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Does Giving Tax Advice Make You a 'Preparer'?

By Richard H. Stieglitz and Michael G. Freel

Signed by President Bush on May 25, The Small Business and Work Opportunity Tax Act of 2007 ('Small Business Act') includes new preparer penalty provisions that range up to 50% of the fee for preparing the tax return. Lawyers who give tax advice need to know that this legislation had a 'surprise' in it regarding whom the IRS considers a tax return preparer.

The new law replaces the original Code definition of 'income tax preparer' with 'tax return preparer.' A tax return preparer now includes any person who prepares for compensation, or who employs one or more persons to prepare for compensation, all or a substantial portion of any tax return or any claim for refund. In other words, this standard no longer applies solely to those who prepare income tax returns ' it also now encompasses those who prepare estate and gift tax returns, employment tax returns, excise tax returns, and exempt organization returns.

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