Sajid Patel November 1, 2011 Accounting 383 Professor W.

Jakalski Ethics Assignment

A preparer of tax forms would face heavy fines if he or she would make deliberate unreasonable claims on a tax form that is being legally filed to the Internal Revenue Service. These fines and the reasons that they would be assessed will be outlined below. The fines are pretty hefty in amount and could lead to suspension of the preparers CPA license and a possible jail term if it is severe enough. Most tax preparers will be held liable and charged a penalty is if the tax return preparers take positions while preparing a tax return that is not fully supported by the laws that are currently in place to guide the preparation. This Internal Revenue Service Code was amended in May of 2007 and went into full effect on May 25, 2007. This code section actually raised the standards that the preparers need to achieve to avoid the penalty that is listed under 6694(a). This tax code section was issued because the guidelines that the government had in place were largely outdated as they had been put into place during the 1970s. The tax code identifies a tax return preparer as any person who prepares a tax return in barter of being compensated or he owns a firm that employs others for the reason of preparing tax forms. According to the code the penalty that is stated under 6694(a) prior to amendment on the aforementioned date will apply if any of the following conditions come into being.

any part of an understatement of liability with respect to any return or claim for refund is due to a position for which there was not a realistic possibility of being sustained on its merits

any person who is an income tax return preparer with respect to such return or claim knew (or reasonably should have known) of such position, and,

such position was not disclosed as provided in section 6662(d)(2)(B)(ii) or was frivolous

The amendment changed the rules a bit as the conditions that allowed a penalty under 6694(a) were modified during this time of amendments for the code section. The following rules have been effect for the instatement of the penalty under 6694(a):

The tax return preparer knew (or reasonably should have known) of the position There was not a reasonable belief that the position would more likely than not be sustained on its merits

The position was not disclosed as provided in section 6662(d)(2)(B)(ii) There was no reasonable basis for the position.

The IRS also had Code 6695 which deals with the idea of due diligence for a tax preparer. This due diligence code was issued in December of 2008 and also carries a fine towards the tax preparer if proper care is not taken while making the preparation. There are certain steps that a preparer must follow to make sure that this code section is followed in compliance with the IRS and these points will be outlined below:

Completion of Eligibility Checklist o Either complete Form 8867 or its equivalent. o Complete checklist based on information provided by the taxpayer for the preparer

Computation of the Credit o Not know or have reason to know that any information used in determining the taxpayer's eligibility for, or the amount of, the EIC is incorrect. o Not ignore the implications of information furnished or known. o Make reasonable inquiries if information furnished or known appears to be incorrect, inconsistent or incomplete. o Additional inquiries should be made if a reasonable and well-informed tax return preparer appears to be incomplete, inconsistent or incorrect. o Contemporaneously document any additional inquiries made and the client's response

Record Retention o Retain Form 8867 and EIC worksheet or the equivalent. o Maintain record of how and when the information used to complete these forms was obtained. o Verify the identity of the person furnishing the information. o Retain records for 3 years after the June 30th following the date the return or claim was presented for signature

As you can see in the aforementioned guidelines this code section is very strict on making sure that it is properly followed otherwise the preparer will be penalized. Both of the aforementioned sections penalize the tax preparer because it is his/her responsibility to make sure all the information that is being put into the tax return is as accurate as possible whether it be a personal tax return or a corporate tax return. Most tax laws that have been amended recently with the preparers being the ones that are punished heavily and I believe that this has made a difference because there are two questions that every tax preparer should ask himself if he is asked to falsify information on the tax return. The first being Is it worth losing my CPA license for this? and the second question is, Is it worth going to jail for falsifying this information?