An income tax return preparer is any person, including a partnership or corporation, that prepares for compensation all or a substantial portion of any income tax return or income tax refund claim. To be an income tax return preparer, a person must meet the following requirements:
l The return or refund claim must have been prepared for compensation;
l The return or refund claim must relate to income tax; and
l The person must have prepared (or employed someone to prepare) all or a substantial portion of the return or refund claim.
More than one person can be a preparer as to a given return or refund claim. The definition of income tax return preparer is a little different for purposes of the understatement penalty.
The following persons are specifically excluded from the definition of income tax return preparer:
l a person whose involvement is merely clerical, such as typing or mechanical reproduction;
l a person who prepares a return for his employer;
l a person who prepares a return as a fiduciary; and
l a person who prepares a claim for refund for another person in response to a notice of deficiency or after an audit has begun.
Note that the return or refund claim must relate to income tax. It does not include estate or gift tax returns, excise tax returns, wage withholding returns, Form 1099 or Form W-2.
Caution: You can be considered a return preparer even if you do not physically prepare or sign the return. For example, a lawyer who advises a client as to a substantial item on the return can be considered a preparer under the regulations. Similarly, an accountant or enrolled agent who reviews, as outside advisor, the work of others can be considered a preparer. While the IRS is reluctant to cast the preparer penalty net so widely, there is little doubt that it has the authority to do so in appropriate cases.
If you have questions about returns you might have prepared and are unsure about your status with the IRS, be sure to contact your tax lawyer for answers.