INCOME TAX RETURN PREPARERS.

SEC. 1203. INCOME TAX RETURN PREPARERS. (a) Definition.— Section 7701(a) (relating to definitions) is amended by adding at the end thereof the following new paragraph: “(36) Income tax return preparer.— “(A) In general.— The term ‘income tax return preparer’ means any person who prepares for compensation, or who employs one-or more persons to prepare for compensation, any return of tax imposed by subtitle A or any claim for refund of tax imposed by subtitle A. For purposes of the preceding sentence, the preparation of a substantial portion of a return or claim for refund shall be treated as if it were the preparation of such return or claim for refund. “(B) Exceptions.— A person shall not be an ‘income tax return preparer’ merely because such person— “(i) furnishes typing, reproducing, or other mechanical assistance, “(ii) prepares a return or claim for re fluid of the employer (or of an officer or employee of the employer) by whom he is regularly and continuously employed. “(iii) prepares a return or claim for refund for any trust or estate with respect to which he is a fiduciary, or 90 STAT. 1689 “(iv) prepares a claim for refund for a taxpayer in response to any notice of deficiency issued to such tax-payer or in response to any waiver of restriction after the commencement of an audit of such taxpayer or another taxpayer if a determination in such audit of such other taxpayer directly or indirectly affects the tax liability of such taxpayer.” (b) Assessable Penalties Where Preparer Understates Tax-payer’s Liability.— (1) In general.— Subchapter B of chapter 68 (relating to assessable penalties) is amended by adding at the end thereof the following new section: “SEC. 6694, UNDERSTATEMENT OF TAXPAYER’S LIABILITY BY INCOME TAX RETURN PREPARER. “(a) Negligent or Intentional Disregard of Rules and Regulations.— If any part of any understatement of liability with respect to any return or claim for refund is due to the negligent or intentional disregard of rules and regulations by any person who is an income tax return preparer with respect to such return or claim, such person shall pay a penalty of $100 with respect to such return or claim. “(b) Willful Understatement of Liability.— If any part of any understatement of liability with respect to any return or claim for refund is due to a willful attempt in any manner to understate the liability for a tax by a person who is an income tax return preparer with respect to such return or claim, such person shall pay a penalty of $500 with respect to such return or claim. With respect to any return or claim, the amount of the penalty payable by any person by reason of this subsection shall be reduced by the amount of the penalty paid by such person by reason of subsection (a). “(c) Extension of Period of Collection Where Preparer Pays 15 Percent of Penalty.— “(1) In general.— If, within 30 days after the day on which notice and demand of any penalty under subsection (a) or (b) is made against any person who is an income tax return preparer, such person pays an amount which is not less than 15 percent of the amount of such penalty and files a claim for refund of the amount so paid, no levy or proceeding in court for the collection of the remainder of such penalty shall be made, begun, or prosecuted until the final resolution of a proceeding begun as provided in paragraph (2). Notwithstanding the provisions of section 7421 (a), the beginning of such proceeding or levy during the time such prohibition is in force may be enjoined by a proceeding in the proper court. “(2) Preparer must bring suit in district court to determine his liability for penalty.— If, within 30 days after the day on which his claim for refund of any partial payment of any penalty under subsection (a) or (b) is denied (or, if earlier, within 30 days after the expiration of 6 months after the day on which he filed the claim for refund), the income tax return preparer fails to begin a proceeding in the appropriate United States district court for the determination of his liability for such penalty, paragraph (1) shall cease to apply with respect to such penalty, effective on the day following the close of the applicable 30day period referred to in this paragraph. “(3) Suspension of running of period of limitations on collection.— The running of the period of limitations provided in 90 STAT. 1690section 6502 on the collection by levy or by a proceeding in court in respect of any penalty described in paragraph (1) shall be suspended for the period during which the Secretary is prohibited from collecting by levy or a proceeding in court. “(d) Abatement of Penalty Where Taxpayer’s Liability Not Understated.— If at any time there is a final administrative determination or a final judicial decision that there was no understatement of liability in the case of any return or claim for refund with respect to which a penalty under subsection (a) or (b) has been assessed, such assessment shall be abated, and if any portion of such penalty has been paid the amount so paid shall be refunded to the person who made such payment as an overpayment of tax without regard to any period of limitations which, but for this subsection, would apply to the mailing of such refund. “(e) Understatement of Liability Defined.— For purposes of this section, the term ‘understatement of liability’ means any understatement of the net amount payable with respect to any tax imposed by subtitle A or any overstatement of the net amount creditable or refundable with respect to any such tax. Except as otherwise provided in subsection (d), the determination of whether or not there is an understatement of liability shall be made without regard to any administrative or judicial action involving the taxpayer. “(f) Cross Reference.— “For definition of income tax return preparer, see section 7701 (a)(36).” (2) Burden of proof under 0004(b).— (A) Subchapter B of chapter 76 (relating to proceedings by taxpayers and third parties) is amended by redesignating section 7427 as section 7428 and by inserting after section 7426 the following new section: “SEC. 7427. INCOME TAX RETURN PREPARERS. “In any proceeding involving the issue of whether or not an income tax return preparer has willfully attempted in any manner to understate the liability for tax (within the meaning of section 6694(b)), the burden of proof in respect to such issue shall be upon the Secretary.” (B) The table of sections for such subchapter B is amended by striking out the last item and inserting in lieu thereof the following: “Sec. 7427. Income tax return preparers. “Sec. 7428. Cross references.” (c) Preparer Must Furnish Copy of Return to Taxpayer and Must Retain Copy or List.— Subchapter B of chapter 61 (relating to information and returns) is amended by inserting after section 6106 the following new section: “SEC. 6107. INCOME TAX RETURN PREPARER MUST FURNISH COPY OF RETURN TO TAXPAYER AND MUST RETAIN A COPY OR LIST. “(a) Furnishing Copy to Taxpayer.— Any person who is an income lax return preparer with respect to any return or claim for refund shall furnish a completed copy of such return or claim to the taxpayer not later than the time such return or claim is presented for such taxpayer’s signature. “(b) Copy or List To Be Retained by Income Tax Return Preparer.— Any person who is an income tax return preparer with 90 STAT. 1691respect to a return or claim for refund shall, for the period ending 3 years after the close of the return period— “(1) retain a completed copy of such return or claim, or retain, on a list, the name and taxpayer identification number of the tax-payer for whom such return or claim was prepared, and “(2) make such copy or list available for inspection upon request by the Secretary. “(c) Regulations.— The Secretary shall prescribe regulations under which, in cases where 2 or more persons are income tax return preparers with respect to the same return or claim for refund, compliance with the requirements of subsection (a) or (b), as the case may be, of one such person shall be deemed to be compliance with the requirements of such subsection by the other persons. “(d) Definitions.— For purposes of this section, the terms ‘return’ and ‘claim for refund’ have the respective meanings given to such terms by section 6696(e), and the term ‘return period-has the meaning given to such term by section 6060(e).” (d) Taxpayer Identifying Number of Preparer To Be Furnished.— Section 6109(a) (relating to supplying of identifying numbers) is amended by adding at the end thereof the following: “(4) Furnishing identifying number of income tax return preparer.— Any return or claim for refund prepared by an income tax return preparer shall bear such identifying number for securing proper identification of such preparer, his employer, or both, as may be prescribed. For purposes of this paragraph, the terms ‘return’ and ‘claim for refund’ have the respective meanings given to such terms by section 6696(e). For purposes of this subsection, the identifying number of an individual (or his estate) shall be such individual’s social security account number.” (e) Preparer Must Fuji Annual Information Return.— Part III of subchapter A of chapter 61 (relating to information returns) is amended by adding at the end thereof the following new subpart: “Subpart F— Information Concerning Income Tax Return Preparers “Sec. 6060. Information returns of income tax return preparers. “SEC. 6060. INFORMATION RETURNS OF INCOME TAX RETURN PREPARERS. “(a) General Rule.— Any person who employs an income tax return preparer to prepare any return or claim for refund other than for such person at any time during a return period shall make a return setting forth the name, taxpayer identification number, and place of work of each income tax return preparer employed by him at any time during such period. For purposes of this section, any individual who in acting as an income tax return preparer is not the employee of another income tax return preparer shall be treated as his own employer. The return required by this section shall be filed, in such manner as the Secretary may by regulations prescribe, on or before the first July 31 following the end of such return period. “(b) Alternative Reporting.—In lieu of the return required by subsection (a), the Secretary may approve an alternative reporting method if he determines that the necessary information is available to him from other sources. “(c) Return Period Defined.— For purposes of subsection (a), the term ‘return period’ means the 12month period beginning on 90 STAT. 1692July 1 of each year, except that the first return period shall be the. 6montli period beginning on January 1, 1977, and ending on June 30, 1977.” (f) Other Assess able Penalties With Respect to the Preparation or Income Tax Returns for Other Persons.— Subchapter B of chapter 68 (relating to assessable penalties) is amended by adding at the end thereof the following new sections: “SEC. 6695. OTHER ASSESSABLE PENALTIES WITH RESPECT TO THE PREPARATION OF INCOME TAX RETURNS FOR OTHER PERSONS. “(a) Failure To Furnish Copy to Taxpayer.— Any person who is an income tax return preparer with respect to any return or claim for refund who fails to comply with section 6107(a) with respect to such return or claim shall pay a penalty of $25 for such failure, unless it is shown that such failure is due to reasonable cause and not due to willful neglect. “(b) Failure To Sign Return.— Any person who is an income tax return preparer with respect to any return or claim for refund, who is required by regulations prescribed by the Secretary to sign such return or claim, and who fails to comply with such regulations with respect to such return or claim shall pay a penalty of $25 for such failure, unless it is shown that such failure is due to reasonable cause and not due to willful neglect. “(c) Failure To Furnish Identifying Number.— Any person who is an income tax return preparer with respect to any return or claim for refund and who fails to comply with section 6109(a)(4) with respect to such return or claim shall pay a penalty of $25 for such failure, unless it is shown that such failure is due to reasonable cause and not due to willful neglect. “(d) Failure To Retain Copy or List.— Any person who is an income tax return preparer with respect to any return or claim for refund who fails to comply with section 6107 (b) with respect to such return or claim shall pay a penalty of $50 for each such failure, unless it is shown that such failure is due to reasonable cause and not due to willful neglect. The maximum penalty imposed under this subsection on any person with respect to any return period shall not exceed $25,000. “(e) Failure To File Correct Information Return.— Any person required to make a return under section 6060 who fails to comply with the requirements of such section shall pay a penalty of— “(1) $100 for each failure to file a return as required under such section, and “(2) $5 for each failure to set forth an item in the return as required under such section, unless it is shown that such failure is due to reasonable cause, and not due to willful neglect. The maximum penalty imposed under this subsection on any person with respect to any return period shall not exceed $20,000. “(f) Negotiation of Check.— Any person who is an income tax return preparer who endorses or otherwise negotiates (directly or through an agent) any check made in respect of the taxes imposed by subtitle A which is issued to a taxpayer (other than the income tax return preparer) shall pay a penalty of $500 with respect to each such check. 90 STAT. 1693 “SEC. 6696. RULES APPLICABLE WITH RESPECT TO SECTIONS 6694 AND 6695. “(a) Penalties To Be Additional to Ant Other Penalties.— The penalties provided by section 6694 and 6695 shall be in addition to any other penalties provided by law. “(b) Deficiency Procedures Not To Apply.— Subchapter B of chapter 63 (relating to deficiency procedures for income, estate, gift, and certain excise taxes) shall not apply with respect to the assessment or collection of the penalties provided by sections 6694 and 6695. “(c) Procedure fob Claiming Refund.— Any claim for credit, or refund of any penalty paid under section 6694 or 6695 shall be filed in accordance with regulations prescribed by the Secretary. “(d) Periods of Limitation.— “(1) Assessment.— The amount of any penalty under section 6694(a) or under section 6695 shall be assessed within 3 years after the return or claim for refund with respect to which the penalty is assessed was filed, and no proceeding in court without assessment for the collection of such tax shall be begun after the expiration of such period. in the case of any penalty under section 6694(b), the penalty may be assessed, or a proceeding in court for the collection of the penalty may be begun without assessment, at any time. “(2) Claim for refund.— Except as provided in section 6694 (d), any claim for refund of an overpayment of any penalty assessed under section 6694 or 6695 shall be filed within 3 years from the time the penalty was paid. “(e) Definitions.— For purposes of sections 6694 and 6695— “(1) Return.— The term ‘return’ means any return of any tax imposed by subtitle A. “(2) Claim for refund.— The term ‘claim for refund’ means a claim for refund of, or credit against, any tax imposed by subtitle A” (g) Authority To Seek Injunction Against Income Tax Return Preparers.— Subchapter A of chapter 76 (relating to civil actions by the United States) is amended by redesignating section 7407 as section 7408 and by inserting after section 7406 the following new section: “SEC. 7407. ACTION TO ENJOIN INCOME TAX RETURN PREPARERS. “(a) Authority To Seek Injunction.— Except as provided in subsection (c), a civil action in the name of the United States to enjoin any person who is an income tax return preparer from further engaging in any conduct described in subsection (b) or from further acting as an income tax return preparer may be commenced at the request of the Secretary. Any action under this section shall be brought in the District Court of the United States for the district in which the income tax preparer resides or has his principal place of business or in which the taxpayer with respect to whose income tax return the action is brought resides. The court may exercise its jurisdiction over such action (as provided in section 7402(a)) separate and apart from any other action brought by the United States against such income tax preparer or any taxpayer. “(b) Adjudication and Decrees.— In any action under subsection (a), if the court, finds— “(1) that an income tax return preparer has— “(A) engaged in any conduct subject to penalty under section 6694 or 6695, or subject to any criminal penalty provided by this title, 90 STAT. 1694 “(B) misrepresented his eligibility to practice before the Internal Revenue Service, or otherwise misrepresented his experience or education as an income tax return preparer, “(C) guaranteed the payment of any tax refund or the allowance of any tax credit, or “(D) engaged in any other fraudulent or deceptive conduct which substantially interferes with the proper administration of the Internal Revenue laws, and “(2) that injunctive relief is appropriate to prevent the recurrence of such conduct, the court may enjoin such person from further engaging in such conduct. If the court finds that an income tax return preparer has continually or repeatedly engaged in any conduct described in subparagraphs (A) through (D) of this subsection and that an injunction prohibiting such conduct would not be sufficient to prevent such person’s interference with the proper administration of this title, the court may enjoin such person from acting as an income tax return preparer. “(c) Bond To Stat Injunction.— No action to enjoin under subsection (b)(1)(A) shall be commenced or pursued with respect to any income tax return preparer who files and maintains, with the Secretary in the internal revenue district in which is located such preparers legal residence or principal place of business, a bond in a sum of $50,000 as surety for the payment of penalties under section 6694 and 6695.” (h) Cross References.— (1) Section 6503(h), as redesignated by this Act, is amended by adding at the end thereof the following new paragraph: “(4) Income tax return preparers, see section 6694(c)(3).” (2) Section 6504, as amended by this Act, is amended by adding at the end thereof the following new paragraph: “(11) Assessment of civil penalties under section 6694 or 6695, see section 6696(d)(1).” (3) Section 6511(g) is amended by adding at the end thereof the following new paragraph: “(7) For a period of limitations for refund of an overpayment of penalties imposed under section 6694 or 6695, see section 6696(d)(2).” (i) Conforming Amendments.— (1) The table of subparts for part. Ill of suchapter A of chapter 61 is amended by adding at the end thereof the following new item: “Subpart F. Information concerning income tax return preparers.” (2) The table of sections for subchapter B of chapter 61 is amended by inserting immediately after the item relating to section 6106 the following new item: “Sec. 6107. Income tax return preparer must furnish copy of return to taxpayer and must retain a copy or list.” (3) The table of sections for subchapter B of chapter 68 is amended by adding at the end thereof the following new items: “Sec. 6604. Understatement of taxpayer’s liability by Income tax return preparer. “Sec. 6685. Other assessable penalties with respect to the preparation of income tax returns for other persons. “Sec. 6696. Rules applicable with respect to sections 6604 and 6605.” 90 STAT. 1695 (4) The table of sections for subchapter A of chapter 76 is amended by striking out the last item and inserting in lieu thereof the following: “Sec. 7407. Action to enjoin income tax return preparers. “Sec. 7408. Cross references.” (j) Effective Date.— The amendments made by this section shall apply to documents prepared after December 31, 1976.