The IRS has issued guidance on the implementation of the Sec. 6694 preparer penalty and has identified returns that can make preparers subject to both the Sec. 6694 and Sec. 6695 penalties.
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TOPICS
IRS Practice & Procedure
New Transaction of Interest Identified
In Notice 2008-99, the IRS identified a new transaction of interest (TOI) for purposes of the reportable transaction disclosure and list maintenance rules under Secs. 6011, 6111, and 6112.
Limitations on Taxpayers’ Ability to Disavow Tax Consequences of Contract Terms
The circuit courts have split on the issue of when a taxpayer should be able to disavow the form of his or her transaction and assert that the substance of the transaction controls.
Wrongful Levy Judgment Treated as Overpayment of Tax
The Ninth Circuit held that for purposes of calculating the overpayment interest rate on a wrongful levy judgment, the judgment should be treated as an overpayment of tax.
LMSB Inspection of Corporate Officers’ Returns: IRM Procedure vs. Actual Practice
When the IRS’s Large and Mid-size Business (LMSB) Division issues an initial information document request (IDR) to a corporate taxpayer, one topic that corporate officers are often concerned about is the inspection of their individual income tax returns.
IRS Issues Second Directive on Gift Cards
The IRS has issued a second industry director directive (IDD No. 2) (LMSB 4-0808-042) on gift cards and gift certificates, elevating the use of a separate gift card company (Giftco) to administer a taxpayer’s gift card or certificate program to Part A status and providing more information on issues categorized as Part B.
IRS Automated Underreporter Initiative
The IRS recently started a “soft notice” initiative and has sent notices to taxpayers to spur voluntary compliance.
Automatic Penalty Assertions Begin for Delinquent Forms 5471
In August 2008, the IRS began mailing “soft letters” to corporations that had, during the past two years, filed a late Form 1120 that included at least one Form 5471, to inform them of the new automatic penalty assertion procedures.
Cancellation of Indebtedness
The IRS has issued final, temporary, and proposed regulations regarding information returns for cancellation of indebtedness by certain entities.
IRS Changes Policy for Asserting Penalties for Late-Filed Form 5471
The IRS recently sent letters to certain corporate taxpayers advising them that effective January 1, 2009, penalties for late-filed Forms 5471 will automatically be asserted when such forms are attached to a late-filed Form 1120.
Tread Carefully: What CPAs Should Know About Tax Fraud
This article examines Sec. 6663 and the civil tax fraud penalty it imposes.
Court Rejects Patentability of Business Methods
The Federal Circuit has significantly altered the landscape of business method patents by holding that to be patentable a business process must meet the “machine or transformation” test.
Tax Preparer and Taxpayer Reporting Standards Equalized
A provision in the 2008 Tax Extenders and AMT Relief Act sets the standard of conduct for preparers to avoid the penalty for understatement of tax due to an undisclosed return position at “substantial authority,” the same standard applied to taxpayers. The controversial “more likely than not” standard has been retroactively repealed.
GAO Report Finds Rental Income Is Misreported
A report by the Government Accountability Office (GAO) has found that at least 53% of individual taxpayers with income from rental real estate misreported their rental income for tax year 2001.
Automatic Penalties for Late Forms 5471 and Related Forms
The IRS has begun informing taxpayers that starting January 1, 2009, it will automatically assess Sec. 6038 penalties for each late-filed Form 5471.
Tax Court May Not Disregard Findings of a Special Trial Judge
The Fifth Circuit held that the Tax Court did not give due regard to the findings of its special trial judge and ordered the Tax Court to issue a final order adopting the findings in that judge’s report.
TIGTA Test Uncovers Significant Errors in Returns Prepared by Unenrolled, Unlicensed Preparers
During February and March of 2008, TIGTA auditors posing as taxpayers paid to have individual tax returns prepared by 28 unenrolled, unlicensed tax preparers. TIGTA found significant errors in most of the returns prepared in the test.
Power of Attorney: Limited vs. Full
While checking the third-party designee box on the return is an easy way for a taxpayer to authorize another person to act on his or her behalf, doing so only gives that person limited authority (compared to a traditional power of attorney) to act on the taxpayer’s behalf, and the authority granted is of limited duration.
Extension of Time to File Is Not an Extension of Time to Pay
Close friends and family members often help each other by serving as trustees of family trusts and executors of each other’s estates. A recent California case illustrates what can happen when people undertake these responsibilities without the proper advice.
Requesting 9100 Relief
Certain extension and administrative relief options exist if the taxpayer can obtain “9100 relief” under Regs. Secs. 301.9100-1 through -3.
INDIVIDUALS
Current Developments in Taxation of Individuals: Part 1
This update surveys recent federal tax developments involving individuals, including court cases, rulings, and guidance issued during the six months ending October 2025.
