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[BOB W]

Thomtax raises a very important point-the imposing of the Penalty Parade on the unlicensed, unenrolled preparer.
These folks are the curse of the profession. Obviously NOT ALL - but those that continue to prepare returns without obtaining the important skills and knowledge necessary to comply with Circular 230.
Perfect example - a local unlicensed preparer prepared a 2005 return of a last year new client of mine.
The client resided in one state, worked in an adjoining state - therefore had to prepare 2 state returns. Client was also a part time real estate agent affiliated with a national broker.
Schedule C had deductions without any rhyme or reason to them including a SCHEDULE A CHARITABLE DONATION, 100% of automobile expenses, expenses for office in home being charged on Schedule C-bypassing the Office-In-Home schedule.
The nonresident state return had a different filing status then Fed'l and resident state. Also claimed an exemption for adult child that didn't qualify. I have it written in my notes that I advised him to amend - but he refused - to him it was worth gambling.
This was the second client in 2 years where I saw the SAME scenario with a different taxpayer. In addition - that other client had itemized deductions that were inflated and completely fictitious - such as thousands of dollars for unreimbursed employee business expenses (mainly auto mileage) for a local school district bus driver.
Unless IRS clamps down on the unenrolled, unlicensed guys, they are creating an undue hardship for the rest of us honest people that have the threat of forfeiture of license over our heads.

Sam > that is why Congress has now brought EVERYBODY under Circular 230 and thank you Congress. The problem is that most of these people have never heard of Circular 230.

[JohnH]

S-Corp Penalties

I had a guy call me asking about the S-corp penalties and after I explained the new rules he inquired if this would apply to prior year's returns (apparently he hasn't filed his 1120S for a couple of years back). Anybody know if the penalty provision would be effective for past years, or just going forward? The answer might make a difference on whether I do some catch-up work for him over the holidays.

May have answered my own question:
After reading H.R. 3997 , it appears to me that the new penalties take effect for returns required to be filed either 1) after enactment, or 2) Jan 1, 2008, depending upon which penalty we are talking about. This makes sense, since it seems fundamentally unfair to change the rules in the middle of the game (unless you are talking about politics & taxes).

[BOB W]

It is for all returns (any year) filed after 12/31/07.

[JohnH]

Really?

Bob -
Where do you find the "any year" provision?
I didn't find that in what I read, but maybe I'm not looking at the final version.

I was basing my conclusion on the following:

>>>>> (c) Effective Date- The amendments made by this section shall apply to returns required to be filed after the date of the enactment of this Act. <<<<<<

[BOB W]

I will look at my note and get back to you...............

I found what you found and also found this:

(h) Effective Date- The amendments made by this section shall apply with respect to information returns required to be filed on or after January 1, 2008.

Appearently the bill has several effective dates within the bill.

Aren't ALL returns required to be filed whether late or current?????? Is that reading the sentence to broadly??????

[BOB W]

Here is the actual bill: Please read paragraph (a) closely. find the words "for any taxable year"

http://thomas.loc.gov/cgi-bin/cpquery/?&dbname=cp110&sid=cp110Gm7r7&refer=&r_n=hr426.110&item=&sel=TOC_42494&

[JohnH]

I see what you mean

The effective date of "Jan 1, 208" (h) applies to Section 303 which affects information returns.

The effective date of "required to be filed after enactment" (c) applies to Section 6699 which affects S-corps.

But then the wording "for any taxable year" in (a) seems to broaden the interpretation of the S-corp section.

The Committe Report seems to support the "after enactment" interpretation, but there's still (a) right there in the bill itself.

Confusing, isn't it?

[BOB W]

Most times a new law state: "for tax years ending after xxxx", but this doesn't say that...???

So my take on this is that ALL unfiled S Corp returns had better get filed before enactment. Be sure to thank Congress for acting slow.

John > tell you caller to get his info to you ASAP and hope Congress takes it's time.

As to Information returns, I am seeing the same thing. Any return that is unfiled after 1/1/08 will be subject to the new penalties. Maybe I reading this wrong but to be safe I looking at it in the broadest sence. But I can't wait for clarification and am proceeding with that in mind.

(h) Effective Date- The amendments made by this section shall apply with respect to information returns required to be filed on or after January 1, 2008.

[Bees Knees]

(h) Effective Date- The amendments made by this section shall apply with respect to information returns required to be filed on or after January 1, 2008.

An S corporation return for 2006 was required to be filed by September 17, 2007. Therefore, it would not fall under the new rules.

It’s not a trick question. If Congress wanted all open years to fall under the new rules, they would have said "the amendments made by this section shall apply with respect to information returns required to be filed before, on, or after January 1, 2008."

There are other examples in the code where they did just that. In 1997, the Taxpayer Relief Act of 1997 had a provision that said it was effective before and after 8/5/97, but nothing about on 8/5/97. I guess one day out of all eternity got exempted from that provision.

[BOB W]

An S corporation return for 2006 was required to be filed by September 17, 2007. Therefore, it would not fall under the new rules.

It’s not a trick question. If Congress wanted all open years to fall under the new rules, they would have said "the amendments made by this section shall apply with respect to information returns required to be filed before, on, or after January 1, 2008."

There are other examples in the code where they did just that. In 1997, the Taxpayer Relief Act of 1997 had a provision that said it was effective before and after 8/5/97, but nothing about on 8/5/97. I guess one day out of all eternity got exempted from that provision.

Bees> I hope you're right, $1,200 per shareholder is big bucks for a 12 month overdue return. Clients always have a way of saying "you should of warned me, why didn't you".

[Bees Knees]

Well, the final bill could always change it to be retroactive, but as it stands right now, the language of the effective date means any return required to be filed starting on January 1, 2008. Late prior year returns would not be included.

[John of PA]

Oh shucks.....the S Corps now are critical

Well if was nice while it lasted, that is if we did not get an S Corp in by Oct 15th, it did not matter as far as penalties were concerened becasue there was no money due. I would always end of filing a few last minute S Corps in Nov and Dec. Now the S Corps have penalties like the Partnerships, so the party's over, now the S Corp must be in by Oct 15th. For me, a little busier Sept/Oct. in the future.

[BOB W]

Well if was nice while it lasted, that is if we did not get an S Corp in by Oct 15th, it did not matter as far as penalties were concerened becasue there was no money due. I would always end of filing a few last minute S Corps in Nov and Dec. Now the S Corps have penalties like the Partnerships, so the party's over, now the S Corp must be in by Oct 15th. For me, a little busier Sept/Oct. in the future.

What was nice about partnership with 10 or fewer partners was that there was an "out of jail "ticket. S Corps seem to have no such opportunity available. Now I'm wondering if Partnerships still have that "ticket" available.

[JohnH]

Penalty Forgiveness in General

This particular piece of legislation doesn't change the Partnership exception, but when you read the committee reports a pattern concerning penalties may be emerging. (Maybe it has already emerged with other legislation and I've missed it).

The bill itself has several apparently noble purposes, providing tax breaks for military personnel & volunteer firefighters, ssi changes, etc.. But then, as was mentioned at the beginning of this thread, the new penalties are imposed as the means to "pay for" the tax breaks. If the intent really is to cover the cost of the tax breaks via penaties, then it seems there might be serious pressure on IRS in the future to be less lenient when considering penalty abatements in the future. Otherwise the anticipated revenue will not materialize.

Rather than just a means of getting people into compliance, or even a means of punishment, is it possible that Congress is looking at penalties as a back-door tax system operating in tandem with the existing one? More or less an under-the-radar alternate method of raising additional taxes from businesses by playing a not-so-subtle game of "gotcha" even for relatively harmless infractions.

[BOB W]

John, I totally agree with you, it is now a game of "gotcha" whenever they can. If this works for them they may increase penalties to pay for AMT in the future????