[§231-36.5]  Understatement of taxpayer'sliability by tax return preparer.  (a)  A tax return preparer whounderstates a person's tax liability based upon unreasonable positions on a taxreturn or claim for tax refund shall pay a penalty of $500 with respect to eachsuch tax return or claim for tax refund.

(b)  A tax return preparer who:

(1)  Wilfully understates a person's tax liability; or

(2)  Recklessly disregards any tax law or rule inunderstating a person's tax liability,

based upon unreasonable positions on a tax return orclaim for tax refund shall pay a penalty of $1,000, with respect to each suchtax return or claim for tax refund.

(c)  For purposes of subsections (a) and (b), understatements ofliability using unreasonable positions occur when:

(1)  Any part of a tax return or claim for tax refundis based on a position that does not have substantial authority;

(2)  The tax return preparer who prepared the taxreturn or claim for tax refund knew or reasonably should have known of theunreasonable position; and

(3)  The unreasonable position was not a discloseditem as defined in subsection (h) or was frivolous.

(d)  If within thirty days after the notice anddemand of any penalty under subsection (a) or (b) is made, the tax returnpreparer:

(1)  Pays an amount that is not less than fifteen percent of the penalty amount; and

(2)  Files a claim for refund of the amount so paid,

no action to levy or file a proceeding in court tocollect the remainder of the penalty shall be commenced except in accordancewith subsection (e).

(e)  An action that is stayed pursuant to subsection(d) may be brought thirty days after either of the following events, whicheveroccurs first:

(1)  The tax return preparer fails to file an appealto the tax appeal court within thirty days after the day on which the claim forrefund of any partial payment of any penalty under subsection (a) or (b) isdenied; or

(2)  The tax return preparer fails to file an appealto the tax appeal court for the determination of the tax return preparer'sliability for the penalty assessed under subsection (a) or (b) within sixmonths after the day on which the claim for refund was filed.

Nothing in this subsection shall be construed toprohibit any counterclaim for the remainder of the penalty in any proceeding.

(f)  If there is a final administrativedetermination pursuant to section 231-7.5, or a final judicial decisionthat the penalty assessed under subsection (a) or (b) should not apply, thenthat portion of the penalty assessed shall be voided.  Any portion of thepenalty that has been paid shall be refunded to the tax return preparer as anoverpayment of tax without regard to any period of limitations that, but forthis subsection, would apply to the making of the refund.

(g)  At the request of the director oftaxation, a civil action may be brought to enjoin atax return preparer from further acting as a tax return prepareror from engaging in conduct prohibited under subsection (a) or (b) as follows:

(1)  Any action under this subsection may be broughtin the circuit court of the circuit in which the tax return preparer resides orhas a principal place of business, or in which the taxpayer with respect towhose tax return the action is brought resides;

(2)  The court may exercise its jurisdiction over theaction separate and apart from any other action brought by the State againstthe tax return preparer or taxpayer;

(3)  If the court finds that a tax return preparer hasengaged in conduct subject to penalty under subsection (a) or (b) and thatinjunctive relief is appropriate to prevent the recurrence of that conduct, thecourt may enjoin the preparer accordingly; and

(4)  If the court finds that a tax return preparer hascontinually or repeatedly engaged in conduct prohibited under subsection (a) or(b) and that an injunction prohibiting that conduct would not be sufficient toprevent the preparer's interference with the proper administration of thischapter, the court may enjoin the preparer from acting as a tax returnpreparer.

(h)  For purposes of this section:

"Disclosed item" means any itemwhere:

(1)  The relevant facts affecting the item's taxtreatment are adequately disclosed in a tax return or in a statement attachedto a tax return; and

(2)  There is a reasonable basis for the tax treatmentof the item by the taxpayer.

"Substantial authority" means, inaddition to any definition of substantial authority incorporated by subsection(j), that the following authority supports the tax treatment of an item:

(1)  Statutory provisions;

(2)  Proposed or final administrative rules;

(3)  Tax information releases or procedures;

(4)  Department of taxation announcements or officialexplanations;

(5)  Court cases;

(6)  Legislative intent reflected in committee reportsand floor statements;

(7)  Private letter rulings, comfort letters,technical or advice letters, and written determinations to the extent they arevalid and not overruled by other authority; or

(8)  Notices or other official pronouncements of thedepartment of taxation.

"Tax return preparer" means anyperson who prepares for compensation, or who employs one or more persons toprepare for compensation, any return of tax imposed under title 14 or any claimfor refund of tax imposed under title 14.  For purposes of this definition, thepreparation of a substantial portion of a return or claim for refund shall betreated as if it were the preparation of the return or claim for refund.

A person shall not be a tax return preparermerely because the person:

(1)  Furnishes typing, reproducing, or othermechanical assistance;

(2)  Prepares a return or claim for refund of theemployer (or of an officer or employee of the employer) by whom the person isregularly and continuously employed;

(3)  Prepares as a fiduciary a return or claim forrefund for any other person; or

(4)  Prepares a claim for refund for a taxpayer inresponse to any notice of deficiency issued to the taxpayer or in response toany waiver of restriction after the commencement of an audit of the taxpayer,or of another taxpayer if a determination in the audit of the other taxpayerdirectly or indirectly affects the tax liability of the taxpayer.

"Understatement of liability" shallhave the same meaning as stated in section 231-36.6(b).  The determination ofwhether there is an understatement of liability may be made without regard toany administrative or judicial action involving the taxpayer.

(i)  The penalty imposed by this section shallbe in addition to any other penalty provided by law.

(j)  This section shall be construed inaccordance with regulations and judicial interpretations for section 6694 ofthe Internal Revenue Code. [L 2009, c 166, §1]

 

Note

 

  Applicability of 2009 amendment.  L 2009, c 166, §27.