defined in
section 6662(d)(2)(C)(ii)) or a reportable
transaction to which section 6662A
applies, it must be ‘‘reasonable to
believe that the position more likely
than not will be sustained on the
merits.’’ The amendments made by the
2008 Act are retroactively effective for
tax returns prepared after May 25, 2007,
except that the special rules applicable
to positions with respect to tax shelters
and reportable transactions to which
section 6662A applies are effective for
tax returns or claims for refund
prepared for tax years ending after
October 3, 2008, the date of enactment
of the 2008 Act.
After consideration of the public
comments and the amendments made
by the 2008 Act, the proposed
regulations are adopted as revised by
this Treasury decision. Section 1.6694–
2 of these final regulations does not
provide substantive guidance reflecting
amendments to the Code made by the
2008 Act. Rather, the Treasury
Department and the IRS are reserving
§ 1.6694–2(c) in these final regulations
and are simultaneously issuing a notice
in the Internal Revenue Bulletin
providing interim guidance on the
amendments to the Code made by the
2008 Act. With these final regulations,
the Treasury Department and the IRS
are also simultaneously issuing a
revenue procedure in the Internal
Revenue Bulletin that specifically
identifies the returns and claims for
refund subject to penalty under sections
6694 and 6695.
Summary of Comments and
Explanation of Revisions
Over 30 written comments were
received in response to the notice of
proposed rulemaking. All comments
were considered and are available for
public inspection upon request. A
number of these comments are
summarized in this preamble. The
changes included in these final
regulations are discussed in order of the
Code sections to which they relate.
In accordance with the 2007 Act,
these final regulations amend existing
regulations defining tax return
preparers, which were previously
limited to income tax return preparers,
to broaden the scope of that definition
to include preparers of estate, gift, and
generation-skipping transfer tax returns,
employment tax returns, excise tax

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returns, and returns of exempt
organizations. These final regulations
also revise current regulations to amend
the standards of conduct that must be
met to avoid imposition of the tax return
preparer penalty under section 6694. In
addition, these final regulations reflect
changes to the computation of the
section 6694 tax return preparer penalty
made by the 2007 Act. These final
regulations also amend current
regulations under the penalty provisions
of section 6695 to conform them with
changes made by the 2007 Act
expanding the scope of that statute
beyond income tax returns. These final
regulations are applicable to returns and
claims for refund filed (and advice
given) after December 31, 2008.
Furnishing of Copy of the Tax Return
and Retaining Copy
The final regulations adopt the
proposed amendments to § 1.6107–1
regarding the requirement of a signing
tax return preparer to furnish a copy of
the completed tax return to the taxpayer
and also to retain a copy, with
modification.
One commentator requested that the
final regulations make clear that a tax
return preparer may provide copies of
tax returns to taxpayers in either hard
copy or electronic formats. The Treasury
Department and the IRS recognize that
because many returns are prepared and
filed electronically and consist of
electronic data, it may be unclear what
is an acceptable copy of a return that
must be furnished to the taxpayer. Upon
further consideration, the Treasury
Department and the IRS agree that
clarification is necessary. Under
§ 1.6107–1(a) of the final regulations,
the tax return preparer must provide a
complete copy of the return filed with
the IRS to the taxpayer in any medium,
including electronic, that is acceptable
to both the taxpayer and the return
preparer. In the case of an
electronically-filed return, a complete
copy of a taxpayer’s return consists of
the electronic portion of the return,
including all schedules, forms, pdf
attachments, and jurats, that was filed
with the IRS. The copy provided to the
taxpayer must include all information
submitted to the IRS to enable the
taxpayer to determine which schedules,
forms, electronic files, and other
supporting materials have been filed
with the return. The copy, however,
need not contain the identification
number of the tax return preparer. The
electronic portion of the return can be
contained on a replica of an official
form or on an unofficial form. On an
unofficial form, however, data entries

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must reference the line numbers or
descriptions on an official form.
The same commentator requested that
the final regulations specifically provide
that the copy of the tax return retained
by tax return preparers may be retained
electronically. The Treasury Department
and the IRS, however, have concluded
that revising the existing regulations to
include this rule is not necessary.
Existing revenue procedures address the
maintenance of business records
through use of electronic storage
systems. See, for example, Rev. Proc.
97–22, 1997–1 CB 652. Tax return
preparers may retain copies of tax
returns in accordance with existing
revenue procedures to comply with the
final regulations.
Another commentator agreed with the
general approach taken in § 1.6107–1(c)
but suggested clarification of the
language regarding who is a signing tax
return preparer for purposes of the
section 6107 requirements. Upon
consideration, the Treasury Department
and the IRS agree that there is a
potential for the proposed language to
be misconstrued. Section 1.6107–1(c) of
the final regulations clarifies that for
purposes of complying with the
requirements of section 6107, a
corporation, partnership or other
organization that employs a signing tax
return preparer to prepare for
compensation (or in which a signing tax
return preparer is compensated as a
partner or member to prepare) a return
of tax or claim for refund shall be
treated as the sole signing tax return
preparer.
Furnishing Identification Number
A commentator requested that the
final regulations clarify whether the tax
return preparer’s identifying number
must be included on the taxpayer’s copy
of the tax return as well as on the copy
filed with the IRS. Section 6109(a)(4)
provides that any return or claim for
refund prepared by a tax return preparer
shall bear an identification number for
securing proper identification of the tax
return preparer, his employer, or both as
may be prescribed. Upon further
consideration, the Treasury Department
and the IRS agree that for identification
purposes, it is only important for the tax
return preparer identification number to
be included on the return that is filed
with the IRS. Section 1.6109–2(a) of the
final regulations, therefore, is amended
to provide that each filed return or
claim for refund containing the
identification number of the tax return
preparer required to sign the return (and
the identification number of the person
who has an employment arrangement or
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return preparer, if applicable) will meet
the needs of the IRS. This modification
will assist in maintaining the privacy of
the tax return preparer’s information.
Additional guidance may be provided in
the future regarding tax return preparer
identification numbers under section
6109.
Defining the Preparer Within a Firm
The final regulations adopt the
proposed amendments to § 1.6694–
1(b)(1), with modification. Accordingly,
the final regulations maintain a
framework defining a ‘‘preparer per
position within a firm’’, with the focus
of any penalty on the position(s) giving
rise to the understatement on the return
or claim for refund and any responsible
parties with respect to such position(s).
Under this framework, an individual
is a tax return preparer subject to
section 6694 if the individual is
primarily responsible for the position on
the return or claim for refund giving rise
to the understatement. Under § 1.6694–
1(b)(1), only one person within a firm
will be considered primarily responsible
for each position giving rise to an
understatement and, accordingly, be
subject to the penalty.
Three commentators questioned
whether this framework will lead to
significant problems in return preparer
firms, in particular whether the
framework may discourage any
particular person within the firm from
looking at the return in whole. These
commentators also questioned whether
the IRS will be able to identify the
responsible party if individuals at the
firm attempt to identify others at the
firm who may be more responsible for
the position. Two other commentators,
however, agreed with this framework in
light of the high level of specialization
that exists in modern tax practice. The
Treasury Department and the IRS
continue to conclude that the expansion
from a ‘‘one preparer per firm’’ to a ‘‘one
preparer per position within a firm’’
will further compliance and will result
in more equitable administration of the
tax return preparer penalty regime. This
framework, therefore, is adopted in the
final regulations.
Section 1.6694–1(b)(2) of the
proposed regulations provided that the
individual who signs the return or claim
for refund as the tax return preparer
generally will be considered the person
within a firm who is primarily
responsible for all of the positions on
the return or claim for refund giving rise
to an understatement. This language is
finalized as proposed except for some
minor conforming changes.
Proposed § 1.6694–1(b)(3) established
a similar rule for situations when there

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are one or more nonsigning tax return
preparers at the same firm and either no
signing tax return preparer within the
firm, it is concluded that the signer is
not primarily responsible for the
position, or the IRS cannot conclude
which individual is primarily
responsible for the position for purposes
of section 6694. In these situations, the
proposed regulations stated that the
individual within the firm with overall
supervisory responsibility for the
position(s) giving rise to the
understatement is the tax return
preparer who is primarily responsible
for the position for purposes of section
6694.
Several commentators requested that
this rule for nonsigning tax return
preparers not be adopted as proposed
because it will lead to more harm than
good. Specifically, one commentator
requested the deletion of the clause ‘‘or
the IRS cannot conclude which
individual (as between the signing tax
return preparer and other persons
within the firm) is primarily responsible
for the position’’ from proposed
§ 1.6694–1(b)(3) because a tax return
preparer penalty is not appropriate
when the IRS is not able to reach a
conclusion as to who is primarily
responsible for the conduct giving rise
to the position. The other commentator
recommended qualifying the rule in
proposed § 1.6694–1(b)(3) with the
requirement that the individual with
overall supervisory responsibility for
the position either possess actual
knowledge of the position or fail to
exercise appropriate diligence in the
review of the position subject to penalty
through willfulness, recklessness, or
gross indifference.
Upon consideration of these
comments, the Treasury Department
and the IRS have revised § 1.6694–
1(b)(3) to provide that if there is no
signing tax return preparer for the return
or claim for refund within that firm or
if, after the application of § 1.6694–
1(b)(2), it is concluded that the signing
tax return preparer is not primarily
responsible for the position, the
nonsigning tax return preparer within
the firm with overall supervisory
responsibility for the position(s) giving
rise to the understatement generally will
be considered the tax return preparer
who is primarily responsible for the
position for purposes of section 6694.
Based upon credible information from
any source, however, it may be
concluded that another nonsigning tax
return preparer within the firm is
primarily responsible for the position(s)
on the return or claim for refund giving
rise to an understatement.

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In response to the commentators’
concerns that the default rule in
proposed § 1.6694–1(b)(3) assigning
liability for the penalty to the
nonsigning tax return preparer may lead
to more harm than good, § 1.6694–
1(b)(4) of the final regulations is added.
The final regulations in § 1.6694–1(b)(4)
provide that, if the information
presented would support a finding that
either the signing tax return preparer or
a nonsigning tax return preparer within
a firm is primarily responsible for the
position(s) giving rise to the
understatement, the IRS may assess the
penalty against either one of the
individuals within the firm, but not
both, as the primarily responsible tax
return preparer. This determination will
be based upon all the evidence
presented and will allow for certainty
regarding the identification of the
primarily responsible tax return
preparer within the expiration of the
period of limitations on making an
assessment under section 6694(a). It is
expected that the IRS will assess the
penalty under section 6694 under these
rules against the tax return preparer
with the greatest amount of
responsibility for the position based
upon the best information available to
the IRS. The rule adopted in § 1.6694–
1(b)(4) is not a rule reflecting joint and
several liability for the penalty among
the signing tax return preparer and
nonsigning tax return preparer as the
penalty may be assessed against one of
these individuals, but not both.
Reliance on Information Provided
The final regulations adopt the
proposed amendments to § 1.6694–1(e),
with modification. Most commentators
supported expanding the regulations in
§ 1.6694–1(e) to provide that a tax return
preparer may rely in good faith and
without verification on information
furnished by another advisor, another
tax return preparer, or other party (even
if the advisor or tax return preparer is
within the tax return preparer’s same
firm) as long as the tax return preparer
does not ignore the implications of
information furnished to the tax return
preparer or actually known by the tax
return preparer, and makes reasonable
inquiries if the information as furnished
appears to be incorrect or incomplete.
Commentators, however, requested
that the final regulations clarify that a
tax return preparer may rely on
‘‘advice’’ furnished by another advisor,
another tax return preparer, or other
party (even if the advisor or tax return
preparer is within the tax return
preparer’s same firm). This
recommendation is adopted in § 1.6694–
1(e)(1) of the final regulations. The same

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changes are made for conformity to the
definitions of ‘‘reasonable to believe that
the position would more likely than not
be sustained on its merits’’ in § 1.6694–
2(b)(1), ‘‘reasonable basis’’ in § 1.6694–
2(d)(2) and ‘‘reasonable cause’’ in
§ 1.6694–2(e)(5). These modifications
are consistent with the intent of the
rules in the proposed regulations
regarding reliance given the heightened
standards imposed on tax return
preparers by the 2007 and 2008 Acts
and the increased complexity of the law.
Section 1.6694–1(e) of the proposed
regulations also proposed a new rule
providing that a tax return preparer may
not rely on legal conclusions regarding
Federal tax issues furnished by
taxpayers. The purpose behind this
proposal was the belief that in general,
although it was reasonable to allow a tax
return preparer to rely on facts
furnished by the taxpayer in good faith
without verification, the tax return
preparer should not be able to rely on
legal conclusions on issues when the
taxpayer may not be an expert and
looked to the tax return preparer to
determine the legal issue for purposes of
preparing the return or claim for refund.
Most commentators expressed
concern, however, that tax return
preparers have long relied on
information that involve mixed
questions of fact and law furnished by
taxpayers, in addition to legal
conclusions. Moreover, the
commentators point out that many large
entity taxpayers have in-house tax
departments staffed by tax professionals
who are qualified to perform research
and analysis necessary to address many
legal issues.
The Treasury Department and the IRS
acknowledge that the proposed
regulations may be unclear on how the
‘‘no reliance on legal conclusions by
taxpayers’’ language in proposed
§ 1.6694–1(e) interacts with the
language in proposed § 1.6694–2(b)(2)
regarding unreasonable assumptions.
Accordingly, the ‘‘no reliance on legal
conclusions by taxpayers’’ is removed
from § 1.6694–1(e) of the final
regulations. While this phrase is
removed from the text of the final
regulations, the tax return preparer
nevertheless must meet the diligence
standards otherwise imposed by this
regulation in order to rely properly on
information and advice provided by
taxpayers or other individuals. Tax
return preparers must have no reason to
believe that the taxpayer is incompetent
to make these conclusions, have no
knowledge that the conclusions are
incorrect or incomplete, and make
reasonable inquiries if the information

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as furnished appears to be incorrect or
incomplete.
Use of Estimates
One commentator noted that the
nature of accounting, upon which
calculations of taxable income are
based, requires the use of estimates, and
urged the Treasury Department and the
IRS to include a specific reference to
allow the use of estimates in the final
regulations. The Treasury Department
and the IRS recognize that there are
some circumstances when the use of
reasonable estimates may be appropriate
in the preparation of tax returns (see, for
example, §§ 1.448–2(d), 1.451–1(a), and
1.451–5(c)(1)(ii)), and there are some
circumstances in which there may be no
practical alternative to the use of
reasonable estimates, for example, when
the taxpayer’s records are destroyed
accidentally or through computer
failure. The Treasury Department and
the IRS, however, conclude that
including a general rule regarding the
use of estimates in the preparer penalty
regulations that could impact other
substantive tax provisions is not
appropriate.
Income Derived Determination in
Computing Penalty Amount
The final regulations adopt the
proposed amendments to § 1.6694–1(f),
with minor modification. Section
1.6694–1(f) defines ‘‘income derived (or
to be derived)’’ with respect to a return
or claim for refund as all compensation
the tax return preparer receives or
expects to receive with respect to the
engagement of preparing the return or
claim for refund or providing tax advice
(including research and consultation)
with respect to the position(s) taken on
the return or claim for refund that gave
rise to the understatement.
Several commentators requested
clarification on this definition of
‘‘income derived (or to be derived)’’ for
purposes of computing the section 6694
penalty because it is not necessarily
clear what compensation is captured by
this definition, which could be
interpreted broadly. The final
regulations maintain the same definition
of ‘‘income derived (or to be derived)’’
as proposed because the Treasury
Department and the IRS conclude that
the other rules described in § 1.6694–
1(f) provide appropriate limitations to
this definition.
In response to a commentator’s
request, the final regulations in
§ 1.6694–1(f)(4) also add an example
illustrating how the penalty will be
computed in cases involving employees
and partners who spend a portion of
their time on a particular position

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subject to the section 6694 penalty for
which the firm earns a specific amount.

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Firm Liability
The final regulations adopt the
proposed amendments to §§ 1.6694–
2(a)(2) and 1.6694–3(a)(2), without
modification. One commentator
requested examples of a firm
disregarding its review procedures
through willfulness, recklessness, or
gross indifference in the formulation of
the advice, or the preparation of the
return or claim for refund, that included
the position for which the penalty is
imposed. The determination as to
whether a firm disregards its review
procedures will be made based upon all
facts and circumstances. Because any
example necessarily would be limited to
the facts of a particular firm’s review
procedures, additional examples on this
issue would not meaningfully add to the
guidance provided in the proposed
regulations.
Reasonable To Believe That More Likely
Than Not
Section 1.6694–2(b) of the final
regulations defines the ‘‘reasonable to
believe that the position would more
likely than not be sustained on its
merits’’ standard that now applies to
positions that are tax shelters and
reportable transactions to which section
6662A applies. While the 2008 Act
amendment to section 6694 includes a
‘‘reasonable to believe’’ standard rather
than the ‘‘reasonable belief’’ standard
used in the 2007 Act, the Treasury
Department and the IRS are of the view
that the two standards have the same
meaning. Conforming changes are made
throughout the final regulations to
reflect the 2008 Act terminology.
Proposed § 1.6694–2(b)(1) provided
that the ‘‘reasonable belief that the
position would more likely than not be
sustained on its merits’’ standard will be
satisfied if the tax return preparer
analyzes the pertinent facts and
authorities and, in reliance upon that
analysis, reasonably concludes in good
faith that the position has a greater than
50 percent likelihood of being sustained
on its merits. The proposed regulations
stated that whether a tax return preparer
meets this standard will be determined
based upon all facts and circumstances,
including the tax return preparer’s due
diligence. Moreover, in determining the
level of diligence in a particular case,
the proposed regulations provided that
the IRS would take into account the tax
return preparer’s experience with the
area of tax law and familiarity with the
taxpayer’s affairs, as well as the
complexity of the issues and facts in the
case.

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Several commentators requested that
the final regulations specify that the
amount of due diligence required on the
part of the tax return preparer should
not be disproportionate to the amount of
the tax liability that would be affected
by the position at issue. There was also
some confusion on whether the due
diligence rules in the proposed
regulations allowed a less educated,
sophisticated, or experienced tax return
preparer to escape penalty liability more
easily than educated, sophisticated, or
experienced tax return preparers. This
was not the intent of this rule in the
proposed regulations. Due diligence is
only one of many factors to consider in
determining whether a tax return
preparer meets the ‘‘reasonable to
believe that the position would more
likely than not be sustained on its
merits’’ standard and all of the facts and
circumstances of each specific case will
need to be evaluated in making this
determination.
Several commentators suggested that
the provisions in § 1.6694–2(d)(5) of the
proposed regulations permitting tax
return preparers to rely upon generally
accepted administrative or industry
practice in establishing reasonable cause
relief from penalties under section 6694
should be extended to allow
consideration of generally accepted
administrative or industry practice in
determining whether the ‘‘reasonable to
believe that the position would more
likely than not be sustained on its
merits’’ standard is satisfied. These
comments are not adopted in the final
regulations because the Treasury
Department and the IRS continue to
conclude that the authorities contained
in § 1.6662–4(d)(3)(iii) (or any successor
provision) are the appropriate
authorities to be considered in
determining whether it is reasonable to
believe that the position would more
likely than not be sustained on its
merits. The ‘‘reasonable to believe that
the position would more likely than not
be sustained on its merits’’ standard
relates to the tax return preparer’s
evaluation of the merits of a return
position, and the merits of a tax return
position must be considered in light of
established relevant legal authorities.
Generally accepted administrative or
industry practice are less relevant in
considering the merits of a tax return
position under applicable law and
guidance, although they may be
appropriate factors to consider in the
context of a tax return preparer’s
reasonable cause and good faith.
Based upon a comment received, the
final regulations in § 1.6694–2(b)(4)
adopt the same rule as in § 1.6662–
4(d)(3)(iv)(B) regarding the effect of the

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taxpayer’s jurisdiction on meeting the
appropriate standard. The Treasury
Department and the IRS are of the view
that it is appropriate that the same rule
apply for purposes of satisfying the
‘‘reasonable to believe that the position
more likely than not be sustained on its
merits’’ standard. This approach
supports uniform disclosure by
taxpayers and tax return preparers and
prevents conflicts between taxpayers
and tax return preparers in complying
with the federal tax laws.
Adequate Disclosure
The final regulations adopt the
proposed amendments to § 1.6694–
2(d)(3), with modification based upon
comments received and revisions made
in the 2008 Act. For a signing tax return
preparer within the meaning of
§ 301.7701–15(b)(1), the final
regulations provide that disclosure of a
position for which there is a reasonable
basis but for which there is not
substantial authority is adequate in one
of three ways. First, the position may be
disclosed on a properly completed and
filed Form 8275, Disclosure Statement,
or Form 8275–R, Regulation Disclosure
Statement, as appropriate, or on the tax
return in accordance with the applicable
annual revenue procedure. See Revenue
Procedure 2008–14 (2008–7 IRB 435
(February 19, 2008)). Second, disclosure
of the position is adequate if the tax
return preparer provides the taxpayer
with a prepared tax return that includes
the appropriate disclosure in
accordance with § 1.6662–4(f). Third,
for tax returns or claims for refund that
are subject to penalties other than the
accuracy-related penalty for substantial
understatements under sections
6662(b)(2) and (d), the tax return
preparer advises the taxpayer of the
penalty standards applicable to the
taxpayer under section 6662. This third
rule is intended to address the situation
when the penalty standard applicable to
the taxpayer is based on compliance
with requirements other than disclosure
on the return (for example, section
6662(e)). In the case of a nonsigning tax
return preparer within the meaning of
§ 301.7701–15(b)(2), the final
regulations in § 1.6694–2(d)(3)(ii)
maintain the same three disclosure rules
that were in the proposed regulations.
Two commentators requested
clarification of the prohibition against a
boilerplate disclaimer and
recommended clarifying that a firm does
not violate the prohibition simply by
adopting a standard approach to
disclosure issues. Section 1.6694–
2(d)(3)(iii) of the final regulations is
revised to provide that no general
disclaimer is allowed with respect to the

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specific facts and circumstances of the
taxpayer and the position for which
there is no substantial authority. Tax
return preparers, and their firms, may
use standard language to describe
applicable law and may adopt a
standard approach to disclosure issues.
One commentator stated that it is
unclear what specifically must be
documented by the nonsigning tax
return preparer in order to avoid
imposition of penalties. The final
regulations are revised by clarifying that
the documented advice that would
constitute adequate disclosure in
§ 1.6694–2(d)(3)(ii)(A) with respect to a
nonsigning tax return preparer’s advice
to a taxpayer, if the firm is advising the
taxpayer, should confirm that the
affected taxpayer has been advised by a
tax return preparer in the firm of the
potential penalties and the opportunity,
if any, to avoid penalty through
disclosure.
Similarly, in § 1.6694–2(d)(3)(ii)(B)
with respect to a nonsigning preparer’s
advice to another tax return preparer, if
providing nonsigning preparer advice to
another preparer in the same firm,
contemporaneous documentation
should be satisfied if there is a single
instance of contemporaneous
documentation within the firm. If the
firm is advising another preparer
outside of the firm, the final regulations
provide that this documentation should
confirm that the preparer outside the
firm has been advised that disclosure
under section 6694(a) may be required.
Finally, the disclosure rules in
§ 1.6694–3(c)(2) of the final regulations
are revised to clarify that a tax return
preparer is not considered to have
recklessly or intentionally disregarded a
rule or regulation if the position
contrary to the rule or regulation has a
reasonable basis as defined in § 1.6694–
2(d)(2) and is adequately disclosed in
accordance with §§ 1.6694–2(d)(3)(i)(A)
or (C) or 1.6694–2(d)(3)(ii). In the case
of a position contrary to a revenue
ruling or notice, a tax return preparer
also is not considered to have recklessly
or intentionally disregarded the ruling
or notice if the position meets the
substantial authority standard described
in § 1.6662–4(d) and is not with respect
to a reportable transaction to which
section 6662A applies. This
modification ensures that tax return
preparers may advise their clients to
challenge an IRS ruling or notice under
the appropriate circumstances.
Reasonable Cause
The final regulations in § 1.6694–2(e)
adopt the proposed amendments to
§ 1.6694–2(e) regarding reasonable
cause, with minor conforming changes.

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Section 1.6694–2(e)(5) permits tax
return preparers to rely upon generally
accepted administrative or industry
practice in establishing reasonable cause
relief from penalties under section 6694.
Several commentators indicated that
guidance is necessary to explain how a
tax return preparer should determine
whether a practice is ‘‘generally
accepted’’ and ‘‘industry practice.’’ The
final regulations do not provide further
guidance regarding these terms. An
accepted administrative or industry
practice will be determined based upon
all facts and circumstances.

78435

Department and the IRS agree that this
example may raise conflict of interest
issues and, therefore, replace the
example with another example focusing
on the need of the tax return preparer
to ask relevant questions if a taxpayer
attempts to claim a niece or nephew as
a qualifying child.

Negotiation of Check
Section 6695(f) and § 1.6695–1(f)(1)
prohibit a tax return preparer from
endorsing or negotiating a refund check
relating to a return for which he or she
is a preparer. One commentator
recommended that the regulations be
clarified to state specifically that a tax
return preparer is not prohibited from
affixing the taxpayer’s name on a refund
check (typically accomplished via a
mechanical stamp) for the purpose of
depositing the check into an account in
the name of the taxpayer. This comment
is adopted in § 1.6695–1(f)(1) of the final
regulations.

Definition of Tax Return Preparer
The final regulations adopt the
proposed amendments to § 301.7701–
15(b)(1) and (2), with modification.
Section 301.7701–15(b)(1) and (2) of the
final regulations adds to the section
7701 regulations the definitions of
‘‘signing tax return preparer’’ and
‘‘nonsigning tax return preparer.’’
Several commentators requested that
the final regulations expressly state who
is required to sign a tax return. Section
301.7701–15(b)(1) of the final
regulations is revised to provide that a
signing tax return preparer is the
individual tax return preparer who has
the primary responsibility for the
overall substantive accuracy of the
preparation of such return or claim for
refund. Conforming changes are
additionally made to § 1.6695–1(b). The
definitions of nonsigning tax return
preparer in § 301.7701–15(b)(2) and
substantial portion in § 301.7701–
15(b)(3) are generally adopted as
proposed. An anti-abuse rule, however,
is added in § 301.7701–15(b)(2)(i) based
upon several commentators’
suggestions. The anti-abuse rule
provides that time spent on advice given
after events have occurred, even if such
time is less than 5 percent of the
aggregate time incurred by such
individual with respect to the
position(s) giving rise to the
understatement, will be taken into
account if all facts and circumstances
show that an individual is primarily
responsible for a position taken on a
return, gave advice on that position
before events occurred primarily to
avoid treatment as a tax return preparer
subject to section 6694, and for
purposes of preparing a tax return the
individual confirmed the advice after
events had occurred.

Due Diligence for Earned Income Credit
Section 1.6695–2(b)(3) of these final
regulations adopt the rules regarding a
signing tax return preparer’s due
diligence requirements with respect to
determining eligibility for the earned
income credit, with minor modification.
Based upon the concerns of a
commentator about one of the examples
in this section addressing the
representation of married but separated
individuals, Example 3 in the proposed
regulations is removed. The Treasury

List of Returns Subject to Penalty
Several commentators contended that
proposed § 301.7701–15(b)(4) and the
accompanying revenue procedure
listing the returns and claims for refund
subject to the section 6694 penalty
should not include information returns
and should limit the definition of return
to exclude documents that do not report
a tax liability. Similarly, commentators
requested excluding Form 8038,
Information Return for Tax-Exempt
Private Activity Bond Issues, Form

Burden of Proof
One commentator urged that the rules
regarding ‘‘burden of proof’’ in tax
return preparer penalty litigation cases
should be either eliminated or be
substantially revised to comport with
section 7491. Section 7427 imposes
upon the Secretary the burden of proof
on the issue of whether a tax return
preparer has willfully attempted in any
manner to understate the liability for
tax. Section 7491(c) imposes upon the
Secretary the burden of production in
any court proceeding with respect to the
liability of any individual for a penalty.
After consideration of the comment,
proposed §§ 1.6694–2(f) and 1.6694–3(g)
are removed from the final regulations
because these other Code sections as
well as case law provide the substantive
rules regarding burden of proof and
burden of production for penalties.

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Federal Register / Vol. 73, No. 246 / Monday, December 22, 2008 / Rules and Regulations

8038–G, Information Return for
Government Purpose Tax-Exempt Bond
Issues, Form 8038–GC, Consolidated
Information Return for Small TaxExempt Government Bond Issues, and
Form 5500, Annual Return/Report of
Employee Benefit Plan. After
consideration of the comments, the
Forms 8038, 8038–G, and 8038–GC are
classified in the contemporaneously
issued revenue procedure with forms
that will not subject the preparer to a
penalty under section 6694(a), but may
subject the preparer to a willful or
reckless conduct penalty under section
6694(b) if the information reported on
the form constitutes a substantial
portion of the tax return or claim for
refund and is prepared willfully in any
manner to understate the liability of tax
on a tax return or claim for refund, or
in reckless or intentional disregard of
rules or regulations. Also, Form 8038–
T, Arbitrage Rebate and Penalty in Lieu
of Arbitrage Rebate, and Form 8038–R,
Request for Recovery of Overpayment
Under Arbitrage Rebate Provisions, are
added to the list of forms of returns in
the revenue procedure subject to the
section 6694 penalties. Form 5500
remains in the same category as in
Notice 2008–13.
The same commentators also raised
the issue of whether the Treasury
Department and the IRS should publish
the list of returns and claims for refund
subject to penalty under sections 6694
and 6695 in these final regulations,
rather than in separate guidance in the
Internal Revenue Bulletin. The Treasury
Department and the IRS continue to
conclude that it is appropriate to
publish a revenue procedure in the
Internal Revenue Bulletin. Notices
2008–12, –13, and –46, along with the
previously issued proposed regulations,
provided the public with notice of, and
an opportunity to comment on, the
forms subject to penalty.
Another commentator requested that
the final regulations in both § 301.7701–
15(f) and Circular 230 specifically
define the terms ‘‘in-house tax
professional’’ and ‘‘employer’’ and
provide other guidance on the
applicability of these return preparer
rules to in-house counsel in Circular
230. Section 7701(a)(36) and
§ 301.7701–15(f)(ix) already except from
the definition of tax return preparer any
person who prepares a return or claim
for refund of the employer (or of an
officer or employee of the employer) by
whom he or she is regularly and
continuously employed. Additionally,
§ 301.7701–15(f)(4) of the final
regulations deems an employee of a
corporation owning more than 50
percent of the voting power of another

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corporation, or the employee of a
corporation more than 50 percent of the
voting power of which is owned by
another corporation, to be the employee
of the other corporation as well. The
Treasury Department and the IRS will
consider if any other changes are
necessary on this issue in future
revisions to § 10.34 of Circular 230.
Appraisers
Under Treasury Regulations in place
since 1977 and the proposed
regulations, an appraiser might be
subject to penalties under section 6694
as a nonsigning tax return preparer if
the appraisal is a substantial portion of
the return or claim for refund and the
applicable standards of care under
section 6694 are not met. Several
commentators have stated that
appraisers should not be subject to
penalties under section 6694 because
they are subject to new, higher
standards of conduct under section
6695A as set out in the Pension
Protection Act of 2006, Public Law No.
109–280. The commentators have also
urged that assessment of penalties under
section 6694 against appraisers would
result in imposition of a gratuitous and
unnecessary layer of requirements and
sanctions without any additional public
policy benefit.
After consideration of the comment,
the Treasury Department and the IRS
continue to include appraisers in the
definition of both signing and nonsigning preparers, thereby providing the
IRS with discretion to impose the
section 6694 and 6695A penalties in the
alternative against an appraiser
depending on the facts and
circumstances of the appraiser’s
conduct. The IRS, however, will not
stack the penalties under sections 6694
and 6695A with respect to the same
conduct. A separate regulation will
provide guidance under section 6695A.
Disclosure Under Section 6103
One commentator recommended that
the Treasury Department and the IRS
issue regulations under section 6103
authorizing the disclosure of tax returns
and return information to a tax return
preparer at the tax return preparer’s
request upon initiation of an
examination of the tax return preparer
for tax return preparer penalties to the
extent the returns and return
information are relevant and material to
the tax return preparer examination.
The Treasury Department and the IRS
conclude that no further guidance on
this issue in these regulations is
necessary because section 6103(h)(4)
already authorizes the disclosure of
returns and return information by the

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Government in federal or state, judicial
or administrative tax proceedings if the
disclosure meets an item or transaction
test and the third-party return or return
information is directly related to the
resolution of an issue in the case.
Appeal Rights
A number of individual commentators
questioned whether the proposed
regulations would remove the
administrative appeal rights available to
tax return preparers who are subject to
penalty under section 6694. Under
Treasury Regulations in place since
1991, the IRS will send a 30-day letter
to the tax return preparer notifying the
tax return preparer of the proposed
penalty or penalties and offering an
opportunity to the tax return preparer to
request further administrative
consideration and a final administrative
determination by the IRS concerning the
proposed assessment prior to
assessment of a penalty under section
6694 (unless the period of limitations (if
any) under section 6696(d) may expire
without adequate opportunity for
assessment). If the tax return preparer
then makes a timely request, assessment
may not be made until the IRS makes a
final administrative determination
adverse to the tax return preparer. These
appeal rights are maintained in
§ 1.6694–4(a) of the final regulations.
Applicability Dates
To eliminate any adverse impact that
the adoption of these final regulations
could have on pending or recently filed
returns, these final regulations will
apply to returns and claims for refund
filed, and advice provided, after
December 31, 2008.
Availability of IRS Documents
The IRS notices referred to in this
preamble are published in the Internal
Revenue Bulletin and are available at
http://www.irs.gov.
Effect on Other Documents
The following publications are
obsolete as of January 1, 2009:
Notice 2007–54 (2007–27 IRB 12).
Notice 2008–11 (2008–3 IRB 279).
Notice 2008–12 (2008–3 IRB 280).
Notice 2008–13 (2008–3 IRB 282).
Notice 2008–46 (2008–18 IRB 868).
Special Analyses
It has been determined that this final
rule is not a significant regulatory action
as defined in Executive Order 12866.
Therefore, a regulatory assessment is not
required. It also has been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does
not apply to these regulations.

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Federal Register / Vol. 73, No. 246 / Monday, December 22, 2008 / Rules and Regulations
When an agency issues a rulemaking,
the Regulatory Flexibility Act (5 U.S.C.
chapter 6) (RFA), requires the agency to
‘‘prepare and make available for public
comment an initial regulatory flexibility
analysis’’ that will ‘‘describe the impact
of the proposed rule on small entities.’’
(5 U.S.C. 603(a)). Section 605 of the RFA
provides an exception to this
requirement if the agency certifies that
the final rulemaking will not have a
significant economic impact on a
substantial number of small entities.
The final rules affect tax return
preparers. The IRS estimates there are
38,566 tax return preparation firms and
260,338 self-employed tax return
preparers that qualify as small entities.
Therefore, the IRS has determined that
these final rules will have an impact on
a substantial number of small entities.
The IRS has determined, however,
that the impact on entities affected by
the final rule will not be significant. The
statute and final regulations would
require entities that employ tax return
preparers to retain a record of the name,
taxpayer identification number and
principal place of work of each tax
return preparer employed. The IRS
estimates that this would not require
purchase of additional software and
would take five minutes per tax return
preparer employed. The statute and
final regulations would also require tax
return preparers to retain a complete
copy of a return (or claim for refund) or
a list of the name, taxpayer
identification number and taxable year
for each return (or claim for refund) and
the name of the tax return preparer
required to sign the return or claim for
refund. Many tax return preparers have
copying machines or scanners and
already make copies of the returns
prepared, and the IRS estimates this
would not require the purchase of
additional equipment. The IRS
estimates that it would take an average
of five minutes to make copies or
prepare a record of the returns or claims
for refund prepared. Accordingly, the
burden on employers of tax return
preparers to make a record of the name,
taxpayer identification number, and
principal place of work of each
employed tax return preparer, and a
copy of each return or claim for refund
prepared, or a record, is insignificant.
The final regulations also conform the
standards of conduct for the tax return
preparer penalties under section 6694(a)
to the provisions of the 2007 and 2008
Acts. Tax return preparers already
enroll in educational seminars or
training programs to keep up to date
with the latest changes to the Code, and
the provisions of the 2007 and 2008

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Acts and the regulations generally will
be part of that training.
Based on these facts, it is certified that
the collection of information contained
in these final regulations will not have
a significant economic impact on a
substantial number of small entities.
Accordingly, a Regulatory Flexibility
Analysis is not required.
Pursuant to section 7805(f) of the
Code, the notice of proposed rulemaking
preceding these regulations was
submitted to the Chief Counsel for
Advocacy of the Small Business
Administration for comment on its
impact on small business.
Drafting Information
The principal authors of these final
regulations are Matthew S. Cooper and
Michael E. Hara, Office of the Associate
Chief Counsel (Procedure and
Administration).
List of Subjects
26 CFR Part 1

26 CFR Part 20
Generation-skipping transfer taxes,
Reporting and recordkeeping
requirements.
26 CFR Part 25
Gift taxes, Reporting and
recordkeeping requirements.

26 CFR Part 56
Excise taxes, Lobbying, Nonprofit
organizations, Reporting and
recordkeeping requirements.
26 CFR Part 156
Excise taxes, Reporting and
recordkeeping requirements.
26 CFR Part 157
Excise taxes, Reporting and
recordkeeping requirements.
26 CFR Part 301
Employment taxes, Estate taxes,
Excise taxes, Gift taxes, Income taxes,
Penalties, Reporting and recordkeeping
requirements.

Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1, 20, 25,
26, 31, 40, 41, 44, 53, 54, 55, 56, 156,
157, 301, and 602 are amended as
follows:

■

Paragraph 1. The authority citation
for part 1 is amended by adding entries
in numerical order to read in part as
follows:

■

Generation-skipping transfer taxes,
Reporting and recordkeeping
requirements.
26 CFR Part 31
Employment taxes, Income taxes,
Penalties, Pensions, Railroad
Retirement, Reporting and
recordkeeping requirements, Social
Security, Unemployment compensation.
26 CFR Part 40

Par. 2. Section 1.6060–1 is amended
by revising the section heading and
paragraphs (a) and (c) and adding
paragraph (d) to read as follows:

26 CFR Part 41
Excise taxes, Motor vehicles,
Reporting and recordkeeping
requirements.
26 CFR Part 44
Excise taxes, Gambling, Reporting and
recordkeeping requirements.
26 CFR Part 53
Excise taxes, Foundations,
Investments, Lobbying, Reporting and
recordkeeping requirements.

Sfmt 4700

Authority: 26 U.S.C. 7805 * * *
Section 1.6060–1 also issued under 26
U.S.C. 6060(a). * * *
Section 1.6109–2 also issued under 26
U.S.C. 6109(a). * * *
Section 1.6695–1 also issued under 26
U.S.C. 6695(b). * * *
Section 1.6695–2 also issued under 26
U.S.C. 6695(g). * * *
■

Excise taxes, Reporting and
recordkeeping requirements.

Fmt 4701

26 CFR Part 55
Excise taxes, Investments, Reporting
and recordkeeping requirements.

PART 1—INCOME TAXES

26 CFR Part 26

Frm 00009

26 CFR Part 54
Excise taxes, Pensions, Reporting and
recordkeeping requirements.

26 CFR Part 602
Reporting and recordkeeping
requirements.

Income taxes, Reporting and
recordkeeping requirements.

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§ 1.6060–1 Reporting requirements for tax
return preparers.

(a) In general. (1) Each person who
employs one or more signing tax return
preparers to prepare any return of tax or
claim for refund of tax, other than for
the person, at any time during a return
period shall satisfy the requirements of
section 6060 of the Internal Revenue
Code by—
(i) Retaining a record of the name,
taxpayer identification number, and

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principal place of work during the
return period of each tax return preparer
employed by the person at any time
during that period; and
(ii) Making that record available for
inspection upon request by the
Commissioner.
(2) The record described in this
paragraph (a) must be retained and kept
available for inspection for the 3-year
period following the close of the return
period to which that record relates.
(3) The person may choose any form
of documentation to be used under this
section as a record of the signing tax
return preparers employed during a
return period. The record, however,
must disclose on its face which
individuals were employed as tax return
preparers during that period.
(4) For the definition of the term
‘‘signing tax return preparer’’, see
§ 301.7701–15(b)(1) of this chapter. For
the definition of the term ‘‘return
period’’, see paragraph (b) of this
section.
(5)(i) For purposes of this section, any
individual who, in acting as a signing
tax return preparer, is not employed by
another tax return preparer shall be
treated as his or her own employer.
Thus, a sole proprietor shall retain and
make available a record with respect to
himself (or herself) as provided in this
section.
(ii) A partnership shall, for purposes
of this section, be treated as the
employer of the partners of the
partnership and shall retain and make
available a record with respect to the
partners and others employed by the
partnership as provided in this section.
*
*
*
*
*
(c) Penalty. For the civil penalty for
failure to retain and make available a
record of the tax return preparers
employed during a return period as
required under this section, or for
failure to include an item in the record
required to be retained and made
available under this section, see
§ 1.6695–1(e).
(d) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 3. Section 1.6107–1 is revised to
read as follows:

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§ 1.6107–1 Tax return preparer must
furnish copy of return or claim for refund
to taxpayer and must retain a copy or
record.

(a) Furnishing copy to taxpayer—(1) A
person who is a signing tax return
preparer of any return of tax or claim for
refund of tax under the Internal
Revenue Code shall furnish a completed
copy of the return or claim for refund

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to the taxpayer (or nontaxable entity)
not later than the time the return or
claim for refund is presented for the
signature of the taxpayer (or nontaxable
entity). The signing tax return preparer
may, at its option, request a receipt or
other evidence from the taxpayer (or
nontaxable entity) sufficient to show
satisfaction of the requirement of this
paragraph (a).
(2) The tax return preparer must
provide a complete copy of the return or
claim for refund filed with the IRS to
the taxpayer in any media, including
electronic media, that is acceptable to
both the taxpayer and the tax return
preparer. In the case of an electronically
filed return, a complete copy of a
taxpayer’s return or claim for refund
consists of the electronic portion of the
return or claim for refund, including all
schedules, forms, pdf attachments, and
jurats, that was filed with the IRS. The
copy provided to the taxpayer must
include all information submitted to the
IRS to enable the taxpayer to determine
what schedules, forms, electronic files,
and other supporting materials have
been filed with the return. The copy,
however, need not contain the
identification number of the paid tax
return preparer. The electronic portion
of the return or claim for refund may be
contained on a replica of an official
form or on an unofficial form. On an
unofficial form, however, data entries
must reference the line numbers or
descriptions on an official form.
(3) For electronically filed Forms
1040EZ, ‘‘Income Tax Return for Single
Filers and Joint Filers With No
Dependents,’’ and Form 1040A, ‘‘U.S.
Individual Income Tax Return,’’ filed for
the 2009, 2010 and 2011 taxable years,
the information may be provided on a
replica of a Form 1040, ‘‘U.S. Individual
Income Tax Return’’, that provides all of
the information. For other electronically
filed returns, the information may be
provided on a replica of an official form
that provides all of the information.
(b) Copy or record to be retained. (1)
A person who is a signing tax return
preparer of any return or claim for
refund shall—
(i)(A) Retain a completed copy of the
return or claim for refund; or
(B) Retain a record, by list, card file,
or otherwise of the name, taxpayer
identification number, and taxable year
of the taxpayer (or nontaxable entity) for
whom the return or claim for refund
was prepared, and the type of return or
claim for refund prepared;
(ii) Retain a record, by retention of a
copy of the return or claim for refund,
maintenance of a list, card file, or
otherwise, for each return or claim for
refund presented to the taxpayer (or

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nontaxable entity), of the name of the
individual tax return preparer required
to sign the return or claim for refund
pursuant to § 1.6695–1(b); and
(iii) Make the copy or record of
returns and claims for refund and record
of the individuals required to sign
available for inspection upon request by
the Commissioner.
(2) The material described in this
paragraph (b) shall be retained and kept
available for inspection for the 3-year
period following the close of the return
period during which the return or claim
for refund was presented for signature to
the taxpayer (or nontaxable entity). In
the case of a return that becomes due
(with extensions, if any) during a return
period following the return period
during which the return was presented
for signature, the material shall be
retained and kept available for
inspection for the 3-year period
following the close of the later return
period in which the return became due.
For the definition of ‘‘return period,’’
see section 6060(c). If the person subject
to the record retention requirement of
this paragraph (b) is a corporation or a
partnership that is dissolved before
completion of the 3-year period, then all
persons who are responsible for the
winding up of the affairs of the
corporation or partnership under state
law shall be subject, on behalf of the
corporation or partnership, to these
record retention requirements until
completion of the 3-year period. If state
law does not specify any person or
persons as responsible for winding up,
then, collectively, the directors or
general partners shall be subject, on
behalf of the corporation or partnership,
to the record retention requirements of
this paragraph (b). For purposes of the
penalty imposed by section 6695(d),
such designated persons shall be
deemed to be the tax return preparer
and will be jointly and severally liable
for each failure.
(c) Tax return preparer. For the
definition of ‘‘signing tax return
preparer,’’ see § 301.7701–15(b)(1) of
this chapter. For purposes of applying
this section, a corporation, partnership
or other organization that employs a
signing tax return preparer to prepare
for compensation (or in which a signing
tax return preparer is compensated as a
partner or member to prepare) a return
of tax or claim for refund shall be
treated as the sole signing tax return
preparer.
(d) Penalties. (1) For the civil penalty
for failure to furnish a copy of the return
or claim for refund to the taxpayers (or
nontaxable entity) as required under
paragraphs (a) of this section, see
section 6695(a) and § 1.6695–1(a).

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Federal Register / Vol. 73, No. 246 / Monday, December 22, 2008 / Rules and Regulations
(2) For the civil penalty for failure to
retain a copy of the return or claim for
refund, or to retain a record as required
under paragraphs (b) of this section, see
section 6695(d) and § 1.6695–1(d).
(e) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 4. Section 1.6109–2 is amended
by revising the section heading and
paragraphs (a) and (d) to read as follows:
§ 1.6109–2 Tax return preparers furnishing
identifying numbers for returns or claims
for refund filed after December 31, 2008.

sroberts on PROD1PC70 with RULES

(a) Furnishing identifying number. (1)
Each filed return of tax or claim for
refund of tax under the Internal
Revenue Code prepared by one or more
tax return preparers must include the
identifying number of the tax return
preparer required by § 1.6695–1(b) to
sign the return or claim for refund. In
addition, if there is an employment
arrangement or association between the
individual tax return preparer and
another person (except to the extent the
return prepared is for the person), the
identifying number of the other person
must also appear on the filed return or
claim for refund. For the definition of
the term ‘‘tax return preparer,’’ see
section 7701(a)(36) and § 301.7701–15
of this chapter.
(2) The identifying number of an
individual tax return preparer is that
individual’s social security account
number or such alternative number as
may be prescribed by the Internal
Revenue Service in forms, instructions,
or other appropriate guidance.
(3) The identifying number of a
person (whether an individual or entity)
who employs or associates with an
individual tax return preparer described
in paragraph (a)(2) of this section to
prepare the return or claim for refund
(other than a return prepared for the
person) is the person’s employer
identification number.
*
*
*
*
*
(d) Effective/applicability date.
Paragraph (a) of this section is
applicable to returns and claims for
refund filed after December 31, 2008.
For returns or claims for refund filed
before January 1, 2000, see § 1.6109–
2A(a).
■ Par. 5. Section 1.6694–0 is revised to
read as follows:
§ 1.6694–0 Table of contents.
This section lists the captions that appear
in §§ 1.6694–1 through 1.6694–4.
§ 1.6694–1 Section 6694 penalties
applicable to tax return preparers.
(a) Overview.
(1) In general.

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(2) Date return is deemed prepared.
(b) Tax return preparer.
(1) In general.
(2) Responsibility of signing tax return
preparer.
(3) Responsibility of nonsigning tax return
preparer.
(4) Responsibility of signing and
nonsigning tax return preparer.
(5) Tax return preparer and firm
responsibility.
(6) Examples.
(c) Understatement of liability.
(d) Abatement of penalty where taxpayer’s
liability not understated.
(e) Verification of information furnished by
taxpayer or other third party.
(1) In general.
(2) Verification of information on
previously filed returns.
(3) Examples.
(f) Income derived (or to be derived) with
respect to the return or claim for refund.
(1) In general.
(2) Compensation.
(i) Multiple engagements.
(ii) Reasonable allocation.
(iii) Fee refunds.
(iv) Reduction of compensation.
(3) Individual and firm allocation.
(4) Examples.
(g) Effective/applicability date.
§ 1.6694–2 Penalty for understatement due
to an unreasonable position.
(a) In general.
(1) Proscribed conduct.
(2) Special rule for corporations,
partnerships, and other firms.
(b) Reasonable to believe that the position
would more likely than not be sustained on
its merits.
(1) In general.
(2) Authorities.
(3) Written determinations.
(4) Taxpayer’s jurisdiction.
(5) When ‘‘more likely than not’’ standard
must be satisfied.
(c) Substantial authority.
(d) Exception for adequate disclosure of
positions with a reasonable basis.
(1) In general.
(2) Reasonable basis.
(3) Adequate disclosure.
(i) Signing tax return preparers.
(ii) Nonsigning tax return preparers.
(A) Advice to taxpayers.
(B) Advice to another tax return preparer.
(iii) Requirements for advice.
(iv) Pass-through entities.
(v) Examples.
(e) Exception for reasonable cause and
good faith.
(1) Nature of the error causing the
understatement.
(2) Frequency of errors.
(3) Materiality of errors.
(4) Tax return preparer’s normal office
practice.
(5) Reliance on advice of others.
(6) Reliance on generally accepted
administrative or industry practice.
(f) Effective/applicability date.
§ 1.6694–3 Penalty for understatement due
to willful, reckless, or intentional
conduct.
(a) In general.

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78439

(1) Proscribed conduct.
(2) Special rule for corporations,
partnerships, and other firms.
(b) Willful attempt to understate liability.
(c) Reckless or intentional disregard.
(d) Examples.
(e) Rules or regulations.
(f) Section 6694(b) penalty reduced by
section 6694(a) penalty.
(g) Effective/applicability date.
§ 1.6694–4 Extension of period of collection
when tax return preparer pays 15
percent of a penalty for understatement
of taxpayer’s liability and certain other
procedural matters.
(a) In general.
(b) Tax return preparer must bring suit in
district court to determine liability for
penalty.
(c) Suspension of running of period of
limitations on collection.
(d) Effective/applicability date.

Par. 6. Section 1.6694–1 is revised to
read as follows:

■

§ 1.6694–1 Section 6694 penalties
applicable to tax return preparers.

(a) Overview—(1) In general. Sections
6694(a) and (b) impose penalties on tax
return preparers for conduct giving rise
to certain understatements of liability
on a return (including an amended or
adjusted return) or claim for refund. For
positions other than those with respect
to tax shelters (as defined in section
6662(d)(2)(C)(ii)) and reportable
transactions to which section 6662A
applies, the section 6694(a) penalty is
imposed in an amount equal to the
greater of $1,000 or 50 percent of the
income derived (or to be derived) by the
tax return preparer for an
understatement of tax liability that is
due to an undisclosed position for
which the tax return preparer did not
have substantial authority or due to a
disclosed position for which there is no
reasonable basis. For positions with
respect to tax shelters (as defined in
section 6662(d)(2)(C)(ii)) or reportable
transactions to which section 6662A
applies, the section 6694(a) penalty is
imposed in an amount equal to the
greater of $1,000 or 50 percent of the
income derived (or to be derived) by the
tax return preparer for an
understatement of tax liability for which
it is not reasonable to believe that the
position would more likely than not be
sustained on its merits. The section
6694(b) penalty is imposed in an
amount equal to the greater of $5,000 or
50 percent of the income derived (or to
be derived) by the tax return preparer
for an understatement of liability with
respect to tax that is due to a willful
attempt to understate tax liability or that
is due to reckless or intentional
disregard of rules or regulations. Refer
to § 1.6694–2 for rules relating to the

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penalty under section 6694(a). Refer to
§ 1.6694–3 for rules relating to the
penalty under section 6694(b).
(2) Date return is deemed prepared.
For purposes of the penalties under
section 6694, a return or claim for
refund is deemed prepared on the date
it is signed by the tax return preparer.
If a signing tax return preparer within
the meaning of § 301.7701–15(b)(1) of
this chapter fails to sign the return, the
return or claim for refund is deemed
prepared on the date the return or claim
is filed. See § 1.6695–1 of this section.
In the case of a nonsigning tax return
preparer within the meaning of
§ 301.7701–15(b)(2) of this chapter, the
relevant date is the date the nonsigning
tax return preparer provides the tax
advice with respect to the position
giving rise to the understatement. This
date will be determined based on all the
facts and circumstances.
(b) Tax return preparer—(1) In
general. For purposes of this section,
‘‘tax return preparer’’ means any person
who is a tax return preparer within the
meaning of section 7701(a)(36) and
§ 301.7701–15 of this chapter. An
individual is a tax return preparer
subject to section 6694 if the individual
is primarily responsible for the
position(s) on the return or claim for
refund giving rise to an understatement.
See § 301.7701–15(b)(3). There is only
one individual within a firm who is
primarily responsible for each position
on the return or claim for refund giving
rise to an understatement. In the course
of identifying the individual who is
primarily responsible for the position,
the Internal Revenue Service (IRS) may
advise multiple individuals within the
firm that it may be concluded that they
are the individual within the firm who
is primarily responsible. In some
circumstances, there may be more than
one tax return preparer who is primarily
responsible for the position(s) giving
rise to an understatement if multiple tax
return preparers are employed by, or
associated with, different firms.
(2) Responsibility of signing tax return
preparer. If there is a signing tax return
preparer within the meaning of
§ 301.7701–15(b)(1) of this chapter
within a firm, the signing tax return
preparer generally will be considered
the person who is primarily responsible
for all of the positions on the return or
claim for refund giving rise to an
understatement unless, based upon
credible information from any source, it
is concluded that the nonsigning tax
return preparer is not primarily
responsible for the position(s) on the
return or claim for refund giving rise to
an understatement. In that case, a
nonsigning tax return preparer within

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the signing tax return preparer’s firm (as
determined in paragraph (b)(3) of this
section) will be considered the tax
return preparer who is primarily
responsible for the position(s) on the
return or claim for refund giving rise to
an understatement.
(3) Responsibility of nonsigning tax
return preparer. If there is no signing tax
return preparer within the meaning of
§ 301.7701–15(b)(1) of this chapter for
the return or claim for refund within the
firm or if, after the application of
paragraph (b)(2) of this section, it is
concluded that the signing tax return
preparer is not primarily responsible for
the position, the nonsigning tax return
preparer within the meaning of
§ 301.7701–15(b)(2) of this chapter
within the firm with overall supervisory
responsibility for the position(s) giving
rise to the understatement generally will
be considered the tax return preparer
who is primarily responsible for the
position for purposes of section 6694
unless, based upon credible information
from any source, it is concluded that
another nonsigning tax return preparer
within that firm is primarily responsible
for the position(s) on the return or claim
for refund giving rise to the
understatement.
(4) Responsibility of signing and
nonsigning tax return preparer. If the
information presented would support a
finding that, within a firm, either the
signing tax return preparer or a
nonsigning tax return preparer is
primarily responsible for the position(s)
giving rise to the understatement, the
penalty may be assessed against either
one of the individuals, but not both, as
the primarily responsible tax return
preparer.
(5) Tax return preparer and firm
responsibility. To the extent provided in
§§ 1.6694–2(a)(2) and 1.6694–3(a)(2), an
individual and the firm that employs
the individual, or the firm of which the
individual is a partner, member,
shareholder, or other equity holder, both
may be subject to penalty under section
6694 with respect to the position(s) on
the return or claim for refund giving rise
to an understatement. If an individual
(other than the sole proprietor) who is
employed by a sole proprietorship is
subject to penalty under section 6694,
the sole proprietorship is considered a
‘‘firm’’ for purposes of this paragraph
(b).
(6) Examples. The provisions of
paragraph (b) of this section are
illustrated by the following examples:
Example 1. Attorney A provides advice to
Client C concerning the proper treatment of
an item with respect to which all events have
occurred on C’s tax return. In preparation for
providing that advice, A seeks advice

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regarding the proper treatment of the item
from Attorney B, who is within the same firm
as A, but A is the attorney who signs C’s
return as a tax return preparer. B provides
advice on the treatment of the item upon
which A relies. B’s advice is reflected on C’s
tax return but no disclosure was made in
accordance with § 1.6694–2(d)(3). The advice
constitutes preparation of a substantial
portion of the return within the meaning of
§ 301.7701–15(b)(3). The IRS later challenges
the position taken on the tax return, giving
rise to an understatement of liability. For
purposes of the regulations under section
6694, A is initially considered the tax return
preparer with respect to C’s return, and the
IRS advises A that A may be subject to the
penalty under section 6694 with respect to
C’s return. Based upon information received
from A or another source, it may be
concluded that B, rather than A, had primary
responsibility for the position taken on the
return that gave rise to the understatement
and may be subject to penalty under section
6694 instead of A.
Example 2. Same as Example 1, except that
neither Attorney A nor any other source
produce credible information that Attorney B
had primary responsibility for the position
on the return giving rise to an
understatement. Attorney A is the tax return
preparer who may be subject to penalty
under section 6694 with respect to C’s return.
Example 3. Same as Example 1, except that
neither Attorney A nor any other attorney
within A’s firm signs Client C’s return as a
tax return preparer. Attorney B is the
nonsigning tax return preparer within the
firm with overall supervisory responsibility
for the position giving rise to an
understatement. Accordingly, B is the tax
return preparer who is primarily responsible
for the position on C’s return giving rise to
an understatement and may be subject to
penalty under section 6694.
Example 4. Same as Example 1, except
Attorney D, who works for a different firm
than A, also provides advice on the same
position upon which A relies. It may be
concluded that D is also primarily
responsible for the position on the return and
may be subject to penalty under section 6694.
Example 5. Same as Example 1, except
Attorney B is able to present credible
information that A is also responsible for the
position on C’s return giving rise to an
understatement. The IRS may conclude
between A and B, the two responsible
persons for the position, who is primarily
responsible and may assess a section 6694
penalty against A or B, but not both, as the
primarily responsible tax return preparer.

(c) Understatement of liability. For
purposes of this section, an
‘‘understatement of liability’’ exists if,
viewing the return or claim for refund
as a whole, there is an understatement
of the net amount payable with respect
to any tax imposed by the Internal
Revenue Code (Code), or an
overstatement of the net amount
creditable or refundable with respect to
any tax imposed by the Code. The net
amount payable in a taxable year with

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Federal Register / Vol. 73, No. 246 / Monday, December 22, 2008 / Rules and Regulations
respect to the return for which the tax
return preparer engaged in conduct
proscribed by section 6694 is not
reduced by any carryback. Tax imposed
by the Code does not include additions
to the tax, additional amounts, and
assessable penalties imposed by
subchapter 68 of the Code. Except as
provided in paragraph (d) of this
section, the determination of whether an
understatement of liability exists may be
made in a proceeding involving the tax
return preparer that is separate and
apart from any proceeding involving the
taxpayer.
(d) Abatement of penalty where
taxpayer’s liability not understated. If a
penalty under section 6694(a) or (b)
concerning a return or claim for refund
has been assessed against one or more
tax return preparers, and if it is
established at any time in a final
administrative determination or a final
judicial decision that there was no
understatement of liability relating to
the position(s) on the return or claim for
refund, then—
(1) The assessment shall be abated;
and
(2) If any amount of the penalty was
paid, that amount shall be refunded to
the person or persons who so paid, as
if the payment were an overpayment of
tax, without consideration of any period
of limitations.
(e) Verification of information
furnished by taxpayer or other party—
(1) In general. For purposes of sections
6694(a) and (b) (including
demonstrating that a position complied
with relevant standards under section
6694(a) and demonstrating reasonable
cause and good faith under § 1.6694–
2(e)), the tax return preparer generally
may rely in good faith without
verification upon information furnished
by the taxpayer. A tax return preparer
also may rely in good faith and without
verification upon information and
advice furnished by another advisor,
another tax return preparer or other
party (including another advisor or tax
return preparer at the tax return
preparer’s firm). The tax return preparer
is not required to audit, examine or
review books and records, business
operations, documents, or other
evidence to verify independently
information provided by the taxpayer,
advisor, other tax return preparer, or
other party. The tax return preparer,
however, may not ignore the
implications of information furnished to
the tax return preparer or actually
known by the tax return preparer. The
tax return preparer must make
reasonable inquiries if the information
as furnished appears to be incorrect or
incomplete. Additionally, some

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provisions of the Code or regulations
require that specific facts and
circumstances exist (for example, that
the taxpayer maintain specific
documents) before a deduction or credit
may be claimed. The tax return preparer
must make appropriate inquiries to
determine the existence of facts and
circumstances required by a Code
section or regulation as a condition of
the claiming of a deduction or credit.
(2) Verification of information on
previously filed returns. For purposes of
section 6694(a) and (b) (including
meeting the reasonable to believe that
the position would more likely than not
be sustained on its merits and
reasonable basis standards in §§ 1.6694–
2(b) and (d)(2), and demonstrating
reasonable cause and good faith under
§ 1.6694–2(e)), a tax return preparer may
rely in good faith without verification
upon a tax return that has been
previously prepared by a taxpayer or
another tax return preparer and filed
with the IRS. For example, a tax return
preparer who prepares an amended
return (including a claim for refund)
need not verify the positions on the
original return. The tax return preparer,
however, may not ignore the
implications of information furnished to
the tax return preparer or actually
known by the tax return preparer. The
tax return preparer must make
reasonable inquiries if the information
as furnished appears to be incorrect or
incomplete. The tax return preparer
must confirm that the position being
relied upon has not been adjusted by
examination or otherwise.
(3) Examples. The provisions of this
paragraph (e) are illustrated by the
following examples:
Example 1. During an interview conducted
by Preparer E, a taxpayer stated that he had
made a charitable contribution of real estate
in the amount of $50,000 during the tax year,
when in fact he had not made this charitable
contribution. E did not inquire about the
existence of a qualified appraisal or complete
a Form 8283, Noncash Charitable
Contributions, in accordance with the
reporting and substantiation requirements
under section 170(f)(11). E reported a
deduction on the tax return for the charitable
contribution, which resulted in an
understatement of liability for tax, and signed
the tax return as the tax return preparer. E
is subject to a penalty under section 6694.
Example 2. While preparing the 2008 tax
return for an individual taxpayer, Preparer F
realizes that the taxpayer did not provide a
Form 1099–INT, ‘‘Interest Income’’, for a
bank account that produced significant
taxable income in 2007. When F inquired
about any other income, the taxpayer
furnished the Form 1099–INT to F for use in
preparation of the 2008 tax return. F did not
know that the taxpayer owned an additional
bank account that generated taxable income

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for 2008, and the taxpayer did not reveal this
information to the tax return preparer
notwithstanding F’s general inquiry about
any other income. F signed the taxpayer’s
return as the tax return preparer. F is not
subject to a penalty under section 6694.
Example 3. In preparing a tax return, for
purposes of determining the deductibility of
a contribution by an employer for a qualified
pension plan, Accountant G relies on a
computation of the section 404 limit on
deductible amounts made by the enrolled
actuary for the plan. On the basis of this
calculation, G completed and signed the tax
return. It is later determined that there is an
understatement of liability for tax that
resulted from the overstatement of the
section 404 limit on deductible amounts
made by the actuary. G had no reason to
believe that the actuary’s calculation of the
limit on deductible contributions was
incorrect or incomplete, and the calculation
appeared reasonable on its face. G was also
not aware at the time the return was prepared
of any reason why the actuary did not know
all of the relevant facts or that the calculation
of the limit on deductible contributions was
no longer reliable due to developments in the
law since the time the calculation was given.
G is not subject to a penalty under section
6694. The actuary, however, may be subject
to penalty under section 6694 if the
calculation provided by the actuary
constitutes a substantial portion of the tax
return within the meaning of § 301.7701–
15(b)(3) of this chapter.

(f) Income derived (or to be derived)
with respect to the return or claim for
refund—(1) In general. For purposes of
sections 6694(a) and (b), income derived
(or to be derived) means all
compensation the tax return preparer
receives or expects to receive with
respect to the engagement of preparing
the return or claim for refund or
providing tax advice (including research
and consultation) with respect to the
position(s) taken on the return or claim
for refund that gave rise to the
understatement. In the situation of a tax
return preparer who is not compensated
directly by the taxpayer, but rather by a
firm that employs the tax return
preparer or with which the tax return
preparer is associated, income derived
(or to be derived) means all
compensation the tax return preparer
receives from the firm that can be
reasonably allocated to the engagement
of preparing the return or claim for
refund or providing tax advice
(including research and consultation)
with respect to the position(s) taken on
the return or claim for refund that gave
rise to the understatement. In the
situation where a firm that employs the
individual tax return preparer (or the
firm of which the individual tax return
preparer is a partner, member,
shareholder, or other equity holder) is
subject to a penalty under section
6694(a) or (b) pursuant to the provisions

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in §§ 1.6694–2(a)(2) or 1.6694–3(a)(2),
income derived (or to be derived) means
all compensation the firm receives or
expects to receive with respect to the
engagement of preparing the return or
claim for refund or providing tax advice
(including research and consultation)
with respect to the position(s) taken on
the return or claim for refund that gave
rise to the understatement.
(2) Compensation—(i) Multiple
engagements. For purposes of applying
paragraph (f)(1) of this section, if the tax
return preparer or the tax return
preparer’s firm has multiple
engagements related to the same return
or claim for refund, only those
engagements relating to the position(s)
taken on the return or claim for refund
that gave rise to the understatement are
considered for purposes of calculating
the income derived (or to be derived)
with respect to the return or claim for
refund.
(ii) Reasonable allocation. For
purposes of applying paragraph (f)(1) of
this section, only compensation for tax
advice that is given with respect to
events that have occurred at the time the
advice is rendered and that relates to the
position(s) giving rise to the
understatement will be taken into
account for purposes of calculating the
section 6694(a) and (b) penalties. If a
lump sum fee is received that includes
amounts not taken into account under
the preceding sentence, the amount of
income derived will be based on a
reasonable allocation of the lump sum
fee between the tax advice giving rise to
the penalty and the advice that does not
give rise to the penalty.
(iii) Fee refunds. For purposes of
applying paragraph (f)(1) of this section,
a refund to the taxpayer of all or part of
the amount paid to the tax return
preparer or the tax return preparer’s
firm will not reduce the amount of the
section 6694 penalty assessed. A refund
in this context does not include a
discounted fee or alternative billing
arrangement for the services provided.
(iv) Reduction of compensation. For
purposes of applying paragraph (f)(1) of
this section, it may be concluded based
upon information provided by the tax
return preparer or the tax return
preparer’s firm that an appropriate
allocation of compensation attributable
to the position(s) giving rise to the
understatement on the return or claim
for refund is less than the total amount
of compensation associated with the
engagement. For example, the number
of hours of the engagement spent on the
position(s) giving rise to the
understatement may be less than the
total hours associated with the
engagement. If this is concluded, the

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amount of the penalty will be calculated
based upon the compensation
attributable to the position(s) giving rise
to the understatement. Otherwise, the
total amount of compensation from the
engagement will be the amount of
income derived for purposes of
calculating the penalty under section
6694.
(3) Individual and firm allocation. If
both an individual within a firm and a
firm that employs the individual (or the
firm of which the individual is a
partner, member, shareholder, or other
equity holder) are subject to a penalty
under section 6694(a) or (b) pursuant to
the provisions in §§ 1.6694–2(a)(2) or
1.6694–3(a)(2), the amount of penalties
assessed against the individual and the
firm shall not exceed 50 percent of the
income derived (or to be derived) by the
firm from the engagement of preparing
the return or claim for refund or
providing tax advice (including research
and consultation) with respect to the
position(s) taken on the return or claim
for refund that gave rise to the
understatement. The portion of the total
amount of the penalty assessed against
the individual tax return preparer shall
not exceed 50 percent of the
individual’s compensation as
determined under paragraphs (f)(1) and
(2) of this section.
(4) Examples. The provisions of this
paragraph (f) are illustrated by the
following examples:
Example 1. Signing Tax Return Preparer H
is engaged by a taxpayer and paid a total of
$21,000. Of this amount, $20,000 relates to
research and consultation regarding a
transaction that is later reported on a return,
and $1,000 for the activities relating to the
preparation of the return. Based on H’s
hourly rates, a reasonable allocation of the
amount of compensation related to the advice
rendered prior to the occurrence of events
that are the subject of the advice is $5,000.
The remaining compensation of $16,000 is
considered to be compensation related to the
advice rendered after the occurrence of
events that are the subject of the advice and
return preparation. The income derived by H
with respect to the return for purposes of
computing the penalty under section 6694(a)
is $16,000, and the amount of the penalty
imposed under section 6694(a) is $8,000.
Example 2. Accountants I, J, and K are
employed by Firm L. I is a principal manager
of Firm L and provides corporate tax advice
for the taxpayer after all events have occurred
subject to an engagement for corporate tax
advice. J provides international tax advice for
the taxpayer after all events have occurred
subject to a different engagement for
international tax advice. K prepares and signs
the taxpayer’s return under a general tax
services engagement. I’s advice is the source
of an understatement on the return and the
advice constitutes preparation of a
substantial portion of the return within the
meaning of § 301.7701–15(b) of this chapter.

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I is the nonsigning tax return preparer within
the firm with overall supervisory
responsibility for the position on the
taxpayer’s return giving rise to an
understatement. Thus, I is the tax return
preparer who is primarily responsible for the
position on the taxpayer’s return giving rise
to the understatement. Because K’s signature
as the signing tax return preparer is on the
return, the IRS advises K that K may be
subject to the section 6694(a) penalty against
K to the understatement. K provides credible
information that I is the tax return preparer
with primary responsibility for the position
that gave rise to the understatement. The IRS,
therefore, assesses the section 6694 penalty
against I. The portion of the total amount of
the penalty allocable to I does not exceed 50
percent of that part of I’s compensation that
is attributable to the corporate tax advice
engagement. In the event that Firm L is also
liable under the provisions in § 1.6694–
2(a)(2), the IRS assesses the section 6694
penalty in an amount not exceeding 50
percent of Firm L’s firm compensation based
on the engagement relating to the corporate
tax advice services provided by I where there
is no applicable reduction in compensation
pursuant to § 1.6694–1(f)(2)(iii).
Example 3. Same facts as Example 2,
except that I provides the advice on the
corporate matter when the events have not
yet occurred. I’s advice is the cause of an
understatement position on the return, but I
is not a tax return preparer pursuant to
§ 301.7701–15(b)(2) or (3) of this chapter. K
is not limited to reliance on persons who
provide post-transactional advice if such
reliance is reasonable and in good faith.
Further, K has reasonable cause because K
relied on I for the advice on the corporate tax
matter. I, K and Firm L are not liable for the
section 6694 penalty.
Example 4. Attorney M is an employee of
Firm N with a salary of $75,000 per year. M
performs tax preparation work for Client O.
Client O’s return contains a position that
results in an understatement subject to the
section 6694 penalty. M spent 100 hours on
the position (out of a total 2,000 billed during
the year). The total fees earned by Firm N
with respect to the position reflected on
Client O’s return are $50,000. If M is subject
to the penalty, the penalty amount computed
under the 50 percent of income standard is
.5 × (100/2,000) × $75,000 = $1,875. If Firm
N is subject to the penalty, the penalty
amount computed under the 50% of income
standard is .5 × $50,000 = $25,000, less any
penalty amount imposed against M. If a
penalty of $1,875 was assessed against M and
Firm N was subject to the penalty, a penalty
of $23,125 would be the amount of penalty
assessed against Firm N.

(g) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 7. Section 1.6694–2 is revised to
read as follows:
§ 1.6694–2 Penalty for understatement due
to an unreasonable position.

(a) In general—(1) Proscribed conduct.
Except as otherwise provided in this

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section, a tax return preparer is liable
for a penalty under section 6694(a)
equal to the greater of $1,000 or 50
percent of the income derived (or to be
derived) by the tax return preparer for
any return or claim for refund that it
prepares that results in an
understatement of liability due to a
position if the tax return preparer knew
(or reasonably should have known) of
the position and either—
(i) The position is with respect to a
tax shelter (as defined in section
6662(d)(2)(C)(ii)) or a reportable
transaction to which section 6662A
applies, and it was not reasonable to
believe that the position would more
likely than not be sustained on its
merits;
(ii) The position was not disclosed as
provided in this section, the position is
not with respect to a tax shelter (as
defined in section 6662(d)(2)(C)(ii)) or a
reportable transaction to which section
6662A applies, and there was not
substantial authority for the position; or
(iii) The position (other than a
position with respect to a tax shelter or
a reportable transaction to which
section 6662A applies) was disclosed as
provided in this section but there was
no reasonable basis for the position.
(2) Special rule for corporations,
partnerships, and other firms. A firm
that employs a tax return preparer
subject to a penalty under section
6694(a) (or a firm of which the
individual tax return preparer is a
partner, member, shareholder or other
equity holder) is also subject to penalty
if, and only if—
(i) One or more members of the
principal management (or principal
officers) of the firm or a branch office
participated in or knew of the conduct
proscribed by section 6694(a);
(ii) The corporation, partnership, or
other firm entity failed to provide
reasonable and appropriate procedures
for review of the position for which the
penalty is imposed; or
(iii) The corporation, partnership, or
other firm entity disregarded its
reasonable and appropriate review
procedures through willfulness,
recklessness, or gross indifference
(including ignoring facts that would
lead a person of reasonable prudence
and competence to investigate or
ascertain) in the formulation of the
advice, or the preparation of the return
or claim for refund, that included the
position for which the penalty is
imposed.
(b) Reasonable to believe that the
position would more likely than not be
sustained on its merits—(1) In general.
If a position is with respect to a tax
shelter (as defined in section

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6662(d)(2)(C)(ii)) or a reportable
transaction to which section 6662A
applies, it is ‘‘reasonable to believe that
a position would more likely than not
be sustained on its merits’’ if the tax
return preparer analyzes the pertinent
facts and authorities and, in reliance
upon that analysis, reasonably
concludes in good faith that the position
has a greater than 50 percent likelihood
of being sustained on its merits. In
reaching this conclusion, the possibility
that the position will not be challenged
by the Internal Revenue Service (IRS)
(for example, because the taxpayer’s
return may not be audited or because
the issue may not be raised on audit) is
not to be taken into account. The
analysis prescribed by § 1.6662–
4(d)(3)(ii) (or any successor provision)
for purposes of determining whether
substantial authority is present applies
for purposes of determining whether the
more likely than not standard is
satisfied. Whether a tax return preparer
meets this standard will be determined
based upon all facts and circumstances,
including the tax return preparer’s
diligence. In determining the level of
diligence in a particular situation, the
tax return preparer’s experience with
the area of Federal tax law and
familiarity with the taxpayer’s affairs, as
well as the complexity of the issues and
facts, will be taken into account. A tax
return preparer may reasonably believe
that a position more likely than not
would be sustained on its merits despite
the absence of other types of authority
if the position is supported by a wellreasoned construction of the applicable
statutory provision. For purposes of
determining whether it is reasonable to
believe that the position would more
likely than not be sustained on the
merits, a tax return preparer may rely in
good faith without verification upon
information furnished by the taxpayer
and information and advice furnished
by another advisor, another tax return
preparer, or other party (including
another advisor or tax return preparer at
the tax return preparer’s firm), as
provided in §§ 1.6694–1(e) and 1.6694–
2(e)(5).
(2) Authorities. The authorities
considered in determining whether a
position satisfies the more likely than
not standard are those authorities
provided in § 1.6662–4(d)(3)(iii) (or any
successor provision).
(3) Written determinations. The tax
return preparer may avoid the section
6694(a) penalty by taking the position
that the tax return preparer reasonably
believed that the taxpayer’s position
satisfies the ‘‘more likely than not’’
standard if the taxpayer is the subject of

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a ‘‘written determination’’ as provided
in § 1.6662–4(d)(3)(iv)(A).
(4) Taxpayer’s jurisdiction. The
applicability of court cases to the
taxpayer by reason of the taxpayer’s
residence in a particular jurisdiction is
not taken into account in determining
whether it is reasonable to believe that
the position would more likely than not
be sustained on the merits.
Notwithstanding the preceding
sentence, the tax return preparer may
reasonably believe that the position
would more likely than not be sustained
on the merits if the position is
supported by controlling precedent of a
United States Court of Appeals to which
the taxpayer has a right of appeal with
respect to the item.
(5) When ‘‘more likely than not’’
standard must be satisfied. For purposes
of this section, the requirement that a
position satisfies the ‘‘more likely than
not’’ standard must be satisfied on the
date the return is deemed prepared, as
prescribed by § 1.6694–1(a)(2).
(c) [Reserved].
(d) Exception for adequate disclosure
of positions with a reasonable basis—(1)
In general. The section 6694(a) penalty
will not be imposed on a tax return
preparer if the position taken (other
than a position with respect to a tax
shelter or a reportable transaction to
which section 6662A applies) has a
reasonable basis and is adequately
disclosed within the meaning of
paragraph (c)(3) of this section. For an
exception to the section 6694(a) penalty
for reasonable cause and good faith, see
paragraph (d) of this section.
(2) Reasonable basis. For purposes of
this section, ‘‘reasonable basis’’ has the
same meaning as in § 1.6662–3(b)(3) or
any successor provision of the accuracyrelated penalty regulations. For
purposes of determining whether the tax
return preparer has a reasonable basis
for a position, a tax return preparer may
rely in good faith without verification
upon information furnished by the
taxpayer and information and advice
furnished by another advisor, another
tax return preparer, or other party
(including another advisor or tax return
preparer at the tax return preparer’s
firm), as provided in §§ 1.6694–1(e) and
1.6694–2(d)(5).
(3) Adequate disclosure—(i) Signing
tax return preparers. In the case of a
signing tax return preparer within the
meaning of § 301.7701–15(b)(1) of this
chapter, disclosure of a position (other
than a position with respect to a tax
shelter or a reportable transaction to
which section 6662A applies) for which
there is a reasonable basis but for which
there is not substantial authority is

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adequate if the tax return preparer meets
any of the following standards:
(A) The position is disclosed in
accordance with § 1.6662–4(f) (which
permits disclosure on a properly
completed and filed Form 8275,
‘‘Disclosure Statement,’’ or Form 8275–
R, ‘‘Regulation Disclosure Statement,’’
as appropriate, or on the tax return in
accordance with the annual revenue
procedure described in § 1.6662–4(f)(2));
(B) The tax return preparer provides
the taxpayer with the prepared tax
return that includes the disclosure in
accordance with § 1.6662–4(f); or
(C) For returns or claims for refund
that are subject to penalties pursuant to
section 6662 other than the accuracyrelated penalty attributable to a
substantial understatement of income
tax under section 6662(b)(2) and (d), the
tax return preparer advises the taxpayer
of the penalty standards applicable to
the taxpayer under section 6662. The
tax return preparer must also
contemporaneously document the
advice in the tax return preparer’s files.
(ii) Nonsigning tax return preparers.
In the case of a nonsigning tax return
preparer within the meaning of
§ 301.7701–15(b)(2) of this chapter,
disclosure of a position (other than a
position with respect to a tax shelter or
a reportable transaction to which
section 6662A applies) that satisfies the
reasonable basis standard but does not
satisfy the substantial authority
standard is adequate if the position is
disclosed in accordance with § 1.6662–
4(f) (which permits disclosure on a
properly completed and filed Form 8275
or Form 8275–R, as applicable, or on the
return in accordance with an annual
revenue procedure described in
§ 1.6662–4(f)(2)). In addition, disclosure
of a position is adequate in the case of
a nonsigning tax return preparer if, with
respect to that position, the tax return
preparer complies with the provisions
of paragraph (c)(3)(ii)(A) or (B) of this
section, whichever is applicable.
(A) Advice to taxpayers. If a
nonsigning tax return preparer provides
advice to the taxpayer with respect to a
position (other than a position with
respect to a tax shelter or a reportable
transaction to which section 6662A
applies) for which there is a reasonable
basis but for which there is not
substantial authority, disclosure of that
position is adequate if the tax return
preparer advises the taxpayer of any
opportunity to avoid penalties under
section 6662 that could apply to the
position, if relevant, and of the
standards for disclosure to the extent
applicable. The tax return preparer must
also contemporaneously document the
advice in the tax return preparer’s files.

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The contemporaneous documentation
should reflect that the affected taxpayer
has been advised by a tax return
preparer in the firm of the potential
penalties and the opportunity to avoid
penalty through disclosure.
(B) Advice to another tax return
preparer. If a nonsigning tax return
preparer provides advice to another tax
return preparer with respect to a
position (other than a position with
respect to a tax shelter or a reportable
transaction to which section 6662A
applies) for which there is a reasonable
basis but for which there is not
substantial authority, disclosure of that
position is adequate if the tax return
preparer advises the other tax return
preparer that disclosure under section
6694(a) may be required. The tax return
preparer must also contemporaneously
document the advice in the tax return
preparer’s files. The contemporaneous
documentation should reflect that the
tax return preparer outside the firm has
been advised that disclosure under
section 6694(a) may be required. If the
advice is to another nonsigning tax
return preparer within the same firm,
contemporaneous documentation is
satisfied if there is a single instance of
contemporaneous documentation
within the firm.
(iii) Requirements for advice. For
purposes of satisfying the disclosure
standards of paragraphs (d)(3)(i)(C) and
(ii) of this section, each return position
for which there is a reasonable basis but
for which there is not substantial
authority must be addressed by the tax
return preparer. The advice to the
taxpayer with respect to each position,
therefore, must be particular to the
taxpayer and tailored to the taxpayer’s
facts and circumstances. The tax return
preparer is required to
contemporaneously document the fact
that the advice was provided. There is
no general pro forma language or special
format required for a tax return preparer
to comply with these rules. A general
disclaimer will not satisfy the
requirement that the tax return preparer
provide and contemporaneously
document advice regarding the
likelihood that a position will be
sustained on the merits and the
potential application of penalties as a
result of that position. Tax return
preparers, however, may rely on
established forms or templates in
advising clients regarding the operation
of the penalty provisions of the Internal
Revenue Code. A tax return preparer
may choose to comply with the
documentation standard in one
document addressing each position or
in multiple documents addressing all of
the positions.

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(iv) Pass-through entities. Disclosure
in the case of items attributable to a
pass-through entity is adequate if made
at the entity level in accordance with
the rules in § 1.6662–4(f)(5) or at the
entity level in accordance with the rules
in paragraphs (d)(3)(i) or (ii) of this
section.
(v) Examples. The provisions of
paragraph (d)(3) of this section are
illustrated by the following examples:
Example 1. An individual taxpayer hires
Accountant R to prepare its income tax
return. A particular position taken on the tax
return does not have substantial authority
although there is a reasonable basis for the
position. The position is not with respect to
a tax shelter or a reportable transaction to
which section 6662A applies. R prepares and
signs the tax return and provides the
taxpayer with the prepared tax return that
includes the Form 8275, ‘‘Disclosure
Statement,’’ disclosing the position taken on
the tax return. The individual taxpayer signs
and files the tax return without disclosing the
position. The IRS later challenges the
position taken on the tax return, resulting in
an understatement of liability. R is not
subject to a penalty under section 6694.
Example 2. Attorney S advises a large
corporate taxpayer concerning the proper
treatment of complex entries on the corporate
taxpayer’s tax return. S has reason to know
that the tax attributable to the entries is a
substantial portion of the tax required to be
shown on the tax return within the meaning
of § 301.7701–15(b)(3). When providing the
advice, S concludes that one position does
not have substantial authority, although the
position meets the reasonable basis standard.
The position is not with respect to a tax
shelter or a reportable transaction to which
section 6662A applies. S advises the
corporate taxpayer that the position lacks
substantial authority and the taxpayer may be
subject to an accuracy-related penalty under
section 6662 unless the position is disclosed
in a disclosure statement included in the
return. S also documents the fact that this
advice was contemporaneously provided to
the corporate taxpayer at the time the advice
was provided. Neither S nor any other
attorney within S’s firm signs the corporate
taxpayer’s return as a tax return preparer, but
the advice by S constitutes preparation of a
substantial portion of the tax return, and S
is the individual with overall supervisory
responsibility for the position giving rise to
the understatement. Thus, S is a tax return
preparer for purposes of section 6694. S,
however, will not be subject to a penalty
under section 6694.

(e) Exception for reasonable cause
and good faith. The penalty under
section 6694(a) will not be imposed if,
considering all the facts and
circumstances, it is determined that the
understatement was due to reasonable
cause and that the tax return preparer
acted in good faith. Factors to consider
include:
(1) Nature of the error causing the
understatement. The error resulted from

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Federal Register / Vol. 73, No. 246 / Monday, December 22, 2008 / Rules and Regulations
a provision that was complex,
uncommon, or highly technical, and a
competent tax return preparer of tax
returns or claims for refund of the type
at issue reasonably could have made the
error. The reasonable cause and good
faith exception, however, does not
apply to an error that would have been
apparent from a general review of the
return or claim for refund by the tax
return preparer.
(2) Frequency of errors. The
understatement was the result of an
isolated error (such as an inadvertent
mathematical or clerical error) rather
than a number of errors. Although the
reasonable cause and good faith
exception generally applies to an
isolated error, it does not apply if the
isolated error is so obvious, flagrant, or
material that it should have been
discovered during a review of the return
or claim for refund. Furthermore, the
reasonable cause and good faith
exception does not apply if there is a
pattern of errors on a return or claim for
refund even though any one error, in
isolation, would have qualified for the
reasonable cause and good faith
exception.
(3) Materiality of errors. The
understatement was not material in
relation to the correct tax liability. The
reasonable cause and good faith
exception generally applies if the
understatement is of a relatively
immaterial amount. Nevertheless, even
an immaterial understatement may not
qualify for the reasonable cause and
good faith exception if the error or
errors creating the understatement are
sufficiently obvious or numerous.
(4) Tax return preparer’s normal
office practice. The tax return preparer’s
normal office practice, when considered
together with other facts and
circumstances, such as the knowledge of
the tax return preparer, indicates that
the error in question would occur rarely
and the normal office practice was
followed in preparing the return or
claim for refund in question. Such a
normal office practice must be a system
for promoting accuracy and consistency
in the preparation of returns or claims
for refund and generally would include,
in the case of a signing tax return
preparer, checklists, methods for
obtaining necessary information from
the taxpayer, a review of the prior year’s
return, and review procedures.
Notwithstanding these rules, the
reasonable cause and good faith
exception does not apply if there is a
flagrant error on a return or claim for
refund, a pattern of errors on a return or
claim for refund, or a repetition of the
same or similar errors on numerous
returns or claims for refund.

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(5) Reliance on advice of others. For
purposes of demonstrating reasonable
cause and good faith, a tax return
preparer may rely without verification
upon advice and information furnished
by the taxpayer and information and
advice furnished by another advisor,
another tax return preparer or other
party, as provided in § 1.6694–1(e). The
tax return preparer may rely in good
faith on the advice of, or schedules or
other documents prepared by, the
taxpayer, another advisor, another tax
return preparer, or other party
(including another advisor or tax return
preparer at the tax return preparer’s
firm), who the tax return preparer had
reason to believe was competent to
render the advice or other information.
The advice or information may be
written or oral, but in either case the
burden of establishing that the advice or
information was received is on the tax
return preparer. A tax return preparer is
not considered to have relied in good
faith if—
(i) The advice or information is
unreasonable on its face;
(ii) The tax return preparer knew or
should have known that the other party
providing the advice or information was
not aware of all relevant facts; or
(iii) The tax return preparer knew or
should have known (given the nature of
the tax return preparer’s practice), at the
time the return or claim for refund was
prepared, that the advice or information
was no longer reliable due to
developments in the law since the time
the advice was given.
(6) Reliance on generally accepted
administrative or industry practice. The
tax return preparer reasonably relied in
good faith on generally accepted
administrative or industry practice in
taking the position that resulted in the
understatement. A tax return preparer is
not considered to have relied in good
faith if the tax return preparer knew or
should have known (given the nature of
the tax return preparer’s practice), at the
time the return or claim for refund was
prepared, that the administrative or
industry practice was no longer reliable
due to developments in the law or IRS
administrative practice since the time
the practice was developed.
(f) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 8. Section 1.6694–3 is amended
by revising paragraphs (a), (c)(2) and (3),
(d), (e), (f), and (g) to read as follows:

78445

penalty under section 6694(b) equal to
the greater of $5,000 or 50 percent of the
income derived (or to be derived) by the
tax return preparer if any part of an
understatement of liability for a return
or claim for refund that is prepared is
due to—
(i) A willful attempt by a tax return
preparer to understate in any manner
the liability for tax on the return or
claim for refund; or
(ii) Any reckless or intentional
disregard of rules or regulations by a tax
return preparer.
(2) Special rule for corporations,
partnerships, and other firms. A firm
that employs a tax return preparer
subject to a penalty under section
6694(b) (or a firm of which the
individual tax return preparer is a
partner, member, shareholder or other
equity holder) is also subject to penalty
if, and only if—
(i) One or more members of the
principal management (or principal
officers) of the firm or a branch office
participated in or knew of the conduct
proscribed by section 6694(b);
(ii) The corporation, partnership, or
other firm entity failed to provide
reasonable and appropriate procedures
for review of the position for which the
penalty is imposed; or
(iii) The corporation, partnership, or
other firm entity disregarded its
reasonable and appropriate review
procedures through willfulness,
recklessness, or gross indifference
(including ignoring facts that would
lead a person of reasonable prudence
and competence to investigate or
ascertain) in the formulation of the
advice, or the preparation of the return
or claim for refund, that included the
position for which the penalty is
imposed.
*
*
*
*
*
(c) * * *
(2) A tax return preparer is not
considered to have recklessly or
intentionally disregarded a rule or
regulation if the position contrary to the
rule or regulation has a reasonable basis
as defined in § 1.6694–2(c)(2) and is
adequately disclosed in accordance with
§§ 1.6694–2(c)(3)(i)(A) or (C) or 1.6694–
2(c)(3)(ii). In the case of a position
contrary to a regulation, the position
must represent a good faith challenge to
the validity of the regulation and, when
disclosed in accordance with §§ 1.6694–
2(c)(3)(i)(A) or (C) or 1.6694–2(c)(3)(ii),
the tax return preparer must identify the
regulation being challenged. For
§ 1.6694–3 Penalty for understatement due purposes of this section, disclosure on
to willful, reckless, or intentional conduct.
the return in accordance with an annual
(a) In general—(1) Proscribed conduct. revenue procedure under § 1.6662–
4(f)(2) is not applicable.
A tax return preparer is liable for a

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(3) In the case of a position contrary
to a revenue ruling or notice (other than
a notice of proposed rulemaking)
published by the Internal Revenue
Service in the Internal Revenue
Bulletin, a tax return preparer also is not
considered to have recklessly or
intentionally disregarded the ruling or
notice if the position meets the
substantial authority standard described
in § 1.6662–4(d) and is not with respect
to a reportable transaction to which
section 6662A applies.
(d) Examples. The provisions of
paragraphs (b) and (c) of this section are
illustrated by the following examples:

sroberts on PROD1PC70 with RULES

Example 1. A taxpayer provided Preparer
T with detailed check registers reflecting
personal and business expenses. One of the
expenses was for domestic help, and this
expense was identified as personal on the
check register. T knowingly deducted the
expenses of the taxpayer’s domestic help as
wages paid in the taxpayer’s business. T is
subject to the penalty under section 6694(b).
Example 2. A taxpayer provided Preparer
U with detailed check registers to compute
the taxpayer’s expenses. U, however,
knowingly overstated the expenses on the
return. After adjustments by the examiner,
the tax liability increased significantly.
Because U disregarded information provided
in the check registers, U is subject to the
penalty under section 6694(b).
Example 3. Preparer V prepares a
taxpayer’s return in 2009 and encounters
certain expenses incurred in the purchase of
a business. Final regulations provide that
such expenses incurred in the purchase of a
business must be capitalized. One U.S. Tax
Court case decided in 2006 has expressly
invalidated that portion of the regulations.
There are no courts that ruled favorably with
respect to the validity of that portion of the
regulations and there are no other authorities
existing on the issue. Under these facts, V
will have a reasonable basis for the position
as defined in § 1.6694–2(d)(2) and will not be
subject to the section 6694(b) penalty if the
position is adequately disclosed in
accordance with paragraph (c)(2) of this
section because the position represents a
good faith challenge to the validity of the
regulations.

(e) Rules or regulations. The term
rules or regulations includes the
provisions of the Internal Revenue Code
(Code), temporary or final Treasury
regulations issued under the Code, and
revenue rulings or notices (other than
notices of proposed rulemaking) issued
by the Internal Revenue Service and
published in the Internal Revenue
Bulletin.
(f) Section 6694(b) penalty reduced by
section 6694(a) penalty. The amount of
any penalty to which a tax return
preparer may be subject under section
6694(b) for a return or claim for refund
is reduced by any amount assessed and
collected against the tax return preparer

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under section 6694(a) for the same
position on a return or claim for refund.
(g) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 9. Section 1.6694–4 is revised to
read as follows:
§ 1.6694–4 Extension of period of
collection when tax return preparer pays 15
percent of a penalty for understatement of
taxpayer’s liability and certain other
procedural matters.

(a) In general. (1) The Internal
Revenue Service (IRS) will investigate
the preparation by a tax return preparer
of a return of tax under the Internal
Revenue Code (Code) or claim for
refund of tax under the Code as
described in § 301.7701–15(b)(4) of this
chapter, and will send a report of the
examination to the tax return preparer
before the assessment of either—
(i) A penalty for understating tax
liability due to a position for which
either it was not reasonable to believe
that the position would more likely than
not be sustained on its merits under
section 6694(a) or no substantial
authority, as applicable (or not a
reasonable basis for disclosed
positions); or
(ii) A penalty for willful
understatement of liability or reckless or
intentional disregard of rules or
regulations under section 6694(b).
(2) Unless the period of limitations (if
any) under section 6696(d) may expire
without adequate opportunity for
assessment, the IRS will also send,
before assessment of either penalty, a
30-day letter to the tax return preparer
notifying him of the proposed penalty or
penalties and offering an opportunity to
the tax return preparer to request further
administrative consideration and a final
administrative determination by the IRS
concerning the assessment. If the tax
return preparer then makes a timely
request, assessment may not be made
until the IRS makes a final
administrative determination adverse to
the tax return preparer.
(3) If the IRS assesses either of the two
penalties described in section 6694(a)
and section 6694(b), it will send to the
tax return preparer a statement of notice
and demand, separate from any notice
of a tax deficiency, for payment of the
amount assessed.
(4) Within 30 days after the day on
which notice and demand of either of
the two penalties described in section
6694(a) and section 6694(b) is made
against the tax return preparer, the tax
return preparer must either—
(i) Pay the entire amount assessed
(and may file a claim for refund of the

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amount paid at any time not later than
3 years after the date of payment); or
(ii) Pay an amount which is not less
than 15 percent of the entire amount
assessed with respect to each return or
claim for refund and file a claim for
refund of the amount paid.
(5) If the tax return preparer pays an
amount and files a claim for refund
under paragraph (a)(4)(ii) of this section,
the IRS may not make, begin, or
prosecute a levy or proceeding in court
for collection of the unpaid remainder
of the amount assessed until the later
of—
(i) A date which is more than 30 days
after the earlier of—
(A) The day on which the tax return
preparer’s claim for refund is denied; or
(B) The expiration of 6 months after
the day on which the tax return preparer
filed the claim for refund; and
(ii) Final resolution of any proceeding
begun as provided in paragraph (b) of
this section.
(6) The IRS may counterclaim in any
proceeding begun as provided in
paragraph (b) of this section for the
unpaid remainder of the amount
assessed. Final resolution of a
proceeding includes any settlement
between the IRS and the tax return
preparer, any final determination by a
court (for which the period for appeal,
if any, has expired) and, generally, the
types of determinations provided under
section 1313(a) (relating to taxpayer
deficiencies). Notwithstanding section
7421(a) (relating to suits to restrain
assessment or collection), the beginning
of a levy or proceeding in court by the
IRS in contravention of paragraph (a)(5)
of this section may be enjoined by a
proceeding in the proper court.
(b) Preparer must bring suit in district
court to determine liability for penalty.
The IRS may proceed with collection of
the amount of the penalty not paid
under paragraph (a)(4)(ii) of this section
if the preparer fails to begin a
proceeding for refund in the appropriate
United States district court within 30
days after the earlier of—
(1) The day on which the preparer’s
claim for refund filed under paragraph
(a)(4)(ii) of this section is denied; or
(2) The expiration of 6 months after
the day on which the preparer filed the
claim for refund.
(c) Suspension of running of period of
limitations on collection. The running of
the period of limitations provided in
section 6502 on the collection by levy
or by a proceeding in court of the
unpaid amount of a penalty or penalties
described in section 6694(a) or section
6694(b) is suspended for the period
during which the IRS, under paragraph
(a)(5) of this section, may not collect the

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unpaid amount of the penalty or
penalties by levy or a proceeding in
court.
(d) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 10. Section 1.6695–1 is revised to
read as follows:

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§ 1.6695–1 Other assessable penalties
with respect to the preparation of tax
returns for other persons.

(a) Failure to furnish copy to taxpayer.
(1) A person who is a signing tax return
preparer as described in § 301.7701–
15(b)(1) of this chapter of any return of
tax or claim for refund of tax under the
Internal Revenue Code (Code), and who
fails to satisfy the requirements imposed
by section 6107(a) and § 1.6107–1(a) to
furnish a copy of the return or claim for
refund to the taxpayer (or nontaxable
entity), shall be subject to a penalty of
$50 for such failure, with a maximum
penalty of $25,000 per person imposed
with respect to each calendar year,
unless it is shown that the failure is due
to reasonable cause and not due to
willful neglect.
(2) No penalty may be imposed under
section 6695(a) and paragraph (a)(1) of
this section upon a tax return preparer
who furnishes a copy of the return or
claim for refund to taxpayers who—
(i) Hold an elected or politically
appointed position with the government
of the United States or a state or
political subdivision thereof; and
(ii) In order to faithfully to carry out
their official duties, have so arranged
their affairs that they have less than full
knowledge of the property that they
hold or of the debts for which they are
responsible, if information is deleted
from the copy in order to preserve or
maintain this arrangement.
(b) Failure to sign return. (1) An
individual who is a signing tax return
preparer as described in § 301.7701–
15(b)(1) of this chapter with respect to
a return of tax or claim for refund of tax
under the Code as described in
§ 301.7701–15(b)(4) that is not signed
electronically shall sign the return or
claim for refund after it is completed
and before it is presented to the
taxpayer (or nontaxable entity) for
signature. For rules covering
electronically signed returns, see
paragraph (b)(2) of this section. If the
signing tax return preparer is
unavailable for signature, another tax
return preparer shall review the entire
preparation of the return or claim for
refund, and then shall sign the return or
claim for refund. The tax return
preparer shall sign the return in the
manner prescribed by the Commissioner

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in forms, instructions, or other
appropriate guidance.
(2) In the case of electronically signed
tax returns, the signing tax return
preparer need not sign the return prior
to presenting a completed copy of the
return to the taxpayer. The signing tax
return preparer, however, must furnish
all of the information that will be
transmitted as the electronically signed
tax return to the taxpayer
contemporaneously with furnishing the
Form 8879, ‘‘IRS e-file Signature
Authorization,’’ or other similar Internal
Revenue Service (IRS) e-file signature
form. The information may be furnished
on a replica of an official form. The
signing tax return preparer shall
electronically sign the return in the
manner prescribed by the Commissioner
in forms, instructions, or other
appropriate guidance.
(3) An individual required by this
paragraph (b) to sign a return or claim
for refund shall be subject to a penalty
of $50 for each failure to sign, with a
maximum of $25,000 per person
imposed with respect to each calendar
year, unless it is shown that the failure
is due to reasonable cause and not due
to willful neglect. If the tax return
preparer asserts reasonable cause for
failure to sign, the IRS will require a
written statement to substantiate the tax
return preparer’s claim of reasonable
cause. For purposes of this paragraph
(b), reasonable cause is a cause that
arises despite ordinary care and
prudence exercised by the individual
tax return preparer.
(4) Examples. The application of this
paragraph (b) is illustrated by the
following examples:
Example 1. Law Firm A employs B, a
lawyer, to prepare for compensation estate
tax returns and claims for refund of taxes.
Firm A is engaged by C to prepare a Federal
estate tax return. Firm A assigns B to prepare
the return. B obtains the information
necessary for completing the return from C
and makes determinations with respect to the
proper application of the tax laws to such
information in order to determine the estate’s
tax liability. B then forwards such
information to D, a computer tax service that
performs the mathematical computations and
prints the return by means of computer
processing. D then sends the completed
estate tax return to B who reviews the
accuracy of the return. B is the individual tax
return preparer who is primarily responsible
for the overall accuracy of the estate tax
return. B must sign the return as tax return
preparer in order to not be subject to the
section 6695(b) penalty.
Example 2. Partnership E is a national
accounting firm that prepares returns and
claims for refund of taxes for compensation.
F and G, employees of Partnership E, are
involved in preparing the Form 990–T,
Exempt Organization Business Income Tax

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78447

Return, for H, a tax exempt organization.
After they complete the return, including the
gathering of the necessary information,
analyzing the proper application of the tax
laws to such information, and the
performance of the necessary mathematical
computations, I, a supervisory employee of
Partnership E, reviews the return. As part of
this review, I reviews the information
provided and the application of the tax laws
to this information. The mathematical
computations and carried-forward amounts
are reviewed by J, an employee of
Partnership E. The policies and practices of
Partnership E require that K, a partner,
finally review the return. The scope of K’s
review includes reviewing the information
provided and applying to this information
his knowledge of H’s affairs, observing that
Partnership E’s policies and practices have
been followed, and making the final
determination with respect to the proper
application of the tax laws to determine H’s
tax liability. K may or may not exercise these
responsibilities, or may exercise them to a
greater or lesser extent, depending on the
degree of complexity of the return, his
confidence in I (or F and G), and other
factors. K is the individual tax return
preparer who is primarily responsible for the
overall accuracy of H’s return. K must sign
the return as tax return preparer in order to
not be subject to the section 6695(b) penalty.
Example 3. L corporation maintains an
office in Seattle, Washington, for the purpose
of preparing partnership returns for
compensation. L makes compensatory
arrangements with individuals (but provides
no working facilities) in several states to
collect information from partners of a
partnership and to make decisions with
respect to the proper application of the tax
laws to the information in order to prepare
the partnership return and calculate the
partnership’s distributive items. M, an
individual, who has such an arrangement in
Los Angeles with L, collects information
from N, the general partner of a partnership,
and completes a worksheet kit supplied by L
that is stamped with M’s name and an
identification number assigned to M by L. In
this process, M classifies this information in
appropriate categories for the preparation of
the partnership return. The completed
worksheet kit signed by M is then mailed to
L. O, an employee in L’s office, reviews the
worksheet kit to make sure it was properly
completed. O does not review the
information obtained from N for its validity
or accuracy. O may, but did not, make the
final decision with respect to the proper
application of tax laws to the information
provided. The data from the worksheet is
entered into a computer and the return form
is completed. The return is prepared for
submission to N with filing instructions. M
is the individual tax return preparer
primarily responsible for the overall accuracy
of the partnership return. M must sign the
return as tax return preparer in order to not
be subject to the section 6695(b) penalty.
Example 4. P employs R, S, and T to
prepare gift tax returns for taxpayers. After R
and S have collected the information from a
taxpayer and applied the tax laws to the
information, the return form is completed by

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a computer service. On the day the returns
prepared by R and S are ready for their
signatures, R is away from the city for 1 week
on another assignment and S is on detail to
another office in the same city for the day.
T may sign the gift tax returns prepared by
R, provided that T reviews the information
obtained by R relative to the taxpayer, and T
reviews the preparation of each return
prepared by R. T may not sign the returns
prepared by S because S is available.

(5) Effective/applicability date. This
paragraph (b) is applicable to returns
and claims for refund filed after
December 31, 2008.
(c) Failure to furnish identifying
number. (1) A person who is a signing
tax return preparer as described in
§ 301.7701–15(b)(1) of this chapter of
any return of tax under the Code or
claim for refund of tax under the Code,
and who fails to satisfy the requirement
of section 6109(a)(4) and § 1.6109–2(a)
to furnish one or more identifying
numbers of signing tax return preparers
or persons employing the signing tax
return preparer (or with which the
signing tax return preparer is associated)
on a return or claim for refund after it
is completed and before it is presented
to the taxpayer (or nontaxable entity) for
signature shall be subject to a penalty of
$50 for each failure, with a maximum of
$25,000 per person imposed with
respect to each calendar year, unless it
is shown that the failure is due to
reasonable cause and not due to willful
neglect.
(2) No more than one penalty of $50
may be imposed under section 6695(c)
and paragraph (c)(1) of this section with
respect to a single return or claim for
refund.
(d) Failure to retain copy or record. (1)
A person who is a signing tax return
preparer as described in § 301.7701–
15(b)(1) of this chapter of any return of
tax under the Code or claim for refund
of tax under the Code, and who fails to
satisfy the requirements imposed upon
him or her by section 6107(b) and
§ 1.6107–1(b) and (c) (other than the
record requirement described in both
§ 1.6107–1(b)(2) and (3)) to retain and
make available for inspection a copy of
the return or claim for refund, or to
include the return or claim for refund in
a record of returns and claims for refund
and make the record available for
inspection, shall be subject to a penalty
of $50 for the failure, unless it is shown
that the failure is due to reasonable
cause and not due to willful neglect.
(2) A person may not, for returns or
claims for refund presented to the
taxpayers (or nontaxable entities) during
each calendar year, be subject to more
than $25,000 in penalties under section
6695(d) and paragraph (d)(1) of this
section.

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(e) Failure to file correct information
returns. A person who is subject to the
reporting requirements of section 6060
and § 1.6060–1 and who fails to satisfy
these requirements shall pay a penalty
of $50 for each such failure, with a
maximum of $25,000 per person
imposed for each calendar year, unless
such failure was due to reasonable cause
and not due to willful neglect.
(f) Negotiation of check. (1) No person
who is a tax return preparer as
described in § 301.7701–15 of this
chapter may endorse or otherwise
negotiate, directly or through an agent,
a check (including an electronic version
of a check) for the refund of tax under
the Code that is issued to a taxpayer
other than the tax return preparer if the
person was a tax return preparer of the
return or claim for refund which gave
rise to the refund check. A tax return
preparer will not be considered to have
endorsed or otherwise negotiated a
check for purposes of this paragraph
(f)(1) solely as a result of having affixed
the taxpayer’s name to a refund check
for the purpose of depositing the check
into an account in the name of the
taxpayer or in the joint names of the
taxpayer and one or more other persons
(excluding the tax return preparer) if
authorized by the taxpayer or the
taxpayer’s recognized representative.
(2) Section 6695(f) and paragraphs
(f)(1) and (3) of this section do not apply
to a tax return preparer-bank that—
(i) Cashes a refund check and remits
all of the cash to the taxpayer or accepts
a refund check for deposit in full to a
taxpayer’s account, so long as the bank
does not initially endorse or negotiate
the check (unless the bank has made a
loan to the taxpayer on the basis of the
anticipated refund); or
(ii) Endorses a refund check for
deposit in full to a taxpayer’s account
pursuant to a written authorization of
the taxpayer (unless the bank has made
a loan to the taxpayer on the basis of the
anticipated refund).
(3) A tax return preparer-bank may
also subsequently endorse or negotiate a
refund check as a part of the checkclearing process through the financial
system after initial endorsement or
negotiation.
(4) The tax return preparer shall be
subject to a penalty of $500 for each
endorsement or negotiation of a check
prohibited under section 6695(f) and
paragraph (f)(1) of this section.
(g) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 11. Section 1.6695–2 is amended
by revising the section heading and

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paragraphs (a), (b)(3), (c) and (d) to read
as follows:
§ 1.6695–2 Tax return preparer due
diligence requirements for determining
earned income credit eligibility.

(a) Penalty for failure to meet due
diligence requirements. A person who is
a signing tax return preparer of a tax
return or claim for refund under the
Internal Revenue Code with respect to
determining the eligibility for, or the
amount of, the earned income credit
(EIC) under section 32 and who fails to
satisfy the due diligence requirements of
paragraph (b) of this section will be
subject to a penalty of $100 for each
such failure.
(b) * * *
(3) Knowledge—(i) In general. The tax
return preparer must not know, or have
reason to know, that any information
used by the tax return preparer in
determining the taxpayer’s eligibility
for, or the amount of, the EIC is
incorrect. The tax return preparer may
not ignore the implications of
information furnished to, or known by,
the tax return preparer, and must make
reasonable inquiries if the information
furnished to the tax return preparer
appears to be incorrect, inconsistent, or
incomplete. A tax return preparer must
make reasonable inquiries if a
reasonable and well-informed tax return
preparer knowledgeable in the law
would conclude that the information
furnished to the tax return preparer
appears to be incorrect, inconsistent, or
incomplete. The tax return preparer
must also contemporaneously document
in the files the reasonable inquiries
made and the responses to these
inquiries.
(ii) Examples. The provisions of
paragraph (b)(3)(i) of this section are
illustrated by the following examples:
Example 1. A 22 year-old taxpayer wants
to claim two sons, ages 10 and 11, as
qualifying children for purposes of the EIC.
Preparer A must make additional reasonable
inquiries regarding the relationship between
the taxpayer and the children as the age of
the taxpayer appears inconsistent with the
ages of the children claimed as sons.
Example 2. An 18 year-old female taxpayer
with an infant has $3,000 in earned income
and states that she lives with her parents.
Taxpayer wants to claim the infant as a
qualifying child for the EIC. This information
appears incomplete and inconsistent because
the taxpayer lives with her parents and earns
very little income. Preparer B must make
additional reasonable inquires to determine if
the taxpayer is the qualifying child of her
parents and, therefore, ineligible to claim the
EIC.
Example 3. Taxpayer asks Preparer C to
prepare his tax return and wants to claim his
niece and nephew as qualifying children for
the EIC. Preparer C should make reasonable

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inquiries to determine whether the children
meet EIC qualifying child requirements and
ensure possible duplicate claim situations
involving the parents or other relatives are
properly considered.
Example 4. Taxpayer asks Preparer D to
prepare her tax return and tells D that she has
a Schedule C business, that she has two
qualifying children and that she wants to
claim the EIC. Taxpayer indicates that she
earned $10,000 from her Schedule C
business, but that she has no expenses. This
information appears incomplete because it is
very unlikely that someone who is selfemployed has no business expenses. D must
make additional reasonable inquiries
regarding taxpayer’s business to determine
whether the information regarding both
income and expenses is correct.

(c) Exception to penalty. The section
6695(g) penalty will not be applied with
respect to a particular tax return or
claim for refund if the tax return
preparer can demonstrate to the
satisfaction of the Internal Revenue
Service that, considering all the facts
and circumstances, the tax return
preparer’s normal office procedures are
reasonably designed and routinely
followed to ensure compliance with the
due diligence requirements of paragraph
(b) of this section, and the failure to
meet the due diligence requirements of
paragraph (b) of this section with
respect to the particular return or claim
for refund was isolated and inadvertent.
(d) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 12. Section 1.6696–1 is revised to
read as follows:

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§ 1.6696–1 Claims for credit or refund by
tax return preparers or appraisers.

(a) Notice and demand. (1) The
Internal Revenue Service (IRS) shall
issue to each tax return preparer or
appraiser one or more statements of
notice and demand for payment for all
penalties assessed against the tax return
preparer or appraiser under section
6694 and § 1.6694–1, under section
6695 and § 1.6695–1, or under section
6695A (and any subsequently issued
regulations).
(2) For the definition of the term ‘‘tax
return preparer’’, see section 7701(a)(36)
and § 301.7701–15 of this chapter. A
person who prepares a claim for credit
or refund under this section for another
person, however, is not, with respect to
that preparation, a tax return preparer as
defined in section 7701(a)(36) and
§ 301.7701–15 of this chapter.
(b) Claim filed by tax return preparer
or appraiser. A claim for credit or
refund of a penalty (or penalties)
assessed against a tax return preparer or
appraiser under section 6694 and

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§ 1.6694–1, under section 6695 and
§ 1.6695–1, or under section 6695A (and
any subsequently issued regulations)
may be filed under this section only by
the tax return preparer or the appraiser
(or the tax return preparer’s or
appraiser’s estate) against whom the
penalty (or penalties) is assessed and
not by, for example, the tax return
preparer’s or appraiser’s employer. This
paragraph (b) is not intended, however,
to impose any restrictions on the
preparation of this claim for credit or
refund. The claim may be prepared by
the tax return preparer’s or appraiser’s
employer or by other persons. In all
cases, however, the claim for credit or
refund shall contain the information
specified in paragraph (d) of this section
and, as required by paragraph (d) of this
section, shall be verified by a written
declaration by the tax return preparer or
appraiser that the information is
provided under penalty of perjury.
(c) Separation and consolidation of
claims. (1) Unless paragraph (c)(2) of
this section applies, a tax return
preparer shall file a separate claim for
each penalty assessed in each statement
of notice and demand issued to the tax
return preparer.
(2) A tax return preparer may file one
or more consolidated claims for any or
all penalties imposed on the tax return
preparer by a single IRS campus or
office under section 6695(a) and
§ 1.6695–1(a) (relating to failure to
furnish copy of return to taxpayer),
section 6695(b) and § 1.6695–1(b)
(relating to failure to sign), section
6695(c) and § 1.6695–1(c) (relating to
failure to furnish identifying number),
or under section 6695(d) and § 1.6695–
1(d) (relating to failure to retain copy of
return or record), whether the penalties
are asserted on a single or on separate
statements of notice and demand. In
addition, a tax return preparer may file
one consolidated claim for any or all
penalties imposed on the tax return
preparer by a single IRS campus or
office under section 6695(e) and
§ 1.6695–1(e) (relating to failure to file
correct information return), which are
asserted on a single statement of notice
and demand.
(d) Content of claim. Each claim for
credit or refund for any penalty (or
penalties) paid by a tax return preparer
under section 6694 and § 1.6694–1, or
under section 6695 and § 1.6695–1, or
paid by an appraiser under section
6695A (and any subsequently issued
regulations) shall include the following
information, verified by a written
declaration by the tax return preparer or
appraiser that the information is
provided under penalty of perjury:

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78449

(1) The tax return preparer’s or
appraiser’s name.
(2) The tax return preparer’s or
appraiser’s identification number. If the
tax return preparer or appraiser is—
(i) An individual (not described in
paragraph (d)(2)(iii) of this section) who
is a citizen or resident of the United
States, the tax return preparer’s or
appraiser’s social security account
number (or such alternative number as
may be prescribed by the IRS in forms,
instructions, or other appropriate
guidance) shall be provided;
(ii) An individual who is not a citizen
or resident of the United States and also
was not employed by another tax return
preparer or appraiser to prepare the
document (or documents) with respect
to which the penalty (or penalties) was
assessed, the tax return preparer’s or
appraiser’s employer identification
number shall be provided; or
(iii) A person (whether an individual,
corporation, or partnership) that
employed one or more persons to
prepare the document (or documents)
with respect to which the penalty (or
penalties) was assessed, the tax return
preparer’s or appraiser’s employer
identification number shall be provided.
(3) The tax return preparer’s or
appraiser’s address where the IRS
mailed the statement (or statements) of
notice and demand and, if different, the
tax return preparer’s or appraiser’s
address shown on the document (or
documents) with respect to which the
penalty (or penalties) was assessed.
(4)(i) The address of the IRS campus
or office that issued the statement (or
statements) of notice and demand for
payment of the penalty (or penalties).
(ii) The date (or dates) and identifying
number (or numbers) of the statement
(or statements) of notice and demand.
(5)(i) The identification, by amount,
type, and document to which related, of
each penalty included in the claim.
Each document referred to in the
preceding sentence shall be identified
by the form title or number, by the
taxpayer’s (or nontaxable entity’s) name
and taxpayer identification number, and
by the taxable year to which the
document relates.
(ii) The date (or dates) of payment of
the amount (or amounts) of the penalty
(or penalties) included in the claim.
(iii) The total amount claimed.
(6) A statement setting forth in
detail—
(i) Each ground upon which each
penalty overpayment claim is based;
and
(ii) Facts sufficient to apprise the IRS
of the exact basis of each such claim.
(e) Form for filing claim.
Notwithstanding § 301.6402–2(c) of this

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Federal Register / Vol. 73, No. 246 / Monday, December 22, 2008 / Rules and Regulations

chapter, Form 6118, ‘‘Claim for Refund
of Tax Return Preparer and Promoter
Penalties,’’ is the form prescribed for
making a claim as provided in this
section with respect to penalties under
sections 6694 and 6695. Form 843,
Claim for Refund and Request for
Abatement, is the form prescribed for
making a claim as provided in this
section with respect to a penalty under
section 6695A.
(f) Place for filing claim. A claim filed
under this section shall be filed with the
IRS campus or office that issued to the
tax return preparer or appraiser the
statement (or statements) of notice and
demand for payment of the penalty (or
penalties) included in the claim.
(g) Time for filing claim. (1)(i) Except
as provided in section 6694(c)(1) and
§ 1.6694–4(a)(4)(ii) and (5), and in
section 6694(d) and § 1.6694–1(c):
(A) A claim for a penalty paid by a tax
return preparer under section 6694 and
§ 1.6694–1, or under section 6695 and
§ 1.6695–1, or by an appraiser under
section 6695A (and any subsequently
issued regulations) shall be filed within
three years from the date the payment
was made.
(B) A consolidated claim, permitted
under paragraph (c)(2) of this section,
shall be filed within three years from
the first date of payment of any penalty
included in the claim.
(ii) For purposes of this paragraph
(g)(1), payment is considered made on
the date payment is received by the IRS
or, if applicable, on the date an amount
is credited in satisfaction of the penalty.
(2) For purposes of determining
whether a claim is timely filed, the rules
under sections 7502 and 7503 and the
provisions of §§ 1.7502–1, 1.7502–2,
and 1.7503–1 apply.
(h) Application of refund to
outstanding liability of tax return
preparer or appraiser. The IRS may,
within the applicable period of
limitations, credit any amount of an
overpayment by a tax return preparer or
appraiser of a penalty (or penalties) paid
under section 6694 and § 1.6694–1,
under section 6695 and § 1.6695–1, or
under section 6695A (and any
subsequently issued regulations) against
any outstanding liability for any tax (or
for any interest, additional amount,
addition to the tax, or assessable
penalty) owed by the tax return preparer
or appraiser making the overpayment. If
a portion of an overpayment is so
credited, only the balance will be
refunded to the tax return preparer or
appraiser.
(i) Interest. (1) Section 6611 and
§ 301.6611–1 of this chapter apply to the
payment by the IRS of interest on an
overpayment by a tax return preparer or

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appraiser of a penalty (or penalties) paid
under section 6694 and § 1.6694–1,
under section 6695 and § 1.6695–1, or
under section 6695A (and any
subsequently issued regulations).
(2) Section 6601 and § 301.6601–1 of
this chapter apply to the payment of
interest by a tax return preparer or
appraiser to the IRS on any penalty (or
penalties) assessed against the tax return
preparer under section 6694 and
§ 1.6694–1, under section 6695 and
§ 1.6695–1, or under section 6695A (and
any subsequently issued regulations).
(j) Suits for refund of penalty. (1) A
tax return preparer or appraiser may not
maintain a civil action for the recovery
of any penalty paid under section 6694
and § 1.6694–1, under section 6695 and
§ 1.6695–1, or under section 6695A (and
any subsequently issued regulations),
unless the tax return preparer or
appraiser has previously filed a claim
for credit or refund of the penalty as
provided in this section (and the court
has jurisdiction of the proceeding). See
sections 6694(c) and 7422.
(2)(i) Except as provided in section
6694(c)(2) and § 1.6694–4(b), the
periods of limitation contained in
section 6532 and § 301.6532–1 of this
chapter apply to a tax return preparer’s
or appraiser’s suit for the recovery of
any penalty paid under section 6694
and § 1.6694–1, under section 6695 and
§ 1.6695–1, or under section 6695A (and
any subsequently issued regulations).
(ii) The rules under section 7503 and
§ 301.7503–1 of this chapter apply to the
timely commencement by a tax return
preparer or appraiser of a suit for the
recovery of any penalty paid under
section 6694 and § 1.6694–1, under
section 6695 and § 1.6695–1, or under
section 6695A (and any subsequently
issued regulations).
(k) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
PART 20—ESTATE TAX; ESTATES OF
DECEDENTS DYING AFTER AUGUST
16, 1954
Par. 13. The authority citation for part
20 is amended by adding entries in
numerical order to read in part as
follows:

■

Authority: 26 U.S.C. 7805 * * *
Section 20.6060–1 also issued under 26
U.S.C. 6060(a). * * *
Section 20.6109–2 also issued under 26
U.S.C. 6109(a). * * *
Section 20.6695–1 also issued under 26
U.S.C. 6695(b). * * *
Section 20.6695–2 also issued under 26
U.S.C. 6695(g). * * *

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Par. 14. Section 20.6060–1 is added to
read as follows:

■

§ 20.6060–1 Reporting requirements for
tax return preparers.

(a) In general. A person that employs
one or more tax return preparers to
prepare a return or claim for refund of
estate tax under chapter 11 of subtitle B
of the Internal Revenue Code, other than
for the person, at any time during a
return period, shall satisfy the
recordkeeping and inspection
requirements in the manner stated in
§ 1.6060–1 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 15. Section 20.6107–1 is added to
read as follows:
§ 20.6107–1 Tax return preparer must
furnish copy of return to taxpayer and must
retain a copy or record.

(a) In general. A person who is a
signing tax return preparer of any return
or claim for refund of estate tax under
chapter 11 of subtitle B of the Internal
Revenue Code shall furnish a completed
copy of the return or claim for refund
to the taxpayer and retain a completed
copy or record in the manner stated in
§ 1.6107–1 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 16. Section 20.6109–1 is added to
read as follows:
§ 20.6109–1 Tax return preparers
furnishing identifying numbers for returns
or claims for refund.

(a) In general. Each estate tax return
or claim for refund prepared by one or
more signing tax return preparers must
include the identifying number of the
preparer required by § 1.6695–1(b) of
this chapter to sign the return or claim
for refund in the manner stated in
§ 1.6109–2 of this chapter.
(b) Effective/applicability date.
Paragraph (a) of this section is
applicable to returns and claims for
refund filed after December 31, 2008.
■ Par. 17. Section 20.6694–1 is added to
read as follows:
§ 20.6694–1 Section 6694 penalties
applicable to tax return preparer.

(a) In general. For general definitions
regarding section 6694 penalties
applicable to preparers of estate tax
returns or claims see § 1.6694–1 of this
chapter.
(b) Effective/applicability date.
Paragraph (a) of this section is
applicable to returns and claims for

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Federal Register / Vol. 73, No. 246 / Monday, December 22, 2008 / Rules and Regulations
refund filed, and advice provided, after
December 31, 2008.
■ Par. 18. Section 20.6694–2 is added to
read as follows:
§ 20.6694–2 Penalties for understatement
due to an unreasonable position.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of estate tax under chapter 11
of subtitle B of the Internal Revenue
Code (Code) shall be subject to penalties
under section 6694(a) of the Code in the
manner stated in § 1.6694–2 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 19. Section 20.6694–3 is added to
read as follows:
§ 20.6694–3 Penalty for understatement
due to willful, reckless, or intentional
conduct.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of estate tax under chapter 11
of subtitle B of the Internal Revenue
Code (Code) shall be subject to penalties
under section 6694(b) of the Code in the
manner stated in § 1.6694–3 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 20. Section 20.6694–4 is added to
read as follows:
§ 20.6694–4 Extension of period of
collection when preparer pays 15 percent of
a penalty for understatement of taxpayer’s
liability and certain other procedural
matters.

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(a) In general. For rules relating to the
extension of the period of collection
when a tax return preparer who
prepared a return or claim for refund for
estate tax under chapter 11 of subtitle B
of the Internal Revenue Code pays 15
percent of a penalty for understatement
of the taxpayer’s liability, and
procedural matters relating to the
investigation, assessment and collection
of the penalties under sections 6694(a)
and (b), the rules under § 1.6694–4 of
this chapter will apply.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 21. Section 20.6695–1 is added to
read as follows:
§ 20.6695–1 Other assessable penalties
with respect to the preparation of tax
returns for other persons.

(a) In general. A person who is a tax
return preparer of any return or claim

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Jkt 217001

for refund of estate tax under chapter 11
of subtitle B of the Internal Revenue
Code (Code) shall be subject to penalties
for failure to furnish a copy to the
taxpayer under section 6695(a) of the
Code, failure to sign the return under
section 6695(b) of the Code, failure to
furnish an identification number under
section 6695(c) of the Code, failure to
retain a copy or list under section
6695(d) of the Code, failure to file a
correct information return under section
6695(e) of the Code, and negotiation of
a check under section 6695(f) of the
Code, in the manner stated in § 1.6695–
1 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after
December 31, 2008.
■ Par. 22. Section 20.6696–1 is added to
read as follows:
§ 20.6696–1 Claims for credit or refund by
tax return preparers or appraisers.

(a) In general. For rules for claims for
credit or refund by a tax return preparer
who prepared a return or claim for
refund for estate tax under chapter 11 of
subtitle B of the Internal Revenue Code,
or by an appraiser that prepared an
appraisal in connection with such a
return or claim for refund under section
6695A, the rules under § 1.6696–1 of
this chapter will apply.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 23. Section 20.7701–1 is added to
read as follows:
§ 20.7701–1

Tax return preparer.

(a) In general. For the definition of a
tax return preparer, see § 301.7701–15 of
this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
PART 25—GIFT TAX; GIFTS MADE
AFTER DECEMBER 31, 1954
Par. 24. The authority citation for part
25 is amended by adding entries in
numerical order to read in part as
follows:

■

Authority: 26 U.S.C. 7805 * * *
Section 25.6060–1 also issued under 26
U.S.C. 6060(a). * * *
Section 25.6109–2 also issued under 26
U.S.C. 6109(a). * * *
Section 25.6695–1 also issued under 26
U.S.C. 6695(b). * * *
Section 25.6695–2 also issued under 26
U.S.C. 6695(g). * * *

Par. 25. Section 25.6060–1 is added to
read as follows:

■

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78451

§ 25.6060–1 Reporting requirements for
tax return preparers.

(a) In general. A person that employs
one or more tax return preparers to
prepare a return or claim for refund of
gift tax under chapter 12 of subtitle B of
the Internal Revenue Code, other than
for the person, at any time during a
return period, shall satisfy the record
keeping and inspection requirements in
the manner stated in § 1.6060–1 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 26. Section 25.6107–1 is added to
read as follows:
§ 25.6107–1 Tax return preparer must
furnish copy of return to taxpayer and must
retain a copy or record.

(a) In general. A person who is a
signing tax return preparer of any return
or claim for refund of gift tax under
chapter 12 of subtitle B of the Internal
Revenue Code shall furnish a completed
copy of the return or claim for refund
to the taxpayer, and retain a completed
copy or record in the manner stated in
§ 1.6107–1 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 27. Section 25.6109–1 is added to
read as follows:
§ 25.6109–1 Tax return preparers
furnishing identifying numbers for returns
or claims for refund.

(a) In general. Each gift tax return or
claim for refund prepared by one or
more signing tax return preparers must
include the identifying number of the
preparer required by § 1.6695–1(b) of
this chapter to sign the return or claim
for refund in the manner stated in
§ 1.6109–2 of this chapter.
(b) Effective/applicability date.
Paragraph (a) of this section is
applicable to returns and claims for
refund filed after December 31, 2008.
■ Par. 28. Section 25.6694–1 is added to
read as follows:
§ 25.6694–1 Section 6694 penalties
applicable to tax return preparer.

(a) In general. For general definitions
regarding section 6694 penalties
applicable to preparers of gift tax
returns or claims, see § 1.6694–1 of this
chapter.
(b) Effective/applicability date.
Paragraph (a) of this section is
applicable to returns and claims for
refund filed, and advice provided, after
December 31, 2008.
■ Par. 29. Section 25.6694–2 is added to
read as follows:

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§ 25.6694–2 Penalties for understatement
due to an unreasonable position.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of gift tax under chapter 12
of subtitle B of the Internal Revenue
Code (Code) shall be subject to penalties
under section 6694(a) of the Code in the
manner stated in § 1.6694–2 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 30. Section 25.6694–3 is added to
read as follows:

Par. 33. Section 25.6696–1 is added to
read as follows:

■

§ 25.6694–3 Penalty for understatement
due to willful, reckless, or intentional
conduct.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of gift tax under chapter 12
of subtitle B of the Internal Revenue
Code (Code) shall be subject to penalties
under section 6694(b) of the Code in the
manner stated in § 1.6694–3 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 31. Section 25.6694–4 is added to
read as follows:
§ 25.6694–4 Extension of period of
collection when tax return preparer pays 15
percent of a penalty for understatement of
taxpayer’s liability and certain other
procedural matters.

(a) In general. For rules for the
extension of period of collection when
a tax return preparer who prepared a
return or claim for refund for gift tax
under chapter 12 of subtitle B of the
Internal Revenue Code pays 15 percent
of a penalty for understatement of
taxpayer’s liability, and procedural
matters relating to the investigation,
assessment and collection of the
penalties under section 6694(a) and (b),
the rules under § 1.6694–4 of this
chapter will apply.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 32. Section 25.6695–1 is added to
read as follows:

sroberts on PROD1PC70 with RULES

§ 25.6695–1 Other assessable penalties
with respect to the preparation of tax
returns for other persons.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of gift tax under chapter 12
of subtitle B of the Internal Revenue
Code (Code) shall be subject to penalties
for failure to furnish a copy to the

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taxpayer under section 6695(a) of the
Code, failure to sign the return under
section 6695(b) of the Code, failure to
furnish an identification number under
section 6695(c) of the Code, failure to
retain a copy or list under section
6695(d) of the Code, failure to file a
correct information return under section
6695(e) of the Code, and negotiation of
a check under section 6695(f) of the
Code, in the manner stated in § 1.6695–
1 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.

§ 25.6696–1 Claims for credit or refund by
tax return preparers.

(a) In general. For rules for claims for
credit or refund by a tax return preparer
who prepared a return or claim for
refund for gift tax under chapter 12 of
subtitle B of the Internal Revenue Code,
or by an appraiser that prepared an
appraisal in connection with such a
return or claim for refund under section
6695A, the rules under § 1.6696–1 of
this chapter will apply.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
Par. 34. Section 25.7701–1 is added to
read as follows:

■

§ 25.7701–1

Tax return preparer.

(a) In general. For the definition of a
tax return preparer, see § 301.7701–15 of
this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
PART 26—GENERATION-SKIPPING
TRANSFER TAX REGULATIONS
UNDER THE TAX REFORM ACT OF
1986
Par. 35. The authority citation for part
26 is amended by adding entries in
numerical order to read in part as
follows:

■

Authority: 26 U.S.C. 7805 * * *
Section 26.6060–1 also issued under 26
U.S.C. 6060(a). * * *
Section 26.6109–2 also issued under 26
U.S.C. 6109(a). * * *
Section 26.6695–1 also issued under 26
U.S.C. 6695(b). * * *
Section 26.6695–2 also issued under 26
U.S.C.6695(g). * * *

Par. 36. Section 26.6060–1 is added to
read as follows:

■

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§ 26.6060–1 Reporting requirements for
tax return preparers.

(a) In general. A person that employs
one or more tax return preparers to
prepare a return or claim for refund of
generation-skipping transfer tax under
chapter 13 of subtitle B of the Internal
Revenue Code, other than for the
person, at any time during a return
period, shall satisfy the record keeping
and inspection requirements in the
manner stated in § 1.6060–1 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 37. Section 26.6107–1 is added to
read as follows:
§ 26.6107–1 Tax return preparer must
furnish copy of return to taxpayer and must
retain a copy or record.

(a) In general. A person who is a
signing tax return preparer of any return
or claim for refund of generationskipping transfer tax under chapter 13
of subtitle B of the Internal Revenue
Code shall furnish a completed copy of
the return or claim for refund to the
taxpayer, and retain a completed copy
or record in the manner stated in
§ 1.6107–1 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 38. Section 26.6109–1 is added to
read as follows:
§ 26.6109–1 Tax return preparers
furnishing identifying numbers for returns
or claims for refund.

(a) In general. Each generationskipping transfer tax return or claim for
refund prepared by one or more signing
tax return preparers must include the
identifying number of the preparer
required by § 1.6695–1(b) of this chapter
to sign the return or claim for refund in
the manner stated in § 1.6109–2 of this
chapter.
(b) Effective/applicability date.
Paragraph (a) of this section is
applicable to returns and claims for
refund filed after December 31, 2008.
■ Par. 39. Section 26.6694–1 is added to
read as follows:
§ 26.6694–1 Section 6694 penalties
applicable to tax return preparer.

(a) In general. For general definitions
regarding section 6694 penalties
applicable to preparers of generationskipping transfer tax returns or claims
see § 1.6694–1 of this chapter.
(b) Effective/applicability date.
Paragraph (a) of this section is
applicable to returns and claims for

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refund filed, and advice provided, after
December 31, 2008.
Par. 40. Section 26.6694–2 is added to
read as follows:

■

§ 26.6694–2 Penalties for understatement
due to an unreasonable position.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of generation-skipping
transfer tax under chapter 13 of subtitle
B of the Internal Revenue Code (Code)
shall be subject to penalties under
section 6694(a) of the Code in the
manner stated in § 1.6694–2 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
Par. 41. Section 26.6694–3 is added to
read as follows:

■

§ 26.6694–3 Penalty for understatement
due to willful, reckless, or intentional
conduct.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of generation-skipping
transfer tax under chapter 13 of subtitle
B of the Internal Revenue Code (Code)
shall be subject to penalties under
section 6694(b) of the Code in the
manner stated in § 1.6694–3 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
Par. 42. Section 26.6694–4 is added to
read as follows:

■

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§ 26.6694–4 Extension of period of
collection when preparer pays 15 percent of
a penalty for understatement of taxpayer’s
liability and certain other procedural
matters.

(a) In general. For rules relating to the
extension of period of collection when
a tax return preparer who prepared a
return or claim for refund for
generation-skipping transfer tax under
chapter 13 of subtitle B of the Internal
Revenue Code pays 15 percent of a
penalty for understatement of taxpayer’s
liability, and procedural matters relating
to the investigation, assessment and
collection of the penalties under section
6694(a) and (b), the rules under
§ 1.6694–4 of this chapter will apply.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
Par. 43. Section 26.6695–1 is added to
read as follows:

■

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§ 26.6695–1 Other assessable penalties
with respect to the preparation of tax
returns for other persons.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of generation-skipping
transfer tax under chapter 13 of subtitle
B of the Internal Revenue Code (Code)
shall be subject to penalties for failure
to furnish a copy to the taxpayer under
section 6695(a) of the Code, failure to
sign the return under section 6695(b) of
the Code, failure to furnish an
identification number under section
6695(c) of the Code, failure to retain a
copy or list under section 6695(d) of the
Code, failure to file a correct
information return under section
6695(e) of the Code, and negotiation of
a check under section 6695(f) of the
Code, in the manner stated in § 1.6695–
1 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 44. Section 26.6696–1 is added to
read as follows:
§ 26.6696–1 Claims for credit or refund by
tax return preparers.

(a) In general. For rules for claims for
credit or refund by a tax return preparer
who prepared a return or claim for
refund for generation-skipping transfer
tax under chapter 13 of subtitle B of the
Internal Revenue Code, or by an
appraiser that prepared an appraisal in
connection with such a return or claim
for refund under section 6695A, the
rules under § 1.6696–1 of this chapter
will apply.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 45. Section 26.7701–1 is added to
read as follows:
§ 26.7701–1

Tax return preparer.

(a) In general. For the definition of a
tax return preparer, see § 301.7701–15 of
this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
PART 31—EMPLOYMENT TAXES AND
COLLECTION OF INCOME TAX AT THE
SOURCE
Par. 46. The authority citation for part
31 is amended by adding entries in
numerical order to read in part as
follows:

■

Authority: 26 U.S.C. 7805 * * *
Section 31.6060–1 also issued under 26
U.S.C. 6060(a). * * *

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78453

Section 31.6109–2 also issued under 26
U.S.C. 6109(a). * * *
Section 31.6695–1 also issued under 26
U.S.C. 6695(b). * * *
Section 31.6695–2 also issued under 26
U.S.C. 6695(g). * * *

Par. 47. Section 31.6060–1 is added to
read as follows:

■

§ 31.6060–1 Reporting requirements for
tax return preparers.

(a) In general. A person that employs
one or more tax return preparers to
prepare a return or claim for refund of
employment tax under chapters 21
through 25 of subtitle C of the Internal
Revenue Code, other than for the
person, at any time during a return
period, shall satisfy the recordkeeping
and inspection requirements in the
manner stated in § 1.6060–1 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 48. Section 31.6107–1 is added to
read as follows:
§ 31.6107–1 Tax return preparer must
furnish copy of return to taxpayer and must
retain a copy or record.

(a) In general. A person who is a
signing tax return preparer of any return
or claim for refund of employment tax
under chapters 21 through 25 of subtitle
C of the Internal Revenue Code shall
furnish a completed copy of the return
or claim for refund to the taxpayer and
retain a completed copy or record in the
manner stated in § 1.6107–1 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 49. Section 31.6109–2 is added to
read as follows:
§ 31.6109–2 Tax return preparers
furnishing identifying numbers for returns
or claims for refund.

(a) In general. Each employment tax
return or claim for refund of
employment tax under chapters 21
through 25 of subtitle C of the Internal
Revenue Code prepared by one or more
signing tax return preparers must
include the identifying number of the
preparer required by § 1.6695–1(b) of
this chapter to sign the return or claim
for refund in the manner stated in
§ 1.6109–2 of this chapter.
(b) Effective/applicability date.
Paragraph (a) of this section is
applicable to returns and claims for
refund filed after December 31, 2008.
■ Par. 50. Section 31.6694–1 is added to
read as follows:

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§ 31.6694–1 Section 6694 penalties
applicable to tax return preparer.

(a) In general. For general definitions
regarding section 6694 penalties
applicable to preparers of employment
tax returns or claims of employment tax
under chapters 21 through 25 of subtitle
C of the Internal Revenue Code, see
§ 1.6694–1 of this chapter.
(b) Effective/applicability date.
Paragraph (a) of this section is
applicable to returns and claims for
refund filed, and advice provided, after
December 31, 2008.
■ Par. 51. Section 31.6694–2 is added to
read as follows:
§ 31.6694–2 Penalties for understatement
due to an unreasonable position.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of employment tax under
chapters 21 through 25 of subtitle C of
the Internal Revenue Code (Code) shall
be subject to penalties under section
6694(a) of the Code in the manner stated
in § 1.6694–2 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 52. Section 31.6694–3 is added to
read as follows:
§ 31.6694–3 Penalty for understatement
due to willful, reckless, or intentional
conduct.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of employment tax under
chapters 21 through 25 of subtitle C of
the Internal Revenue Code (Code) shall
be subject to penalties under section
6694(b) of the Code in the manner stated
in 1.6694–3 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 53. Section 31.6694–4 is added to
read as follows:

sroberts on PROD1PC70 with RULES

§ 31.6694–4 Extension of period of
collection when tax return preparer pays 15
percent of a penalty for understatement of
taxpayer’s liability and certain other
procedural matters.

(a) In general. For rules relating to the
extension of period of collection when
a tax return preparer who prepared a
return or claim for refund for
employment tax under chapters 21
through 25 of subtitle C of the Internal
Revenue Code pays 15 percent of a
penalty for understatement of taxpayer’s
liability and procedural matters relating
to the investigation, assessment and
collection of the penalties under section
6694(a) and (b), the rules under
§ 1.6694–4 of this chapter will apply.

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(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 54. Section 31.6695–1 is added to
read as follows:
§ 31.6695–1 Other assessable penalties
with respect to the preparation of tax
returns for other persons.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of employment tax under
chapters 21 through 25 of subtitle C of
the Internal Revenue Code (Code) shall
be subject to penalties for failure to
furnish a copy to the taxpayer under
section 6695(a) of the Code, failure to
sign the return under section 6695(b) of
the Code, failure to furnish an
identification number under section
6695(c) of the Code, failure to retain a
copy or list under section 6695(d) of the
Code, failure to file a correct
information return under section
6695(e) of the Code, and negotiation of
a check under section 6695(f) of the
Code, in the manner stated in § 1.6695–
1 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 55. Section 31.6696–1 is added to
read as follows:
§ 31.6696–1 Claims for credit or refund by
tax return preparers.

(a) In general. For rules for claims for
credit or refund by a tax return preparer
who prepared a return or claim for
refund for employment tax under
chapters 21 through 25 of subtitle C of
the Internal Revenue Code, the rules
under § 1.6696–1 of this chapter will
apply.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 56. Section 31.7701–1 is added to
read as follows:
§ 31.7701–1

Tax return preparer.

(a) In general. For the definition of a
tax return preparer, see § 301.7701–15 of
this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
PART 40—EXCISE TAX PROCEDURAL
REGULATIONS
Par. 57. The authority citation for part
40 is amended by adding entries in
numerical order to read in part as
follows:

■

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Authority: 26 U.S.C. 7805 * * *
Section 40.6060–1 also issued under 26
U.S.C. 6060(a). * * *
Section 40.6109–2 also issued under 26
U.S.C. 6109(a). * * *
Section 40.6695–1 also issued under 26
U.S.C. 6695(b). * * *
Section 40.6695–2 also issued under 26
U.S.C. 6695(g). * * *

Par. 58. Section 40.6060–1 is added to
read as follows:

■

§ 40.6060–1 Reporting requirements for
tax return preparers.

(a) In general. A person that employs
one or more tax return preparers to
prepare a return or claim for refund of
excise tax of any tax to which this part
40 applies other than for the person, at
any time during a return period, shall
satisfy the recordkeeping and inspection
requirements in the manner stated in
§ 1.6060–1 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
Par. 59. Section 40.6107–1 is added to
read as follows:

■

§ 40.6107–1 Tax return preparer must
furnish copy of return to taxpayer and must
retain a copy or record.

(a) In general. A person who is a
signing tax return preparer of any return
or claim for refund of excise tax of any
tax to which this part 40 applies shall
furnish a completed copy of the return
or claim for refund to the taxpayer and
retain a completed copy or record in the
manner stated in § 1.6107–1 of this
chapter.
(b) Effective/applicability date. This
section is applicable for returns and
claims for refund filed after December
31, 2008.
Par. 60. Section 40.6109–1 is added to
read as follows:

■

§ 40.6109–1 Tax return preparers
furnishing identifying numbers for returns
or claims for refund.

(a) In general. Each return or claim for
refund of excise tax of any tax to which
this part 40 applies prepared by one or
more signing tax return preparers must
include the identifying number of the
preparer required by § 1.6695–1(b) of
this chapter to sign the return or claim
for refund in the manner stated in
§ 1.6109–2 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
Par. 61. Section 40.6694–1 is added to
read as follows:

■

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Federal Register / Vol. 73, No. 246 / Monday, December 22, 2008 / Rules and Regulations
§ 40.6694–1 Section 6694 penalties
applicable to tax return preparer.

(a) In general. For general definitions
regarding section 6694 penalties
applicable to preparers of returns or
claims for refund of excise tax of any tax
to which this part 40 applies, see
§ 1.6694–1 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 62. Section 40.6694–2 is added to
read as follows:
§ 40.6694–2 Penalties for understatement
due to an unreasonable position.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of excise tax of any tax to
which this part 40 applies shall be
subject to penalties under section
6694(a) in the manner stated in
§ 1.6694–2 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 63. Section 40.6694–3 is added to
read as follows:
§ 40.6694–3 Penalty for understatement
due to willful, reckless, or intentional
conduct.

(a) In general. A person who is a tax
return preparer of return or claim for
refund of excise tax of any tax to which
this part 40 applies shall be subject to
penalties under section 6694(b) in the
manner stated in § 1.6694–3 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 64. Section 40.6694–4 is added to
read as follows:

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§ 40.6694–4 Extension of period of
collection when tax return preparer pays 15
percent of a penalty for understatement of
taxpayer’s liability and certain other
procedural matters.

(a) In general. For rules relating to the
extension of period of collection when
a tax return preparer who prepared
return or claim for refund of excise tax
of any tax to which this part 40 applies
pays 15 percent of a penalty for
understatement of taxpayer’s liability
and procedural matters relating to the
investigation, assessment and collection
of the penalties under section 6694(a)
and (b), the rules under § 1.6694–4 of
this chapter will apply.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.

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78455

■

Par. 65. Section 40.6695–1 is added to
read as follows:

■

§ 40.6695–1 Other assessable penalties
with respect to the preparation of tax
returns for other persons.

§ 41.6060–1 Reporting requirements for
tax return preparers.

(a) In general. A person who is a tax
return preparer of return or claim for
refund of excise tax of any tax to which
this part 40 applies shall be subject to
penalties for failure to furnish a copy to
the taxpayer under section 6695(a) of
the Code, failure to sign the return
under section 6695(b) of the Code,
failure to furnish an identification
number under section 6695(c), failure to
retain a copy or list under section
6695(d), failure to file a correct
information return under section
6695(e), and negotiation of a check
under section 6695(f), in the manner
stated in § 1.6695–1 of this chapter.
(b) Effective/applicability date. This
section is applicable for returns and
claims for refund filed after December
31, 2008.
■ Par. 66. Section 40.6696–1 is added to
read as follows:
§ 40.6696–1 Claims for credit or refund by
tax return preparers.

(a) In general. The rules under
§ 1.6696–1 of this chapter will apply for
claims for credit or refund by a tax
return preparer who prepared a return
or claim for refund of excise tax of any
tax to which this part 40 applies.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 67. Section 40.7701–1 is added to
read as follows:
§ 40.7701–1

Tax return preparer.

(a) In general. For the definition of a
tax return preparer, see § 301.7701–15 of
this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
PART 41—EXCISE TAX ON USE OF
CERTAIN HIGHWAY MOTOR
VEHICLES
Par. 68. The authority citation for part
41 is amended by adding entries in
numerical order to read in part as
follows:

■

Authority: 26 U.S.C. 7805 * * *
Section 41.6060–1 also issued under 26
U.S.C. 6060(a). * * *
Section 41.6109–2 also issued under 26
U.S.C. 6109(a). * * *
Section 41.6695–1 also issued under 26
U.S.C. 6695(b). * * *
Section 41.6695–2 also issued under 26
U.S.C. 6695(g). * * *

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Par. 69. Section 41.6060–1 is added to
read as follows:

(a) In general. A person that employs
one or more tax return preparers to
prepare a return or claim for refund of
excise tax under section 4481, other
than for the person, at any time during
a return period, shall satisfy the record
keeping and inspection requirements in
the manner stated in § 1.6060–1 of this
chapter.
(b) Effective/applicability date. This
section is applicable for returns and
claims for refund filed after December
31, 2008.
■ Par. 70. Section 41.6107–1 is added to
read as follows:
§ 41.6107–1 Tax return preparer must
furnish copy of return to taxpayer and must
retain a copy or record.

(a) In general. A person who is a
signing tax return preparer of any return
or claim for refund of excise tax under
section 4481 shall furnish a completed
copy of the return or claim for refund
to the taxpayer and retain a completed
copy or record in the manner stated in
§ 1.6107–1 of this chapter.
(b) Effective/applicability date. This
section is applicable for returns and
claims for refund filed after December
31, 2008.
■ Par. 71. Section 41.6109–2 is added to
read as follows:
§ 41.6109–2 Tax return preparers
furnishing identifying numbers for returns
or claims for refund filed after December 31,
2008.

(a) In general. Each excise tax return
or claim for refund under section 4481
prepared by one or more signing tax
return preparers must include the
identifying number of the preparer
required by § 1.6695–1(b) of this chapter
to sign the return or claim for refund in
the manner stated in § 1.6109–2 of this
chapter.
(b) Effective/applicability date. This
section is applicable for returns and
claims for refund filed after December
31, 2008.
■ Par. 72. Section 41.6694–1 is added to
read as follows:
§ 41.6694–1 Section 6694 penalties
applicable to tax return preparer.

(a) In general. For general definitions
regarding section 6694 penalties
applicable to preparers of tax returns or
claims for refund, see § 1.6694–1 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.

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Par. 73. Section 41.6694–2 is added to
read as follows:

■

§ 41.6694–2 Penalties for understatement
due to an unreasonable position.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of excise tax under section
4481 shall be subject to penalties under
section 6694(a) in the manner stated in
§ 1.6694–2 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 74. Section 41.6694–3 is added to
read as follows:
§ 41.6694–3 Penalty for understatement
due to willful, reckless, or intentional
conduct.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of excise tax under section
4481 shall be subject to penalties under
section 6694(b) in the manner stated in
§ 1.6694–3 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 75. Section 41.6694–4 is added to
read as follows:
§ 41.6694–4 Extension of period of
collection when preparer pays 15 percent of
a penalty for understatement of taxpayer’s
liability and certain other procedural
matters.

(a) In general. For rules relating to the
extension of period of collection when
a tax return preparer who prepared a
return or claim for refund for excise tax
under section 4481 pays 15 percent of
a penalty for understatement of
taxpayer’s liability, and procedural
matters relating to the investigation,
assessment and collection of the
penalties under section 6694(a) and (b),
the rules under § 1.6694–4 of this
chapter will apply.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 76. Section 41.6695–1 is added to
read as follows:

sroberts on PROD1PC70 with RULES

§ 41.6695–1 Other assessable penalties
with respect to the preparation of tax
returns for other persons.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of excise tax under section
4481 shall be subject to penalties for
failure to furnish a copy to the taxpayer
under section 6695(a), failure to sign a
return under section 6695(b), failure to
furnish an identification number under
section 6695(c), failure to retain a copy

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22:57 Dec 19, 2008

Jkt 217001

or list under section 6695(d), failure to
file a correct information return under
section 6695(e) of the Code, and
negotiation of a check under section
6695(f), in the manner stated in
§ 1.6695–1 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 77. Section 41.6696–1 is added to
read as follows:
§ 41.6696–1 Claims for credit or refund by
tax return preparers.

(a) In general. For rules for claims for
credit or refund by a tax return preparer
who prepared a return or claim for
refund for excise tax under section
4481, the rules under § 1.6696–1 of this
chapter will apply.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 78. Section 41.7701–1 is added to
read as follows:
§ 41.7701–1

Tax return preparer.

(a) In general. For the definition of a
tax return preparer, see § 301.7701–15 of
this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
PART 44—TAXES ON WAGERING;
EFFECTIVE JANUARY 1, 1955
Par. 79. The authority citation for part
44 is amended by adding entries in
numerical order to read in part as
follows:

■

Authority: 26 U.S.C. 7805 * * *
Section 44.6060–1 also issued under 26
U.S.C. 6060(a). * * *
Section 44.6109–2 also issued under 26
U.S.C. 6109(a). * * *
Section 44.6695–1 also issued under 26
U.S.C. 6695(b). * * *
Section 44.6695–2 also issued under 26
U.S.C. 6695(g). * * *

Par. 80. Section 44.6060–1 is added to
read as follows:

■

§ 44.6060–1 Reporting requirements for
tax return preparers.

(a) In general. A person that employs
one or more tax return preparers to
prepare a return or claim for refund of
tax on wagers under sections 4401 or
4411, other than for the person, at any
time during a return period, shall satisfy
the record keeping and inspection
requirements in the manner stated in
§ 1.6060–1 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and

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claims for refund filed after December
31, 2008.
■ Par. 81. Section 44.6107–1 is added to
read as follows:
§ 44.6107–1 Tax return preparer must
furnish copy of return to taxpayer and must
retain a copy or record.

(a) In general. A person who is a
signing tax return preparer of any return
or claim for refund of tax on wagers
under sections 4401 or 4411 shall
furnish a completed copy of the return
or claim for refund to the taxpayer, and
retain a completed copy or record in the
manner stated in § 1.6107–1 of this
chapter.
(b) Effective/applicability date. This
section is applicable for returns and
claims for refund filed after December
31, 2008.
■ Par. 82. Section 44.6109–1 is added to
read as follows:
§ 44.6109–1 Tax return preparers
furnishing identifying numbers for returns
or claims for refund.

(a) In general. Each tax return or claim
for refund of tax under sections 4401 or
4411 prepared by one or more signing
tax return preparers must include the
identifying number of the preparer
required by § 1.6695–1(b) of this chapter
to sign the return or claim for refund in
the manner stated in § 1.6109–2 of this
chapter.
(b) Effective/applicability date. This
section is applicable for returns and
claims for refund filed after December
31, 2008.
■ Par. 83. Section 44.6694–1 is added to
read as follows:
§ 44.6694–1 Section 6694 penalties
applicable to tax return preparer.

(a) In general. For general definitions
regarding section 6694 penalties
applicable to preparers of wagering tax
returns or claims for refund under
sections 4401 or 4411, see § 1.6694–1 of
this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 84. Section 44.6694–2 is added to
read as follows:
§ 44.6694–2 Penalties for understatement
due to an unreasonable position.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of tax on wagers under
sections 4401 or 4411 shall be subject to
penalties under section 6694(a) in the
manner stated in § 1.6694–2 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and

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Federal Register / Vol. 73, No. 246 / Monday, December 22, 2008 / Rules and Regulations
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 85. Section 44.6694–3 is added to
read as follows:
§ 44.6694–3 Penalty for understatement
due to willful, reckless, or intentional
conduct.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of tax on wagers under
sections 4401 or 4411 shall be subject to
penalties under section 6694(b) in the
manner stated in § 1.6694–3 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 86. Section 44.6694–4 is added to
read as follows:
§ 44.6694–4 Extension of period of
collection when preparer pays 15 percent of
a penalty for understatement of taxpayer’s
liability and certain other procedural
matters.

(a) In general. For rules relating to the
extension of period of collection when
a tax return preparer who prepared a
return or claim for refund for tax on
wagers under sections 4401 or 4411
pays 15 percent of a penalty for
understatement of taxpayer’s liability
and procedural matters relating to the
investigation, assessment and collection
of the penalties under section 6694(a)
and (b), the rules under § 1.6694–4 of
this chapter will apply.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 87. Section 44.6695–1 is added to
read as follows:

sroberts on PROD1PC70 with RULES

§ 44.6695–1 Other assessable penalties
with respect to the preparation of tax
returns for other persons.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of tax on wagers under
sections 4401 or 4411 shall be subject to
penalties for failure to furnish a copy to
the taxpayer under section 6695(a),
failure to sign the return under section
6695(b), failure to furnish an
identification number under section
6695(c), failure to retain a copy or list
under section 6695(d), failure to file a
correct information return under section
6695(e), and negotiation of a check
under section 6695(f), in the manner
stated in § 1.6695–1 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 88. Section 44.6696–1 is added to
read as follows:

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22:57 Dec 19, 2008

Jkt 217001

§ 44.6696–1 Claims for credit or refund by
tax return preparers.

(a) In general. For rules for claims for
credit or refund by a tax return preparer
who prepared a return or claim for
refund for tax on wagers under sections
4401 or 4411, the rules under § 1.6696–
1 of this chapter will apply.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 89. Section 44.7701–1 is added to
read as follows:
§ 44.7701–1

Tax return preparer.

(a) In general. For the definition of a
tax return preparer, see § 301.7701–15 of
this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
PART 53—FOUNDATION AND SIMILAR
EXCISE TAXES
Par. 90. The authority citation for part
53 is amended by adding entries in
numerical order to read in part as
follows:

■

Authority: 26 U.S.C. 7805 * * *
Section 53.6060–1 also issued under 26
U.S.C. 6060(a). * * *
Section 53.6109–2 also issued under 26
U.S.C. 6109(a). * * *
Section 53.6695–1 also issued under 26
U.S.C. 6695(b). * * *
Section 53.6695–2 also issued under 26
U.S.C. 6695(g). * * *

Par. 91. Section 53.6060–1 is added to
read as follows:

■

§ 53.6060–1 Reporting requirements for
tax return preparers.

(a) In general. A person that employs
one or more tax return preparers to
prepare a return or claim for refund of
tax under Chapter 42 of the Internal
Revenue Code, other than for the
person, at any time during a return
period, shall satisfy the record keeping
and inspection requirements in the
manner stated in § 1.6060–1 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 92. Section 53.6107–1 is added to
read as follows:
§ 53.6107–1 Tax return preparer must
furnish copy of return or claim for refund
to taxpayer and must retain a copy or
record.

(a) In general. A person who is a
signing tax return preparer of any return
or claim for refund of tax under Chapter
42 of the Internal Revenue Code shall

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78457

furnish a completed copy of the return
or claim for refund to the taxpayer and
retain a completed copy or record in the
manner stated in § 1.6107–1 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 93. Section 53.6109–1 is added to
read as follows:
§ 53.6109–1 Tax return preparers
furnishing identifying numbers for returns
or claims for refund filed.

(a) In general. Each tax return or claim
for refund under Chapter 42 of the
Internal Revenue Code prepared by one
or more signing tax return preparers
must include the identifying number of
the preparer required by § 1.6695–1(b)
of this chapter to sign the return or
claim for refund in the manner stated in
§ 1.6109–2 of this chapter.
(b) Effective/applicability date.
Paragraph (a) of this section is
applicable to returns and claims for
refund filed after December 31, 2008.
■ Par. 94. Section 53.6694–1 is added to
read as follows:
§ 53.6694–1 Section 6694 penalties
applicable to tax return preparer.

(a) In general. For general definitions
regarding section 6694 penalties
applicable to preparers of tax returns or
claims for refund under Chapter 42 of
the Internal Revenue Code, see
§ 1.6694–1 of this chapter.
(b) Effective/applicability date.
Paragraph (a) of this section is
applicable to returns and claims for
refund filed, and advice provided, after
December 31, 2008.
■ Par. 95. Section 53.6694–2 is added to
read as follows:
§ 53.6694–2 Penalties for understatement
due to an unreasonable position.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of tax under Chapter 42 of the
Internal Revenue Code (Code) shall be
subject to penalties under section
6694(a) of the Code in the manner stated
in § 1.6694–2 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 96. Section 53.6694–3 is added to
read as follows:
§ 53.6694–3 Penalty for understatement
due to willful, reckless, or intentional
conduct.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of tax under Chapter 42 of the

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Federal Register / Vol. 73, No. 246 / Monday, December 22, 2008 / Rules and Regulations

Internal Revenue Code (Code) shall be
subject to penalties under section
6694(b) of the Code in the manner stated
in § 1.6694–3 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 97. Section 53.6694–4 is added to
read as follows:

refund for tax under Chapter 42 of the
Internal Revenue Code, the rules under
§ 1.6696–1 of this chapter will apply.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 100. Section 53.7701–1 is added
to read as follows:

(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 104. Section 54.6109–1 is added
to read as follows:

§ 53.7701–1

§ 53.6694–4 Extension of period of
collection when tax return preparer pays 15
percent of a penalty for understatement of
taxpayer’s liability and certain other
procedural matters.

(a) In general. For the definition of a
tax return preparer, see § 301.7701–15 of
this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.

(a) In general. Each tax return or claim
for refund of tax under Chapter 43 of
subtitle D prepared by one or more
signing tax return preparers must
include the identifying number of the
preparer required by § 1.6695–1(b) of
this chapter to sign the return or claim
for refund in the manner stated in
§ 1.6109–2 of this chapter.
(b) Effective/applicability date.
Paragraph (a) of this section is
applicable to returns and claims for
refund filed after December 31, 2008.
■ Par. 105. Section 54.6694–1 is added
to read as follows:

(a) In general. For rules relating to the
extension of period of collection when
a tax return preparer who prepared a
return or claim for refund of tax under
Chapter 42 of the Internal Revenue Code
pays 15 percent of a penalty for
understatement of taxpayer’s liability
and procedural matters relating to the
investigation, assessment and collection
of the penalties under section 6694(a)
and (b), the rules under § 1.6694–4 of
this chapter will apply.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 98. Section 53.6695–1 is added to
read as follows:

sroberts on PROD1PC70 with RULES

§ 53.6696–1 Claims for credit or refund by
tax return preparers.

(a) In general. For rules for claims for
credit or refund by a tax return preparer
who prepared a return or claim for

Jkt 217001

■ Par. 101. The authority citation for
part 54 is amended by adding entries in
numerical order to read in part as
follows:

Authority: 26 U.S.C. 7805 * * *
Section 54.6060–1 also issued under 26
U.S.C. 6060(a). * * *
Section 54.6109–2 also issued under 26
U.S.C. 6109(a). * * *
Section 54.6695–1 also issued under 26
U.S.C. 6695(b). * * *
Section 54.6695–2 also issued under 26
U.S.C. 6695(g). * * *

§ 54.6060–1 Reporting requirements for
tax return preparers.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of tax under Chapter 42 of the
Internal Revenue Code (Code) shall be
subject to penalties for failure to furnish
a copy to the taxpayer under section
6695(a) of the Code, failure to sign the
return under section 6695(b) of the
Code, failure to furnish an identification
number under section 6695(c) of the
Code, failure to retain a copy or list
under section 6695(d) of the Code,
failure to file a correct information
return under section 6695(e) of the
Code, and negotiation of a check under
section 6695(f) of the Code, in the
manner stated in § 1.6695–1 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 99. Section 53.6696–1 is added to
read as follows:

22:57 Dec 19, 2008

PART 54—PENSION EXCISE TAXES

■ Par. 102. Section 54.6060–1 is added
to read as follows:

§ 53.6695–1 Other assessable penalties
with respect to the preparation of tax
returns or claims for refund for other
persons.

VerDate Aug<31>2005

Tax return preparer.

(a) In general. A person that employs
one or more tax return preparers to
prepare a return or claim for refund
under Chapter 43 of subtitle D of the
Internal Revenue Code, other than for
the person, at any time during a return
period, shall satisfy the record keeping
and inspection requirements in the
manner stated in § 1.6060–1 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 103. Section 54.6107–1 is added
to read as follows:
§ 54.6107–1 Tax return preparer must
furnish copy of return or claims for refund
to taxpayer and must retain a copy or
record.

(a) In general. A person who is a
signing tax return preparer of any return
or claim for refund of tax under Chapter
43 of subtitle D of the Internal Revenue
Code, shall furnish a completed copy of
the return or claim for refund to the
taxpayer, and retain a completed copy
or record in the manner stated in
§ 1.6107–1 of this chapter.

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§ 54.6109–1 Tax return preparers
furnishing identifying numbers for returns
or claims for refund filed.

§ 54.6694–1 Section 6694 penalties
applicable to tax return preparer.

(a) In general. For general definitions
regarding section 6694 penalties
applicable to preparers of tax returns or
claims for refund of tax under Chapter
43 of subtitle D, see § 1.6694–1 of this
chapter.
(b) Effective/applicability date.
Paragraph (a) of this section is
applicable to returns and claims for
refund filed, and advice provided, after
December 31, 2008.
■ Par. 106. Section 54.6694–2 is added
to read as follows:
§ 54.6694–2 Penalties for understatement
due to an unreasonable position.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of tax under Chapter 43 of
subtitle D of the Internal Revenue Code
(Code) shall be subject to penalties
under section 6694(a) of the Code in the
manner stated in § 1.6694–2 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 107. Section 56.6694–3 is added
to read as follows:
§ 54.6694–3 Penalty for understatement
due to willful, reckless, or intentional
conduct.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of excise tax under chapter 43
of subtitle D of the Internal Revenue
Code (Code) shall be subject to penalties
under section 6694(b) of the Code in the
manner stated in § 1.6694–3 of this
chapter.

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Federal Register / Vol. 73, No. 246 / Monday, December 22, 2008 / Rules and Regulations
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 108. Section 54.6694–4 is added
to read as follows:
§ 54.6694–4 Extension of period of
collection when tax return preparer pays 15
percent of a penalty for understatement of
taxpayer’s liability and certain other
procedural matters.

(a) In general. For rules relating to the
extension of period of collection when
a tax return preparer who prepared a
return or claim for refund for tax under
chapter 43 of subtitle D of the Internal
Revenue Code pays 15 percent of a
penalty for understatement of taxpayer’s
liability, and procedural matters relating
to the investigation, assessment and
collection of the penalties under section
6694(a) and (b), the rules under
§ 1.6694–4 of this chapter will apply.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 109. Section 54.6695–1 is added
to read as follows:
§ 54.6695–1 Other assessable penalties
with respect to the preparation of tax
returns for other persons.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of tax under chapter 43 of
subtitle D of the Internal Revenue Code
(Code) shall be subject to penalties for
failure to furnish a copy to the taxpayer
under section 6695(a) of the Code,
failure to sign the return under section
6695(b) of the Code, failure to furnish an
identification number under section
6695(c) of the Code, failure to retain a
copy or list under section 6695(d) of the
Code, failure to file a correct
information return under section
6695(e) of the Code, and negotiation of
a check under section 6695(f) of the
Code, in the manner stated in § 1.6695–
1 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 110. Section 54.6696–1 is added
to read as follows:

sroberts on PROD1PC70 with RULES

§ 54.6696–1 Claims for credit or refund by
tax return preparers.

(a) In general. For rules for claims for
credit or refund by a tax return preparer
who prepared a return or claim for
refund for excise tax under chapter 43
of subtitle D of the Internal Revenue
Code, the rules under § 1.6696–1 of this
chapter will apply.
(b) Effective/applicability date. This
section is applicable to returns and

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22:57 Dec 19, 2008

Jkt 217001

78459

claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 111. Section 54.7701–1 is added
to read as follows:

claims for refund filed after December
31, 2008.
■ Par. 115. Section 55.6109–1 is added
to read as follows:

§ 54.7701–1

§ 55.6109–1 Tax return preparers
furnishing identifying numbers for returns
or claims for refund.

Tax return preparer.

(a) In general. For the definition of a
tax return preparer, see § 301.7701–15 of
this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
PART 55—EXCISE TAX ON REAL
ESTATE INVESTMENT TRUSTS AND
REGULATED INVESTMENT
COMPANIES
■ Par. 112. The authority citation for
part 55 is amended by adding entries in
numerical order to read in part as
follows:

Authority: 26 U.S.C. 7805 * * *
Section 55.6060–1 also issued under 26
U.S.C. 6060(a). * * *
Section 55.6109–2 also issued under 26
U.S.C. 6109(a). * * *
Section 55.6695–1 also issued under 26
U.S.C. 6695(b). * * *
Section 55.6695–2 also issued under 26
U.S.C. 6695(g). * * *
■ Par. 113. Section 55.6060–1 is added
to read as follows:

§ 55.6060–1 Reporting requirements for
tax return preparers.

(a) In general. A person that employs
one or more tax return preparers to
prepare a return or claim for refund
under chapter 44 of subtitle D of the
Internal Revenue Code, other than for
the person, at any time during a return
period, shall satisfy the record keeping
and inspection requirements in the
manner stated in § 1.6060–1 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 114. Section 55.6107–1 is added
to read as follows:
§ 55.6107–1 Tax return preparer must
furnish copy of return or claim for refund
to taxpayer and must retain a copy or
record.

(a) In general. A person who is a
signing tax return preparer of any return
or claim for refund of tax under Chapter
44 of subtitle D of the Internal Revenue
Code shall furnish a completed copy of
the return or claim for refund to the
taxpayer, and retain a completed copy
or record in the manner stated in
§ 1.6107–1 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and

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(a) In general. Each tax return or claim
for refund of tax under chapter 44 of
Subtitle D prepared by one or more
signing tax return preparers must
include the identifying number of the
preparer required by § 1.6695–1(b) of
this chapter to sign the return or claim
for refund in the manner stated in
§ 1.6109–2 of this chapter.
(b) Effective/applicability date.
Paragraph (a) of this section is
applicable to returns and claims for
refund filed after December 31, 2008.
■ Par. 116. Section 55.6694–1 is added
to read as follows:
§ 55.6694–1 Section 6694 penalties
applicable to tax return preparer.

(a) In general. For general definitions
regarding section 6694 penalties
applicable to preparers of tax returns or
claims for refund of tax under chapter
44 of Subtitle D see § 1.6694–1 of this
chapter.
(b) Effective/applicability date.
Paragraph (a) of this section is
applicable to returns and claims for
refund filed, and advice provided, after
December 31, 2008.
■ Par. 117. Section 55.6694–2 is added
to read as follows:
§ 55.6694–2 Penalties for understatement
due to an unreasonable position.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of excise tax under chapter 44
of subtitle D of the Internal Revenue
Code (Code) shall be subject to penalties
under section 6694(a) of the Code in the
manner stated in § 1.6694–2 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 118. Section 55.6694–3 is added
to read as follows:
§ 55.6694–3 Penalty for understatement
due to willful, reckless, or intentional
conduct.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of tax under chapter 44 of
subtitle D of the Internal Revenue Code
(Code) shall be subject to penalties
under section 6694(b) of the Code in the
manner stated in § 1.6694–3 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and

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78460

Federal Register / Vol. 73, No. 246 / Monday, December 22, 2008 / Rules and Regulations

claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 119. Section 55.6694–4 is added
to read as follows:

claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 122. Section 55.7701–1 is added
to read as follows:

§ 55.6694–4 Extension of period of
collection when tax return preparer pays 15
percent of a penalty for understatement of
taxpayer’s liability and certain other
procedural matters.

§ 55.7701–1

(a) In general. For rules relating to the
extension of period of collection when
a tax return preparer who prepared a
return or claim for refund for excise tax
under chapter 44 of subtitle D of the
Internal Revenue Code pays 15 percent
of a penalty for understatement of
taxpayer’s liability and procedural
matters relating to the investigation,
assessment and collection of the
penalties under section 6694(a) and (b),
the rules under § 1.6694–4 of this
chapter will apply.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 120. Section 55.6695–1 is added
to read as follows:

■ Par. 123. The authority citation for
part 56 is amended by adding entries in
numerical order to read in part as
follows:

§ 55.6695–1 Other assessable penalties
with respect to the preparation of tax
returns or claims for refund for other
persons.

■ Par. 124. Section 56.6060–1 is added
to read as follows:

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of tax under chapter 44 of
subtitle D of the Internal Revenue Code
(Code) shall be subject to penalties for
failure to furnish a copy to the taxpayer
under section 6695(a) of the Code,
failure to sign the return under section
6695(b) of the Code, failure to furnish an
identification number under section
6695(c) of the Code, failure to retain a
copy or list under section 6695(d) of the
Code, failure to file a correct
information return under section
6695(e) of the Code, and negotiation of
a check under section 6695(f) of the
Code, in the manner stated in § 1.6695–
1 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 121. Section 55.6696–1 is added
to read as follows:
§ 55.6696–1 Claims for credit or refund by
tax return preparers.

sroberts on PROD1PC70 with RULES

Tax return preparer.

(a) In general. For the definition of a
tax return preparer, see § 301.7701–15 of
this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.

(a) In general. For rules for claims for
credit or refund by a tax return preparer
who prepared a return or claim for
refund for tax under chapter 44 of
subtitle D of the Internal Revenue Code,
the rules under § 1.6696–1 of this
chapter will apply.
(b) Effective/applicability date. This
section is applicable to returns and

VerDate Aug<31>2005

22:57 Dec 19, 2008

Jkt 217001

PART 56—PUBLIC CHARITY EXCISE
TAXES

Authority: 26 U.S.C. 7805 * * *
Section 56.6060–1 also issued under 26
U.S.C. 6060(a). * * *
Section 56.6109–2 also issued under 26
U.S.C. 6109(a). * * *
Section 56.6695–1 also issued under 26
U.S.C. 6695(b). * * *
Section 56.6695–2 also issued under 26
U.S.C. 6695(g). * * *

§ 56.6060–1 Reporting requirements for
tax return preparers.

(a) In general. A person that employs
one or more tax return preparers to
prepare a return or claim for refund of
tax under chapter 41 of subtitle D of the
Internal Revenue Code, other than for
the person, at any time during a return
period, shall satisfy the record keeping
and inspection requirements in the
manner stated in § 1.6060–1 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 125. Section 56.6107–1 is added
to read as follows:
§ 56.6107–1 Tax return preparer must
furnish copy of return and claim for refund
to taxpayer and must retain a copy or
record.

(a) In general. A person who is a
signing tax return preparer of any return
or claim for refund of tax under Chapter
41 of subtitle D of the Internal Revenue
Code shall furnish a completed copy of
the return or claim for refund to the
public charity and retain a completed
copy or record in the manner stated in
§ 1.6107–1 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.

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■ Par. 126. Section 56.6109–1 is added
to read as follows:

§ 56.6109–1 Tax return preparers
furnishing identifying numbers for returns
or claims for refund.

(a) In general. Each tax return or claim
for refund for tax under chapter 41 of
subtitle D prepared by one or more
signing tax return preparers must
include the identifying number of the
preparer required by § 1.6695–1(b) of
this chapter to sign the return or claim
for refund in the manner stated in
§ 1.6109–2 of this chapter.
(b) Effective/applicability date.
Paragraph (a) of this section is
applicable to returns and claims for
refund filed after December 31, 2008.
■ Par. 127. Section 56.6694–1 is added
to read as follows:
§ 56.6694–1 Section 6694 penalties
applicable to tax return preparer.

(a) In general. For general definitions
regarding section 6694 penalties
applicable to preparers of tax returns or
claims for refund of tax under chapter
41 of subtitle D see § 1.6694–1 of this
chapter.
(b) Effective/applicability date.
Paragraph (a) of this section is
applicable to returns and claims for
refund filed, and advice provided, after
December 31, 2008.
■ Par. 128. Section 56.6694–2 is added
to read as follows:
§ 56.6694–2 Penalties for understatement
due to an unreasonable position.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of excise tax under chapter 41
of subtitle D of the Internal Revenue
Code (Code) shall be subject to penalties
under section 6694(a) of the Code in the
manner stated in § 1.6694–2 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 129. Section 56.6694–3 is added
to read as follows:
§ 56.6694–3 Penalty for understatement
due to willful, reckless, or intentional
conduct.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of tax under chapter 41 of
subtitle D of the Internal Revenue Code
(Code) shall be subject to penalties
under section 6694(b) of the Code in the
manner stated in § 1.6694–3 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.

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Federal Register / Vol. 73, No. 246 / Monday, December 22, 2008 / Rules and Regulations
■ Par. 130. Section 56.6694–4 is added
to read as follows:

■ Par. 133. Section 56.7701–1 is added
to read as follows:

§ 56.6694–4 Extension of period of
collection when tax return preparer pays 15
percent of a penalty for understatement of
taxpayer’s liability and certain other
procedural matters.

§ 56.7701–1

(a) In general. For rules relating to the
extension of period of collection when
a tax return preparer who prepared a
return or claim for refund for tax under
chapter 41 of subtitle D of the Internal
Revenue Code pays 15 percent of a
penalty for understatement of taxpayer’s
liability and procedural matters relating
to the investigation, assessment and
collection of the penalties under section
6694(a) and (b), the rules under
§ 1.6694–4 of this chapter will apply.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 131. Section 56.6695–1 is added
to read as follows:
§ 56.6695–1 Other assessable penalties
with respect to the preparation of tax
returns or claims for refund for other
persons.

sroberts on PROD1PC70 with RULES

§ 56.6696–1 Claims for credit or refund by
tax return preparers.

(a) In general. For rules relating to
claims for credit or refund by a tax
return preparer who prepared a return
or claim for refund for tax under chapter
41 of subtitle D of the Internal Revenue
Code, the rules under § 1.6696–1 of this
chapter will apply.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.

22:57 Dec 19, 2008

Jkt 217001

PART 156—EXCISE TAX ON
GREENMAIL
■ Par. 134. The authority citation for
part 156 is amended by adding entries
in numerical order to read in part as
follows:

Authority: 26 U.S.C. 7805 * * *
Section 156.6060–1 also issued under 26
U.S.C. 6060(a). * * *
Section 156.6109–2 also issued under 26
U.S.C. 6109(a). * * *
Section 156.6695–1 also issued under 26
U.S.C. 6695(b). * * *
Section 156.6695–2 also issued under 26
U.S.C. 6695(g). * * *
■ Par. 135. Section 156.6060–1 is added
to read as follows:

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of tax under chapter 41 of
subtitle D of the Internal Revenue Code
(Code) shall be subject to penalties for
failure to furnish a copy to the taxpayer
under section 6695(a) of the Code,
failure to sign the return under section
6695(b) of the Code, failure to furnish an
identification number under section
6695(c) of the Code, failure to retain a
copy or list under section 6695(d) of the
Code, failure to file a correct
information return under section
6695(e) of the Code, and negotiation of
a check under section 6695(f) of the
Code, in the manner stated in
§ 1.6695–1 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 132. Section 56.6696–1 is added
to read as follows:

VerDate Aug<31>2005

Tax return preparer.

(a) In general. For the definition of a
tax return preparer, see § 301.7701–15 of
this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.

§ 156.6060–1 Reporting requirements for
tax return preparers.

(a) In general. A person that employs
one or more tax return preparers to
prepare a return or claim for refund
under section 5881 of the Internal
Revenue Code, other than for the
person, at any time during a return
period, shall satisfy the record keeping
and inspection requirements in the
manner stated in § 1.6060–1 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 136. Section 156.6107–1 is added
to read as follows:
§ 156.6107–1 Tax return preparer must
furnish copy of return and claim for refund
to taxpayer and must retain a copy or
record.

(a) In general. A person who is a
signing tax return preparer of any return
or claim for refund of tax under section
5881 of the Internal Revenue Code shall
furnish a completed copy of the return
or claim for refund to the taxpayer and
retain a completed copy or record in the
manner stated in § 1.6107–1 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 137. Section 156.6109–1 is added
to read as follows:

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78461

§ 156.6109–1 Tax return preparers
furnishing identifying numbers for returns
or claims for refund.

(a) In general. Each tax return or claim
for refund for tax under section 5881 of
the Internal Revenue Code prepared by
one or more signing tax return preparers
must include the identifying number of
the preparer required by § 1.6695–1(b)
of this chapter to sign the return or
claim for refund in the manner stated in
§ 1.6109–2 of this chapter.
(b) Effective/applicability date.
Paragraph (a) of this section is
applicable to returns and claims for
refund filed after December 31, 2008.
■ Par. 138. Section 156.6694–1 is added
to read as follows:
§ 156.6694–1 Section 6694 penalties
applicable to tax return preparer.

(a) In general. For general definitions
regarding section 6694 penalties
applicable to preparers of tax returns or
claims for refund for tax under section
5881 of the Internal Revenue Code, see
§ 1.6694–1 of this chapter.
(b) Effective/applicability date.
Paragraph (a) of this section is
applicable to returns and claims for
refund filed, and advice provided, after
December 31, 2008.
■ Par. 139. Section 156.6694–2 is added
to read as follows:
§ 156.6694–2 Penalties for understatement
due to an unreasonable position.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of tax under section 5881 of
the Internal Revenue Code (Code) shall
be subject to penalties under section
6694(a) of the Code in the manner stated
in § 1.6694–2 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 140. Section 156.6694–3 is added
to read as follows:
§ 156.6694–3 Penalty for understatement
due to willful, reckless, or intentional
conduct.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of tax under section 5881 of
the Internal Revenue Code (Code) shall
be subject to penalties under section
6694(b) of the Code in the manner stated
in § 1.6694–3 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 141. Section 156.6694–4 is added
to read as follows:

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78462

Federal Register / Vol. 73, No. 246 / Monday, December 22, 2008 / Rules and Regulations

§ 156.6694–4 Extension of period of
collection when tax return preparer pays 15
percent of a penalty for understatement of
taxpayer’s liability and certain other
procedural matters.

(a) In general. For rules relating to the
extension of period of collection when
a tax return preparer who prepared a
return or claim for refund for tax under
section 5881 of the Internal Revenue
Code pays 15 percent of a penalty for
understatement of taxpayer’s liability
and procedural matters relating to the
investigation, assessment and collection
of the penalties under section 6694(a)
and (b), the rules under § 1.6694–4 of
this chapter will apply.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 142. Section 156.6695–1 is added
to read as follows:

§ 156.6695–1 Other assessable penalties
with respect to the preparation of tax
returns or claims for refund for other
persons.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of tax under section 5881 of
the Internal Revenue Code (Code) shall
be subject to penalties for failure to
furnish a copy to the taxpayer under
section 6695(a) of the Code, failure to
sign the return under section 6695(b) of
the Code, failure to furnish an
identification number under section
6695(c) of the Code, failure to retain a
copy or list under section 6695(d) of the
Code, failure to file a correct
information return under section
6695(e) of the Code, and negotiation of
a check under section 6695(f) of the
Code, in the manner stated in § 1.6695–
1 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 143. Section 156.6696–1 is added
to read as follows:

Tax return preparer.

(a) In general. For the definition of a
tax return preparer, see § 301.7701–15 of
this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
PART 157—EXCISE TAX ON
STRUCTURED SETTLEMENT
FACTORING TRANSACTIONS
■ Par. 145. The authority citation for
part 157 is amended by adding entries
in numerical order to read in part as
follows:

Authority: 26 U.S.C. 7805 * * *
Section 157.6060–1 also issued under 26
U.S.C. 6060(a). * * *
Section 157.6109–2 also issued under 26
U.S.C. 6109(a). * * *
Section 157.6695–1 also issued under 26
U.S.C. 6695(b). * * *
Section 157.6695–2 also issued under 26
U.S.C. 6695(g). * * *
■ Par. 146. Section 157.6060–1 is added
to read as follows:

§ 157.6060–1 Reporting requirements for
tax return preparers.

(a) In general. A person that employs
one or more tax return preparers to
prepare a return or claim for refund for
tax under section 5891 of the Internal
Revenue Code, other than for the
person, at any time during a return
period, shall satisfy the record keeping
and inspection requirements in the
manner stated in § 1.6060–1 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 147. Section 157.6107–1 is added
to read as follows:

§ 157.6107–1 Tax return preparer must
furnish copy of return or claim for refund
to taxpayer and must retain a copy or
record.

(a) In general. For rules for claims for
credit or refund by a tax return preparer
who prepared a return or claim for
refund for tax under section 5881 of the
Internal Revenue Code, the rules under
§ 1.6696–1 of this chapter will apply.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.

(a) In general. A person who is a
signing tax return preparer of any return
or claim for refund of tax under section
5891 of the Internal Revenue Code shall
furnish a completed copy of the return
or claim for refund to the taxpayer and
retain a completed copy or record in the
manner stated in § 1.6107–1 of this
chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.

■ Par. 144. Section 156.7701–1 is added
to read as follows:

■ Par. 148. Section 157.6109–1 is added
to read as follows:

§ 156.6696–1 Claims for credit or refund by
tax return preparers.

sroberts on PROD1PC70 with RULES

§ 156.7701–1

VerDate Aug<31>2005

22:57 Dec 19, 2008

Jkt 217001

PO 00000

Frm 00034

Fmt 4701

Sfmt 4700

§ 157.6109–1 Tax return preparers
furnishing identifying numbers for returns
or claims for refund.

(a) In general. Each tax return or claim
for refund for tax under section 5891 of
the Internal Revenue Code prepared by
one or more signing tax return preparers
must include the identifying number of
the preparer required by § 1.6695–1(b)
of this chapter to sign the return or
claim for refund in the manner stated in
§ 1.6109–2 of this chapter.
(b) Effective/applicability date.
Paragraph (a) of this section is
applicable to returns and claims for
refund filed after December 31, 2008.
■ Par. 149. Section 157.6694–1 is added
to read as follows:
§ 157.6694–1 Section 6694 penalties
applicable to tax return preparer.

(a) In general. For general definitions
regarding section 6694 penalties
applicable to preparers of tax returns or
claims for refund for tax under section
5891 of the Internal Revenue Code see
§ 1.6694–1 of this chapter.
(b) Effective/applicability date.
Paragraph (a) of this section is
applicable to returns and claims for
refund filed, and advice provided, after
December 31, 2008.
■ Par. 150. Section 157.6694–2 is added
to read as follows:
§ 157.6694–2 Penalties for understatement
due to an unreasonable position.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of tax under section 5891 of
the Internal Revenue Code (Code) shall
be subject to penalties under section
6694(a) of the Code in the manner stated
in § 1.6694–2 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 151. Section 157.6694–3 is added
to read as follows:
§ 157.6694–3 Penalty for understatement
due to willful, reckless, or intentional
conduct.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of tax under section 5891 of
the Internal Revenue Code (Code) shall
be subject to penalties under section
6694(b) of the Code in the manner stated
in § 1.6694–3 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 152. Section 157.6694–4 is added
to read as follows:

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Federal Register / Vol. 73, No. 246 / Monday, December 22, 2008 / Rules and Regulations
§ 157.6694–4 Extension of period of
collection when preparer pays 15 percent of
a penalty for understatement of taxpayer’s
liability and certain other procedural
matters.

(a) In general. For rules relating to the
extension of period of collection when
a tax return preparer who prepared a
return or claim for refund for tax under
section 5891 of the Internal Revenue
Code pays 15 percent of a penalty for
understatement of taxpayer’s liability
and procedural matters relating to the
investigation, assessment and collection
of the penalties under section 6694(a)
and (b), the rules under § 1.6694–4 of
this chapter will apply.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 153. Section 157.6695–1 is added
to read as follows:

§ 157.6695–1 Other assessable penalties
with respect to the preparation of tax
returns or claims for refund for other
persons.

(a) In general. A person who is a tax
return preparer of any return or claim
for refund of tax under section 5891 of
the Internal Revenue Code (Code) shall
be subject to penalties for failure to
furnish a copy to the taxpayer under
section 6695(a) of the Code, failure to
sign the return under section 6695(b) of
the Code, failure to furnish an
identification number under section
6695(c) of the Code, failure to retain a
copy or list under section 6695(d) of the
Code, failure to file a correct
information return under section
6695(e) of the Code, and negotiation of
a check under section 6695(f) of the
Code, in the manner stated in § 1.6695–
1 of this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed after December
31, 2008.
■ Par. 154. Section 157.6696–1 is added
to read as follows:

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§ 157.6696–1 Claims for credit or refund by
tax return preparers.

(a) In general. For rules for claims for
credit or refund by a tax return preparer
who prepared a return or claim for
refund for tax under section 5891 of the
Internal Revenue Code, the rules under
§ 1.6696–1 of this chapter will apply.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
■ Par. 155. Section 157.7701–1 is added
to read as follows:

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§ 157.7701–1

Tax return preparer.

(a) In general. For the definition of a
tax return preparer, see § 301.7701–15 of
this chapter.
(b) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 156. The authority citation for
part 301 continues to read in part as
follows:
■

Authority: 26 U.S.C. 7805 * * *

Par. 157. Section 301.7701–15 is
amended to read as follows:
■

§ 301.7701–15

Tax return preparer.

(a) In general. A tax return preparer
is any person who prepares for
compensation, or who employs one or
more persons to prepare for
compensation, all or a substantial
portion of any return of tax or any claim
for refund of tax under the Internal
Revenue Code (Code).
(b) Definitions—(1) Signing tax return
preparer. A signing tax return preparer
is the individual tax return preparer
who has the primary responsibility for
the overall substantive accuracy of the
preparation of such return or claim for
refund.
(2) Nonsigning tax return preparer—
(i) In general. A nonsigning tax return
preparer is any tax return preparer who
is not a signing tax return preparer but
who prepares all or a substantial portion
of a return or claim for refund within
the meaning of paragraph (b)(3) of this
section with respect to events that have
occurred at the time the advice is
rendered. In determining whether an
individual is a nonsigning tax return
preparer, time spent on advice that is
given after events have occurred that
represents less than 5 percent of the
aggregate time incurred by such
individual with respect to the
position(s) giving rise to the
understatement shall not be taken into
account. Notwithstanding the preceding
sentence, time spent on advice before
the events have occurred will be taken
into account if all facts and
circumstances show that the position(s)
giving rise to the understatement is
primarily attributable to the advice, the
advice was substantially given before
events occurred primarily to avoid
treating the person giving the advice as
a tax return preparer, and the advice
given before events occurred was
confirmed after events had occurred for
purposes of preparing a tax return.
Examples of nonsigning tax return

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preparers are tax return preparers who
provide advice (written or oral) to a
taxpayer (or to another tax return
preparer) when that advice leads to a
position or entry that constitutes a
substantial portion of the return within
the meaning of paragraph (b)(3) of this
section.
(ii) Examples. The provisions of this
paragraph (b)(2) are illustrated by the
following examples:
Example 1. Attorney A, an attorney in a
law firm, provides legal advice to a large
corporate taxpayer regarding a completed
corporate transaction. The advice provided
by A is directly relevant to the determination
of an entry on the taxpayer’s return, and this
advice leads to a position(s) or entry that
constitutes a substantial portion of the return.
A, however, does not prepare any other
portion of the taxpayer’s return and is not the
signing tax return preparer of this return. A
is considered a nonsigning tax return
preparer.
Example 2. Attorney B, an attorney in a
law firm, provides legal advice to a large
corporate taxpayer regarding the tax
consequences of a proposed corporate
transaction. Based upon this advice, the
corporate taxpayer enters into the
transaction. Once the transaction is
completed, the corporate taxpayer does not
receive any additional advice from B with
respect to the transaction. B did not provide
advice with respect to events that have
occurred and is not considered a tax return
preparer.
Example 3. The facts are the same as
Example 2, except that Attorney B provides
supplemental advice to the corporate
taxpayer on a phone call after the transaction
is completed. Attorney B did not provide
advice before the corporate transaction
occurred with the primary intent to avoid
being treated as a tax return preparer. The
time incurred on this supplemental advice by
B represented less than 5 percent of the
aggregate amount of time spent by B
providing tax advice on the position. B is not
considered a tax return preparer.

(3) Substantial portion. (i) Only a
person who prepares all or a substantial
portion of a return or claim for refund
shall be considered to be a tax return
preparer of the return or claim for
refund. A person who renders tax
advice on a position that is directly
relevant to the determination of the
existence, characterization, or amount of
an entry on a return or claim for refund
will be regarded as having prepared that
entry. Whether a schedule, entry, or
other portion of a return or claim for
refund is a substantial portion is
determined based upon whether the
person knows or reasonably should
know that the tax attributable to the
schedule, entry, or other portion of a
return or claim for refund is a
substantial portion of the tax required to
be shown on the return or claim for
refund. A single tax entry may

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constitute a substantial portion of the
tax required to be shown on a return.
Factors to consider in determining
whether a schedule, entry, or other
portion of a return or claim for refund
is a substantial portion include but are
not limited to—
(A) the size and complexity of the
item relative to the taxpayer’s gross
income; and
(B) the size of the understatement
attributable to the item compared to the
taxpayer’s reported tax liability.
(ii)(A) For purposes of applying the
rules of paragraph (b)(3)(i) of this
section to a nonsigning tax return
preparer within the meaning of
paragraph (b)(2) of this section only, the
schedule or other portion is not
considered to be a substantial portion if
the schedule, entry, or other portion of
the return or claim for refund involves
amounts of gross income, amounts of
deductions, or amounts on the basis of
which credits are determined that are—
(1) Less than $10,000; or
(2) Less than $400,000 and also less
than 20 percent of the gross income as
shown on the return or claim for refund
(or, for an individual, the individual’s
adjusted gross income).
(B) If more than one schedule, entry
or other portion is involved, all
schedules, entries or other portions
shall be aggregated in applying the de
minimis rule in paragraph (b)(3)(ii)(A)
of this section.
(C) The de minimis rule in paragraph
(b)(3)(ii)(A) of this section shall not
apply to a signing tax return preparer
within the meaning of paragraph (b)(1)
of this section.
(iii) A tax return preparer with respect
to one return is not considered to be a
tax return preparer of another return
merely because an entry or entries
reported on the first return may affect an
entry reported on the other return,
unless the entry or entries reported on
the first return are directly reflected on
the other return and constitute a
substantial portion of the other return.
For example, the sole preparer of a
partnership return of income or small
business corporation income tax return
is considered a tax return preparer of a
partner’s or a shareholder’s return if the
entry or entries on the partnership or
small business corporation return
reportable on the partner’s or
shareholder’s return constitute a
substantial portion of the partner’s or
shareholder’s return.
(iv) Examples. The provisions of this
paragraph (b)(3) are illustrated by the
following examples:
Example 1. Accountant C prepares a Form
8886, ‘‘Reportable Transaction Disclosure

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Statement’’, that is used to disclose
reportable transactions. C does not prepare
the tax return or advise the taxpayer
regarding the tax return reporting position of
the transaction to which the Form 8886
relates. The preparation of the Form 8886 is
not directly relevant to the determination of
the existence, characterization, or amount of
an entry on a tax return or claim for refund.
Rather, the Form 8886 is prepared by C to
disclose a reportable transaction. C has not
prepared a substantial portion of the tax
return and is not considered a tax return
preparer under section 6694.
Example 2. Accountant D prepares a
schedule for an individual taxpayer’s Form
1040, ‘‘U.S. Individual Income Tax Return’’,
reporting $4,000 in dividend income and
gives oral or written advice about Schedule
A, which results in a claim of a medical
expense deduction totaling $5,000, but does
not sign the tax return. D is not a nonsigning
tax return preparer because the total
aggregate amount of the deductions is less
than $10,000.

(4) Return and claim for refund—(i)
Return. For purposes of this section, a
return of tax is a return (including an
amended or adjusted return) filed by or
on behalf of a taxpayer reporting the
liability of the taxpayer for tax under the
Code, if the type of return is identified
in published guidance in the Internal
Revenue Bulletin. A return of tax also
includes any information return or other
document identified in published
guidance in the Internal Revenue
Bulletin and that reports information
that is or may be reported on another
taxpayer’s return under the Code if the
information reported on the information
return or other document constitutes a
substantial portion of the taxpayer’s
return within the meaning of paragraph
(b)(3) of this section.
(ii) Claim for refund. For purposes of
this section, a claim for refund of tax
includes a claim for credit against any
tax that is included in published
guidance in the Internal Revenue
Bulletin. A claim for refund also
includes a claim for payment under
section 6420, 6421, or 6427.
(c) Mechanical or clerical assistance.
A person who furnishes to a taxpayer or
other tax return preparer sufficient
information and advice so that
completion of the return or claim for
refund is largely a mechanical or
clerical matter is considered a tax return
preparer, even though that person does
not actually place or review placement
of information on the return or claim for
refund. See also paragraph (b)(3) of this
section.
(d) Qualifications. A person may be a
tax return preparer without regard to
educational qualifications and
professional status requirements.
(e) Outside the United States. A
person who prepares a return or claim

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for refund outside the United States is
a tax return preparer, regardless of the
person’s nationality, residence, or the
location of the person’s place of
business, if the person otherwise
satisfies the definition of tax return
preparer. Notwithstanding the
provisions of § 301.6109–1(g), the
person shall secure an employer
identification number if the person is an
employer of another tax return preparer,
is a partnership in which one or more
of the general partners is a tax return
preparer, is a firm in which one or more
of the equity holders is a tax return
preparer, or is an individual not
employed by another tax return
preparer.
(f) Persons who are not tax return
preparers. (1) The following persons are
not tax return preparers:
(i) An official or employee of the
Internal Revenue Service (IRS)
performing official duties.
(ii) Any individual who provides tax
assistance under a Volunteer Income
Tax Assistance (VITA) program
established by the IRS, but only with
respect to those returns prepared as part
of the VITA program.
(iii) Any organization sponsoring or
administering a VITA program
established by the IRS, but only with
respect to that sponsorship or
administration.
(iv) Any individual who provides tax
counseling for the elderly under a
program established pursuant to section
163 of the Revenue Act of 1978, but
only with respect to those returns
prepared as part of that program.
(v) Any organization sponsoring or
administering a program to provide tax
counseling for the elderly established
pursuant to section 163 of the Revenue
Act of 1978, but only with respect to
that sponsorship or administration.
(vi) Any individual who provides tax
assistance as part of a qualified LowIncome Taxpayer Clinic (LITC), as
defined by section 7526, subject to the
requirements of paragraphs (f)(2) and (3)
of this section, but only with respect to
those returns and claims for refund
prepared as part of the LITC program.
(vii) Any organization that is a
qualified LITC, as defined by section
7526, subject to the requirements of
paragraphs (f)(2) and (3) of this section.
(viii) An individual providing only
typing, reproduction, or other
mechanical assistance in the
preparation of a return or claim for
refund.
(ix) An individual preparing a return
or claim for refund of a taxpayer, or an
officer, a general partner, member,
shareholder, or employee of a taxpayer,
by whom the individual is regularly and

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continuously employed or compensated
or in which the individual is a general
partner.
(x) An individual preparing a return
or claim for refund for a trust, estate, or
other entity of which the individual
either is a fiduciary or is an officer,
general partner, or employee of the
fiduciary.
(xi) An individual preparing a claim
for refund for a taxpayer in response
to—
(A) A notice of deficiency issued to
the taxpayer; or
(B) A waiver of restriction on
assessment after initiation of an audit of
the taxpayer or another taxpayer if a
determination in the audit of the other
taxpayer affects, directly or indirectly,
the liability of the taxpayer for tax under
subtitle A.
(xii) A person who prepares a return
or claim for refund for a taxpayer with
no explicit or implicit agreement for
compensation, even if the person
receives an insubstantial gift, return
service, or favor.
(2) Paragraphs (f)(1)(vi) and (vii) of
this section apply only if any assistance
with a return of tax or claim for refund
is directly related to a controversy with
the IRS for which the qualified LITC is
providing assistance or is an ancillary
part of an LITC program to inform
individuals for whom English is a
second language about their rights and
responsibilities under the Code.
(3) Notwithstanding paragraph (f)(2)
of this section, paragraphs (f)(1)(vi) and
(f)(1)(vii) of this section do not apply if
an LITC charges a separate fee or varies
a fee based on whether the LITC
provides assistance with a return of tax
or claim for refund under the Code or
if the LITC charges more than a nominal
fee for its services.
(4) For purposes of paragraph (f)(1)(ix)
of this section, the employee of a
corporation owning more than 50
percent of the voting power of another
corporation, or the employee of a
corporation more than 50 percent of the
voting power of which is owned by
another corporation, is considered the
employee of the other corporation as
well.
(5) For purposes of paragraph (f)(1)(x)
of this section, an estate, guardianship,
conservatorship, committee, or any

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similar arrangement for a taxpayer
under a legal disability (such as a minor,
an incompetent, or an infirm individual)
is considered a trust or estate.
(6) Examples. The mechanical
assistance exception described in
paragraph (f)(1)(viii) of this section is
illustrated by the following examples:
Example 1. A reporting agent received
employment tax information from a client
from the client’s business records. The
reporting agent did not render any tax advice
to the client or exercise any discretion or
independent judgment on the client’s
underlying tax positions. The reporting agent
processed the client’s information, signed the
return as authorized by the client pursuant to
Form 8655, Reporting Agent Authorization,
and filed the client’s return using the
information supplied by the client. The
reporting agent is not a tax return preparer.
Example 2. A reporting agent rendered tax
advice to a client on determining whether its
workers are employees or independent
contractors for Federal tax purposes. For
compensation, the reporting agent received
employment tax information from the client,
processed the client’s information and filed
the client’s return using the information
supplied by the client. The reporting agent is
a tax return preparer.

(g) Effective/applicability date. This
section is applicable to returns and
claims for refund filed, and advice
provided, after December 31, 2008.
PART 602—OMB CONTROL NUMBERS
UNDER THE PAPERWORK
REDUCTION ACT
■ Par. 158. The authority citation for
part 602 continues to read in part as
follows:

CFR part or section where
identified and described
20.6060–1(a)(1) ......................
20.6107–1 ..............................
25.6060–1(a)(1) ......................
25.6107–1 ..............................
26.6060–1(a)(1) ......................
26.6107–1 ..............................
31.6060–1(a)(1) ......................
31.6107–1 ..............................
40.6060–1(a)(1) ......................
40.6107–1 ..............................
41.6060–1(a)(1) ......................
41.6107–1 ..............................
44.6060–1(a)(1) ......................
44.6107–1 ..............................
53.6060–1(a)(1) ......................
53.6107–1 ..............................
54.6060–1(a)(1) ......................
54.6107–1 ..............................
55.6060–1(a)(1) ......................
55.6107–1 ..............................
56.6060–1(a)(1) ......................
56.6107–1 ..............................
156.6060–1(a)(1) ....................
156.6107–1 ............................
157.6060–1(a)(1) ....................
157.6107–1 ............................
*

*

BILLING CODE 4830–01–P

■ Par. 159. In § 602.101, paragraph (b) is
amended by adding the following
entries to the table in numerical order
to read in part as follows:

*

OMB Control numbers.

*
*
(b) * * *

*

*

CFR part or section where
identified and described
*
*
*
1.6060–1(a)(1) ........................
1.6107–1 ................................
1.6694–2(c)(3) ........................

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*
1545–1231
1545–1231
1545–1231

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1545–1231
1545–1231
1545–1231
1545–1231
1545–1231
1545–1231
1545–1231
1545–1231
1545–1231
1545–1231
1545–1231
1545–1231
1545–1231
1545–1231
1545–1231
1545–1231
1545–1231
1545–1231
1545–1231
1545–1231
1545–1231
1545–1231
1545–1231
1545–1231
1545–1231
1545–1231
*

*

Linda M. Kroening,
Acting Deputy Commissioner for Services and
Enforcement.
Approved: December 10, 2008.
Eric Solomon,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. E8–29750 Filed 12–15–08; 4:15 pm]

Authority: 26 U.S.C. 7805 * * *

§ 602.101

*

Current OMB
control No.

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