Does Giving Tax Advice Make You a '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.

Moreover, you do not need to actually prepare or sign a tax return in order to be a tax return preparer under the law. The regulations currently state that a preparer includes any person who gives a taxpayer or other preparer sufficient information and advice so that the completion of the return or claim for refund is largely a mechanical or clerical matter, even though that person does not actually place or review the placement of information on the return or claim for refund. A person who merely gives advice on specific issues of law is a preparer if: 1) the advice is given for events which have occurred at the time the advice is rendered and is not given with respect to the consequences of contemplated actions, and 2) the advice is directly relevant to the determination of the existence, characterization, or amount of an entry on a return or claim for refund.