Starting in 2008, your tax preparer is likely to insist that your
return should include a document (Form 8275) to disclose to the IRS
any return position (deduction, credit, exclusion or valuation) that
would reduce your taxes and for which the preparer is unsure about
whether the IRS would agree with the treatment on the return.

The Small Business and Work Opportunity Act of 2007 (P.L. 110-28,
Section 8246) included a revenue raising provision that imposed
dramatically higher penalties on return preparers who do not disclose
return positions that fail to meet dramatically higher standards of
legal authority. As written, the Act required tax preparers to
disclose return positions unless the preparer has a reasonable belief
the position is "more likely than not" to be sustained in the event of
a dispute with the IRS.

The act was effective on the date the law was enacted – which was May
25, 2007. A great many tax preparers were immersed in completing
returns for their clients who had requested extensions of time to file
and the preparers were not aware of the new rule until much later in
2007. Because the IRS had not issued any guidance on the subject, they
issued a Notice (# 2007-54) late in 2007 that the effective date for
the new rules would be for returns prepared and filed after 2007.

Disclosure requirements for self-prepared returns by taxpayers are not
as stringent as the new rules for tax preparers. Taxpayers are not
required to disclose return positions unless they involve reportable
or listed transactions (See Tax Advisors vs. Taxpayers) or fail to
meet a standard of a "realistic possibility" of being sustained in the
event of a dispute with the IRS. Some high level IRS officials
indicated that the new rules were a surprise to them. There had been
no public discussion of the expanded penalty rules prior to passage.

Early in 2008, the IRS released three notices to provide guidance to
preparers regarding the new rules, until regulations could be
developed. An extensive discussion of the 2007 tax law, the new
penalties, the disclosure standards and the recent IRS notices is
available at http://www.offshorepress.com/vkjcpa/preparer_penalties.htm

That web page also includes numerous links to other Internet
information sources regarding the new rules.

Tax preparers and advisors are welcome to forward this memo or a link
to the complete article to colleagues and clients. Taxpayers are
welcome to share this information with their tax advisors and preparers.

Vern
http://www.offshorepress.com/vkjcpa/preparer_penalties.htm