Letter Ruling 7825075, March 27, 1978

Uniform Issue List Information:

UIL No. 7216.00-00

Disclosure or use of information by preparers of returns

UIL No. 7701.00-00

Definitions

UIL No. 6060.00-00

Information returns of income tax return preparers

UIL No. 6107.00-00

Income tax return preparer must furnish copy of return to taxpayer and must retain a copy or list

UIL No. 6694.00-00

Understatement of taxpayer's liability by income tax return preparer

UIL No. 6695.00-00

Other assessable penalties with respect to the preparation of income tax returns for other persons


This is in reply to a letter dated December 2, 1977, written on your behalf by your authorized representative requesting a ruling that Corp. C is not a tax return preparer with respect to tax returns prepared by Corp. T and that Corp. C does not employ or engage Corp. T to prepare income tax returns within the meaning of sections 7216 or 7701(a)(36) of the Internal Revenue Code of 1954. You also request a ruling that Corp. C is not an income tax return preparer for purposes of sections 6060, 6107, 6694 and 6695 with respect to tax returns prepared by Corp. T.



Corp. C engages in consumer financing in most states. Corp. C has conducted an income tax preparation service in its branches for several years. However, Corp. C has decided to permit such preparation to be offered in most of its branches by a firm specializing in this field, Corp. T. Corp. C will continue to prepare returns in certain of its branches, and will prepare predominately simple forms such as the short form and low-income allowance returns. Corp. T will not be operating in any of such branches.



Corp. C will provide office space to Corp. T personnel, will solicit and refer Corp. C's loan customers desiring tax preparation services to Corp. T, will provide on-premise and general advertising of the availability of tax preparation services in Corp. C branches by Corp. T, and will make appointments for Corp. T's customers.



In the branches in which Corp. T operates, Corp. C will not engage, directly or indirectly in the actual preparation of returns, will not review or otherwise have access to any returns prepared by Corp. T, will not have any control or right of control over Corp. T's preparation of tax returns, and will not provide any computer, duplicating, or other direct service to Corp. T in the preparation of tax returns.



With respect to the branches in which Corp. T operates, Corp. C will not hold itself out as a tax return preparer or represent that tax preparation services are to be performed by or supervised by Corp. C or its personnel. All advertising, and any representation, will specifically and unqualifiedly state that tax preparation services are to be performed by Corp. T. Corp. C will not provide Corp. T with any 'list', as defined in section 301.7216--2 of the Regulations on Administration and Procedure. Nor will Corp. T at anytime, provide Corp. C with any such 'list'.



In consideration for the provision of space and the above-enumerated services, Corp. T will compensate Corp. C in an amount equal to a fixed percentage of the gross receipts paid to Corp. T by its customers for tax preparation services. Further, after obtaining the required formal consent of the taxpayer pursuant to section 301.7216--3(a)(2) of the Regulations on Procedure and Administration, Corp. T will refer its customers desiring loan services to Corp. C personnel for the purpose of soliciting loan business. In no event will Corp. C solicit Corp. T's tax preparation service customers unless they have been referred to Corp. C by Corp. T in a manner consistent with the terms of that regulation.



Section 7216 of the Code imposes a penalty on any person who is engaged in the business of preparing or providing services in connection with the preparation of certain tax returns, if such person discloses or uses any information furnished for or in connection with the preparation of any such return in a manner that has not been permitted by regulation.



Section 301.7216--1(b)(2) of the Regulation on Procedure and Administration provides:


(i) The term tax return preparer means any person


(A) Who is engaged in the business of preparing tax returns,


(B) Who is engaged in the business of providing auxiliary services in connection with the preparation of tax returns,


(C) Who is remunerated for preparing, or assisting in preparing, a tax return for any other person . . ..



***

(v) A person is not a tax return preparer merely because he leases office space to a tax return preparer, furnishes credit to a taxpayer whose tax return is prepared by a tax return preparer, or otherwise performs some service which only incidentally relates to the preparation of tax returns. For example, assume that a tax return preparer contracts with a department store for the rental of space in the store, and that the store advertises that taxpayers who use the tax return preparation service may charge the cost of having their tax return prepared to their charge account with the department store. Under such circumstances, the department store is not a tax return preparer.



An income tax return preparer for purposes of sections 6060, 6107, 6694 and 6695 is defined under section 7701(a)(36) and section 301.7701--15 of the regulations.



Section 7701(a)(36) of the Code and section 301.7701--15 of the regulations provide that the term income tax return preparer means any person who prepares for compensation or who employs or engages 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.



Section 301.7701--15 of the regulations provides that a person who furnishes to a taxpayer or other preparer sufficient information and advice so that completion of the return or claim for refund is largely a mechanical or clerical matter is considered an income tax return preparer, even though that person does not actually place or review placement of information on the return. However, a person providing typing, reproduction, or other mechanical assistance is not a return preparer.



With respect to income tax returnsprepared by Corp. T, Corp. C does not prepare or assist in preparing such returns, and it does not provide auxiliary services in connection with the preparation of such tax returns, except for some services which only incidentally relate to the preparation of tax returns.



Furthermore, Corp. C does not employ or engage Corp. T to prepare returns as it does not compensate Corp. T but merely provides office space, some advertising, and an appointment service for which it is compensated by Corp. T.



Accordingly, with respect to returns prepared by Corp. T, Corp. C is not a tax return preparer and does not employ or engage Corp. T to prepare income tax returns within the meaning of sections 7216 or 7701(a)(36) of the Code. Furthermore, Corp. C is not an income tax return preparer for purposes of sections 6060, 6107, 6694 and 6695 with respect to returns prepared by Corp. T.



Copies of this ruling are being sent to your authorized representatives in accordance with the power of attorney on fire in this office.



(Signed) Richard L. Crain