Do You Suffer From Late-Filing Syndrome?
By Stacie Clifford Kitts, CPA
Can’t seem to file your tax returns on time? Do you have an aversion to paperwork?
Well – you’re not alone. You could be suffering from a controversial syndrome which makes it difficult for you to face the ordeal of completing your tax return.
Still not sure? Take a look at the additional following criteria. Does this sound like you?
Are you sophisticated, both financially and with respect to taxes?
Is the ultimate discovery of your failure to file obvious to you?
Are the potential penalties, financial and professional, clear to you?
Do you acknowledge that penalties will likely occur?
Is there no clear benefit to not filing because there is no significant tax due, or you have the money to cover the tax liability, or you can easily barrow the money to cover the liability?
Do you have a history of filing in the past?
Do you file extensions and pay estimated tax payments?
Are you anxious and obsessed about not filing?
Do you exhibit self destructive behavior by waiting to file your returns until the IRS is upon you?
If this sounds like you, you may be exhibiting symptoms of “Late-Filing Syndrome.”
According to tax lawyer Richard S. Kestenbaum, Late-Filing Syndrome is the reason that five years of tax returns amounting to approximately $300,000 of tax liability, penalties, and interest were not filed by New York Governor chief of staff Charles O’Byrne.
The New York Times reported that “late-filing syndrome, sometimes known as non-filing syndrome or failure-to-file syndrome, in not listed in the Diagnostic and Statistical Manual of Mental Disorders.” However, according to the Times, “legal experts said that it is not uncommon for tax evaders to claim they suffer from such a syndrome, because it can shield them from criminal penalties.” This is true because the IRS must prove that a tax payer willfully intended to evade paying income taxes.
I must admit, an aversion to filling out paperwork is something I certainly can relate to – especially around April 15.
Absent further evidence, this syndrome appears to be a creative and possibly effective attempt by attorneys to protect their clients from criminal prosecution.
Preparer Penalty News
Practitioners who prepare Earned Income Tax Credit (EITC) claims must meet four due diligence requirements. For example, they must ask the required questions on Form 8867, Paid Preparer’s Earned Income Credit Checklist, and probe further when information seems incorrect, inconsistent or incomplete.
Failure to meet the due diligence requirements can result in a $100 penalty for each failure.
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Issue Number: IR-2007-213
Inside This Issue
Treasury, IRS Implement Enhanced Standards of Conduct for Tax Return Preparers; Plan Overhaul of Tax Return Preparer Regulatory Regime
WASHINGTON — The Treasury Department and the Internal Revenue Service today issued Notice 2008-13 that implements a May 2007 law that expanded the tax return preparer penalty and heightened the standards of conduct that must be met by tax return preparers in order to avoid that penalty.
Notice 2008-13 also solicits input from the tax return preparer community on a planned overhaul of the tax return preparer penalty regime anticipated to be completed by the end of 2008.
“The plan to take a fresh look at the preparer penalty regulations will be a top priority for us in 2008,” said IRS Chief Counsel Don Korb. “We look forward to receiving comments from all interested parties on their recommendations for the final regulations. Our goal is to complete our work on the overhaul of these rules by the end of 2008,” he said.
For undisclosed positions on a tax return, the new law replaced the realistic possibility standard with a requirement that there be a reasonable belief that the tax treatment of the position would more likely than not be sustained on its merits. In cases in which the taxpayer discloses the position on the tax return, the notice implements the new law that states there must be a reasonable basis for the tax treatment of the position taken on the tax return.
The notice provides interim rules to implement and interpret these heightened standards. The interim rules will be in effect until the overhaul of the current return preparer penalty regulations is complete. The interim rules emphasize the importance to preparers of understanding the legal basis for positions taken on tax returns, the requirement for taxpayers to disclose certain positions, and the need for preparers to advise taxpayers on the various penalties that can apply when a position is taken on a return that may not be supported by existing law.
Under the notice, preparers generally can continue to rely on taxpayer representations in preparing returns and can also generally rely on representations of third parties, unless the preparer has reason to know they are wrong.
The new law also expanded the return preparer penalty to cover all tax return preparers, not just income tax return preparers. Under the notice, preparers of many information returns, however, will not be subject to the new penalty provision unless they willfully understate tax or act in reckless or intentional disregard of the law. The notice also includes examples illustrating how the new standards would apply.
In addition to Notice 2008-13, additional guidance has been provided in Notice 2008-12 with respect to the implementation of the tax return preparer signature requirement, and in Notice 2008-11, which clarifies the transition relief provided in Notice 2007-54, issued earlier this year.
Notice 2009-05 provides guidance regarding implementation of the tax return preparer penalty under section 6694(a) of the Internal Revenue Code, as amended by the Tax Extenders and Alternative Minimum Tax Relief Act of 2008, Div. C. of Pub. L. No. 110-343, 122 Stat. 3765 (October 3, 2008) (the 2008 Act).
TD 9436 contains final regulations implementing amendments to the tax return preparer penalties under sections 6694 and 6695 of the Internal Revenue Code (Code) and related provisions under sections 6060, 6107, 6109, 6696, and 7701(a)(36) reflecting amendments to the Code made by section 8246 of the Small Business and Work Opportunity Tax Act of 2007 and section 506 of the Tax Extenders and Alternative Minimum Tax Relief Act of 2008. The final regulations affect tax return preparers and provide guidance regarding the amended provisions.
REG-160872-04 contains proposed regulations under section 6707 of the Internal Revenue Code (Code), which provide the rules relating to the assessment of penalties against material advisors who fail to timely file a true and complete return required under section 6111(a). The regulations implement the amendments to section 6707 by the American Jobs Creation Act and promote material advisors’ compliance with the regulations under section 6111. These regulations affect material advisors responsible for disclosing reportable transactions under section 6111.
Notice 2009-05 provides guidance regarding implementation of the tax return prepare penalty under section 6694(a). The Service is also requesting comments on the interim guidelines in this notice.
Revenue Procedure 2009-11 describes the returns and claims for refund that are subject to the penalties for understatement of a taxpayer’s liability by a tax return preparer under section 6694 and for the tax return preparer’s failure to sign the return or claim for refund under section 6694(b). Please see related document, TD 9436.
Notice 2009-5 and Revenue Procedure 2009-11 will be published in Internal Revenue Bulletin 2009-3 on January 21, 2009.
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