New Penalty and Interest Provisions in Troop Readiness Act

[jcolvin2]

The following are selected procedural tax provisions from the bill that was passed last night (and the President is expected to sign). Tax preparers watch out - "realistic possiblity of success" for undisclosed positions is out, "reasonably believes more likely than not" is in.

SEC. 7542. SUSPENSION OF CERTAIN PENALTIES AND INTEREST.
(a) In General- Paragraphs (1)(A) and (3)(A) of section 6404(g) are each amended by striking `18-month period' and inserting `36-month period'.
(b) Effective Date- The amendments made by this section shall apply to notices provided by the Secretary of the Treasury, or his delegate, after the date which is 6 months after the date of the enactment of this Act.

SEC. 7546. UNDERSTATEMENT OF TAXPAYER LIABILITY BY RETURN PREPARERS.
(a) Application of Return Preparer Penalties to All Tax Returns-
(1) DEFINITION OF TAX RETURN PREPARER- Paragraph (36) of section 7701(a) (relating to income tax preparer) is amended--
(A) by striking `income' each place it appears in the heading and the text, and
(B) in subparagraph (A), by striking `subtitle A' each place it appears and inserting `this title'.
(2) CONFORMING AMENDMENTS-[omiited]

(b) Modification of Penalty for Understatement of Taxpayer's Liability by Tax Return Preparer- Subsections (a) and (b) of section 6694 are amended to read as follows:
`(a) Understatement Due to Unreasonable Positions-
`(1) IN GENERAL- Any tax return preparer who prepares any return or claim for refund with respect to which any part of an understatement of liability is due to a position described in paragraph (2) shall pay a penalty with respect to each such return or claim in an amount equal to the greater of--
`(A) $1,000, or
`(B) 50 percent of the income derived (or to be derived) by the tax return preparer with respect to the return or claim.
`(2) UNREASONABLE POSITION- A position is described in this paragraph if--
`(A) the tax return preparer knew (or reasonably should have known) of the position,
`(B) there was not a reasonable belief that the position would more likely than not be sustained on its merits, and
`(C)(i) the position was not disclosed as provided in section 6662(d)(2)(B)(ii), or
`(ii) there was no reasonable basis for the position.
`(3) REASONABLE CAUSE EXCEPTION- No penalty shall be imposed under this subsection if it is shown that there is reasonable cause for the understatement and the tax return preparer acted in good faith.
`(b) Understatement Due to Willful or Reckless Conduct-
`(1) IN GENERAL- Any tax return preparer who prepares any return or claim for refund with respect to which any part of an understatement of liability is due to a conduct described in paragraph (2) shall pay a penalty with respect to each such return or claim in an amount equal to the greater of--
`(A) $5,000, or
`(B) 50 percent of the income derived (or to be derived) by the tax return preparer with respect to the return or claim.
`(2) WILLFUL OR RECKLESS CONDUCT- Conduct described in this paragraph is conduct by the tax return preparer which is--
`(A) a willful attempt in any manner to understate the liability for tax on the return or claim, or
`(B) a reckless or intentional disregard of rules or regulations.
`(3) REDUCTION IN PENALTY- The amount of any penalty payable by any person by reason of this subsection for any return or claim for refund shall be reduced by the amount of the penalty paid by such person by reason of subsection (a).'.
(c) Effective Date- The amendments made by this section shall apply to returns prepared after the date of the enactment of this Act.

SEC. 7547. PENALTY FOR FILING ERRONEOUS REFUND CLAIMS.
(a) In General- Part I of subchapter B of chapter 68 (relating to assessable penalties) is amended by inserting after section 6675 the following new section:

`SEC. 6676. ERRONEOUS CLAIM FOR REFUND OR CREDIT.
`(a) Civil Penalty- If a claim for refund or credit with respect to income tax (other than a claim for a refund or credit relating to the earned income credit under section 32) is made for an excessive amount, unless it is shown that the claim for such excessive amount has a reasonable basis, the person making such claim shall be liable for a penalty in an amount equal to 20 percent of the excessive amount.
`(b) Excessive Amount- For purposes of this section, the term `excessive amount' means in the case of any person the amount by which the amount of the claim for refund or credit for any taxable year exceeds the amount of such claim allowable under this title for such taxable year.
`(c) Coordination With Other Penalties- This section shall not apply to any portion of the excessive amount of a claim for refund or credit which is subject to a penalty imposed under part II of subchapter A of chapter 68.'.
(b) Conforming Amendment- The table of sections for part I of subchapter B of chapter 68 is amended by inserting after the item relating to section 6675 the following new item:
`Sec. 6676. Erroneous claim for refund or credit.'.
(c) Effective Date- The amendments made by this section shall apply to any claim filed or submitted after the date of the enactment of this Act.

[Quixote]

If a claim for refund or credit with respect to income tax (other than a claim for a refund or credit relating to the earned income credit under section 32) is made for an excessive amount, unless it is shown that the claim for such excessive amount has a reasonable basis, the person making such claim shall be liable for a penalty in an amount equal to 20 percent of the excessive amount.

What am I missing? If the claim had a reasonable basis, wouldn't that make it allowable, i.e., not excessive?

[Sertsa]

No. It would still be excessive because it was disallowed. The reasonable basis just avoids the penalty. The taxpayer still has to convince the Service or the courts to allow the excessive amount.