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Below is a list of 2007's most confusing and overlooked tax issues we have encountered. We hope this information including our comments provide some clarity. Each item is a link that you can click. Qualified Home Mortgage Interest
IRS Preparer Penalties.In the summer of 2007, Congress significantly increased the ability of the IRS to impose penalties on tax return preparers. After much objection from our profession, the IRS extended the effective date to tax returns prepared after December 31, 2007. The IRS studied returns prepared by a national tax preparation service and discovered that tax preparers were encouraging clients to take significant deductions that they were not entitled to deduct. Armed with this data the IRS successfully lobbied to expand and increase penalties on preparers known as the Circular 230 regulations and section 6694 of the Internal Revenue Code. Prior to these new regulations, the IRS could only impose penalties on preparers if the preparer committed fraud or was negligent. Now, and in general, if a client of a tax preparer is assessed a penalty, penalties can also be assessed against the tax preparer. For example, if a taxpayer was subject to an adjustment decreasing the charitable contributions because the taxpayer could not produce all of the receipts to support the deduction, then, the taxpayer would have to pay the increased tax and interest. As long as the adjustment did not result in a tax increase of 20% or more, the taxpayer would not be subject to penalties. These rules for taxpayers have not changed. Under the old rules, as long as the tax preparer was not negligent, the tax preparer was not subject to penalties. Now, under the new rules and with the same fact pattern above, the tax preparer can be subject to penalties related to the adjustment to the clients deductions. The preparer penalties are separate and based on Tiers that are quite significant. In essence, the new penalty provisions are imposed on tax preparers, not their clients. Based on interim guidance from the IRS, tax preparers can avoid the imposition of these penalties if they can demonstrate they informed their clients of the possibility of penalties and interest, were not negligent, did not commit fraud, and informed clients of certain tax regulations. Furthermore, we can still rely on clients information without verifying that information. The actions of a few within a national tax service have changed the landscape for all tax professionals. In response to these onerous regulations, we and virtually all of our peers have been forced to change the way we do business. Our tax questionnaires, tax organizers and engagement letters have been overhauled to allow us to demonstrate that we met the requirements of the new regulations. We realize that our clients may need to spend a little more time with gathering their data. We respect that and will continue to provide an outstanding, painless service focused on minimizing your taxes, despite these new regulations. 529 Plan Contribution Deduction for PA Residents.Beginning in 2006, contributions to a 529 Plan are deductible for PA residents!!!! Generally, each PA taxpayer can deduct up to $12,000 of contributions to a 529 plan. If you made contributions to a 529 Plan, please download, complete and return to us, our PA 529 worksheet. When you open this file, please use your browsers back button to return to the website. Qualified Home Mortgage Interest.We think this is one of the most misunderstood areas of the tax code. There are limits on the total amount of mortgage interest deductions and the total amount interest deductible from home equity loans. If you refinanced, a mortgage that was used to acquire or improve your home, there are limits on the deductible interest. Click this link for more information, Home Mortgage Interest.
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