H.R. 4318

To amend the Internal Revenue Code of 1986 to modify the penalty on the understatement of taxpayer's liability by tax return preparers.

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I

110th CONGRESS

1st Session

H. R. 4318

IN THE HOUSE OF REPRESENTATIVES

December 6, 2007

Mr. Crowley (for himself and Mr. Ramstad) introduced the following bill; which was referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to modify the penalty on the understatement of taxpayer’s liability by tax return preparers.

1.

Modification of penalty on understatement of taxpayer’s liability by tax return preparer

(a)

In general

Subsection (a) of section 6694 of the Internal Revenue Code of 1986 (relating to understatement due to unreasonable positions) is amended to read as follows:

(a)

Understatement due to unreasonable positions

(1)

In general

If a tax return preparer—

(A)

prepares any return or claim of refund with respect to which any part of an understatement of liability is due to a position described in paragraph (2), and

(B)

knew (or reasonably should have known) of the position,

such tax return preparer shall pay a penalty with respect to each such return or claim 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 with respect to the return or claim.
(2)

Unreasonable position

(A)

In general

Except as otherwise provided in this paragraph, a position is described in this paragraph unless there is or was substantial authority for the position.

(B)

Disclosed positions

If the position was disclosed as provided in section 6662(d)(2)(B)(ii) and is not a position to which subparagraph (C) applies, the position is described in this paragraph unless there is a reasonable basis for the position.

(C)

Tax shelters and reportable transactions

If 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, the position is described in this paragraph unless it is reasonable to believe that the position would more likely than not be sustained on its merits.

(3)

Reasonable cause exception

No penalty shall be imposed under this subsection if it is shown that there is reasonable cause for the understatement and the tax return preparer acted in good faith.

.

(b)

Effective date

The amendment made by this section shall apply to returns prepared after the date of the enactment of the Small Business and Work Opportunity Tax Act of 2007.