$10,000 deminimus rule nonsigning preparers

1.6694(b)(3) of the final 6604 regulations deals with the Responsibility of nonsigning tax return preparer .

If there is no signing tax return preparer within the meaning of §301.7701-15(b)(1) of this chapter for the return or claim for refund within the firm or if, after the application of paragraph (b)(2) of this section, it is concluded that the signing tax return preparer is not primarily responsible for the position, the nonsigning tax return preparer within the meaning of §301.7701-15(b)(2) of this chapter within the firm with overall supervisory responsibility for the position(s) giving rise to the understatement generally will be considered the tax return preparer who is primarily responsible for the position for purposes of section 6694 unless, based upon credible information from any source, it is concluded that another nonsigning tax return preparer within that firm is primarily responsible for the position(s) on the return or claim for refund giving rise to the understatement.

§301.7701-15(b) (2) Nonsigning tax return preparer --(i) In general . A nonsigning tax return preparer is any tax return preparer who is not a signing tax return preparer but who prepares all or a substantial portion of a return or claim for refund within the meaning of paragraph (b)(3) of this section with respect to events that have occurred at the time the advice is rendered. In determining whether an individual is a nonsigning tax return preparer, time spent on advice that is given after events have occurred that represents less than 5 percent of the aggregate time incurred by such individual with respect to the position(s) giving rise to the understatement shall not be taken into account.

§301.7701-15(b) (3)(i) Only a person who prepares all or a substantial portion of a return or claim for refund shall be considered to be a tax return preparer of the return or claim for refund. A person who renders tax advice on a position that is directly relevant to the determination of the existence, characterization, or amount of an entry on a return or claim for refund will be regarded as having prepared that entry. Whether a schedule, entry, or other portion of a return or claim for refund is a substantial portion is determined based upon whether the person knows or reasonably should know that the tax attributable to the schedule, entry, or other portion of a return or claim for refund is a substantial portion of the tax required to be shown on the return or claim for refund. A single tax entry may constitute a substantial portion of the tax required to be shown on a return. Factors to consider in determining whether a schedule, entry, or other portion of a return or claim for refund is a substantial portion include but are not limited to

(A) the size and complexity of the item relative to the taxpayer's gross income; and

(B) the size of the understatement attributable to the item compared to the taxpayer's reported tax liability.

§301.7701-15(b) (3) (ii)

(A) For purposes of applying the rules of paragraph (b)(3)(i) of this section to a nonsigning tax return preparer within the meaning of paragraph (b)(2) of this section only, the schedule or other portion is not considered to be a substantial portion if the schedule, entry, or other portion of the return or claim for refund involves amounts of gross income, amounts of deductions, or amounts on the basis of which credits are determined that are --

( 1 ) Less than $10,000; or

( 2 ) Less than $400,000 and also less than 20 percent of the gross income as shown on the return or claim for refund (or, for an individual, the individual's adjusted gross income).

(B) If more than one schedule, entry or other portion is involved, all schedules, entries or other portions shall be aggregated in applying the de minimis rule in paragraph (b)(3)(ii)(A) of this section.

(C) The de minimis rule in paragraph (b)(3)(ii)(A) of this section shall not apply to a signing tax return preparer within the meaning of paragraph (b)(1) of this section.

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The above language was copied from the final regulations. The $10,000 de minimus rule should have little application because that ammount represents the total amount of gross income, deductions, or credits.

The de minimus rule with more potential is the $400,000/20 percent gross income rule.

My personal guess is that most of the small tax returns involve poistions taken will involve less thatn $400,000 for the aggregate of the amounts of gross income, deductions, or credits. However, most reviewers review the entire tax returns. Consequently, the de minimus rule will not protect most of the tax return prepaer reviewers who review more than 20% of the tax return. It would be odd to find a reviewer who only looks at a part of the tax return.

The de minimums rule is helpful to tax consultants or tax attorneys who give opinions on targeted issues.

This part of the final regulations are narrowly drafted. I do not think it should give much comfort to return preparer reviewers within the same firm.


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