NABL Urges Treasury to Reconsider Rules for Preparers of Tax Returns

The National Association of Bond Lawyers is urging the Treasury Department to modify proposed regulations that would subject tax return preparers to possible monetary penalties so that they do not include preparers of the annual information returns filed by municipal bond issuers.

If Treasury does not want to exclude the bond forms from the rules altogether, it should put the forms in a category where penalties would be imposed only for "reckless or intentional disregard of rules or regulations," NABL told the the department in a June 26 letter. Bond lawyers sometimes assist issuers in preparing the forms.

In its letter, NABL argued that the series of Form 8038s - 8038 for tax-exempt private activity bonds, 8038-G for bonds used for governmental purposes, and 8038-GC, a consolidated return for small governmental bond issues - should not be included in the group of information returns that are subject to preparer penalties. Under the proposed rules, persons who help prepare any information forms that would help the taxpayer understate tax liabilities in its tax returns are subject to monetary penalties.

NABL contends in its letter that the 8038 forms do not belong in the rules, since the information provided by those documents do not aid taxpayers in filling out their tax returns.

"The Forms 8038 are strictly information returns that do not contain information affecting entries on any tax returns," the letter stated. "The Forms 8038 are unique among the forms listed ... in that every other form provides information to taxpayers who use that information for their own tax returns. The Forms 8038 do not provide such information, even on an aggregate basis."

However, the letter added, if Treasury officials decide not to exclude the forms from the regulations, NABL would at least like to see the forms moved to a category that would not subject tax return preparers to penalties unless they understated tax liabilities or refund claims through reckless or intentional disregard for rules and regulations.

The Treasury is proposing to expand the application of tax preparer penalties to certain information forms to implement provisions of a bill that was passed by Congress in May of last year, the Small Business and Work Opportunity Tax Act of 2007. Among other tax law changes, that bill modified section 6694(a) of the tax code, which expanded preparer penalties to all types of tax returns, as well as increased the amount of penalties.

The Treasury issued Notice 2008-13 in December to provide interim guidance on the tax code changes, and then introduced proposed regulations two weeks ago, following a public comment period on the notice.

Scott Lilienthal, a partner at Hogan & Hartson LLP, said the NABL letter marks the second time the group has asked Treasury to remove the 8038 forms from their current position. The group also sent a comment letter to the Treasury on the notice, making the same recommendation.

"We don't think they're the kind of returns that the penalties are aimed at," Lilienthal said. "But our second position is if they decide not to remove them, to place them in [another category]."

He added that the Treasury and Internal Revenue Service are likely still determining exactly how to proceed on the matter under the recently enacted legislation.

"This is sort of breaking new ground ... but I think that's why we commented on the notice," Lilienthal said. "This is sort of the first indication we've seen from the IRS that they may view bond attorneys as tax return preparers."

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