Report Title:

Taxation

Description:

Allows state to enjoin persons from operating as income tax preparers when such persons engage in fraudulent conduct. Establishes penalties.

HOUSE OF REPRESENTATIVES

H.B. NO.

2753

TWENTY-SECOND LEGISLATURE, 2004

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

relating to taxation.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§235- Action to enjoin income tax preparers. (a) A civil action in the name of the State to enjoin any person who is an income tax return preparer from further engaging in any conduct described in subsection (b) or from further action as an income tax return preparer may be commenced at the request of the director of taxation. Any action under this section shall be brought in the circuit court for the circuit in which the income tax preparer resides or has his principal place of business or in which the taxpayer with respect to whose income tax return the action is brought resides. The court may exercise its jurisdiction over such action separate and apart from any other action brought by any other entity against such income tax preparer or any taxpayer.

(b) In any action under subsection (a), if the court finds that an income tax return preparer has:

(1) Engaged in any conduct subject to penalty under section _____ or ____, or subject to any criminal penalty provided by this chapter;

(2) Misrepresented his eligibility to practice before the Internal Revenue Service, or otherwise misrepresented his experience or education as an income tax return preparer;

(3) Guaranteed the payment of any tax refund or the allowance of any tax credit; or

(4) Engaged in any other fraudulent or deceptive conduct which substantially interferes with the proper administration of the Internal Revenue laws; and

that injunctive relief is appropriate to prevent the recurrence of such conduct, the court may enjoin such person from further engaging in such conduct. If the court finds that an income tax return preparer has continually or repeatedly engaged in any conduct described in subparagraphs (1) through (4) of this subsection and that an injunction prohibiting such conduct would not be sufficient to prevent such person's interference with the proper administration of this chapter, the court may enjoin such person from acting as an income tax return preparer."

SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§235- Understatement of taxpayer's liability by income tax return preparer. (a) If:

(1) Any part of any understatement of liability with respect to any return or claim for refund is due to a position for which there was not a realistic possibility of being sustained on its merits;

(2) Any person who is an income tax return preparer with respect to such return or claim knew (or reasonably should have known) of such position; and

(3) Such position was either not disclosed by relevant facts affecting tax treatment of the item in the return itself, or by a statement attached to the return, or was frivolous,

such person shall pay a penalty of $250 with respect to such return or claim unless it is shown that there is reasonable cause for the understatement and such person acted in good faith.

(b) If any part of any understatement of liability with respect to any return or claim for refund is due to a willful attempt in any manner to understate the liability for tax by a person who is an income tax return preparer with respect to such return or claim, or to any reckless or intentional disregard of rules or regulations by any such person, such person shall pay a penalty of $1,000 with respect to such return or claim. With respect to any return or claim, the amount of the penalty payable by any person by reason of this subsection shall be reduced by the amount of the penalty paid by such person by reason of subsection (a).

(c) If, within 30 days after the day on which notice and demand of any penalty under subsection (a) or (b) is made against any person who is an income tax return preparer, such person pays an amount which is not less than 15 percent of the amount of such penalty and files a claim for refund of the amount so paid, no levy or proceeding in court for the collection of the remainder of such penalty shall be made, begun, or prosecuted until the final resolution of a proceeding begun as provided in this section. The beginning of such proceeding or levy during the time such prohibition is in force may be enjoined by a proceeding in the proper court. Nothing in this paragraph shall be construed to prohibit any counterclaim for the remainder of such penalty in a proceeding begun as provided in this section.

(d) An income tax preparer must bring suit in circuit court to determine his liability for penalty if, within 30 days after the day on which his claim for refund of any partial payment of any penalty under subsection (a) or (b) is denied (or, if earlier, within 30 days after the expiration of 6 months after the day on which he filed the claim for refund), the income tax return preparer fails to begin a proceeding in the appropriate circuit court for the determination of his liability for such penalty, this section shall cease to apply with respect to such penalty, effective on the day following the close of the applicable 30-day period referred to in this section.

(e) The running of relevant period of limitations on the collection by levy or by a proceeding in court in respect of any penalty described in this chapter shall be suspended for the period during which the director is prohibited from collecting by levy or a proceeding in court.

(f) If at any time there is a final administrative determination or a final judicial decision that there was no understatement of liability in the case of any return or claim for refund with respect to which a penalty under subsection (a) or (b) has been assessed, such assessment shall be abated, and if any portion of such penalty has been paid the amount so paid shall be refunded to the person who made such payment as an overpayment of tax without regard to any period of limitations which, but for this subsection, would apply to the making of such refund.

(g) For purposes of this section, the term "understatement of liability" means any understatement of the net amount payable with respect to any tax imposed by this chapter or any overstatement of the net amount creditable or refundable with respect to any such tax. Except as otherwise provided in this section, the determination of whether or not there is an understatement of liability shall be made without regard to any administrative or judicial action involving the taxpayer."

SECTION 3. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§235- Other assessable penalties with respect to the preparation of income tax returns for other persons. (a) Any person who is a compensated income tax return preparer with respect to any return or claim for refund who fails to:

(1) furnish a completed copy of such return or claim to the taxpayer not later than the time such return or claim is presented for such taxpayer's signature; or

(2) retain a completed copy of such return or claim, or retain, on a list, the name and taxpayer identification number of the taxpayer for whom such return or claim was prepared, and make such copy or list available for inspection upon request by the director,

shall pay a penalty of $50 for such failure, unless it is shown that such failure is due to reasonable cause and not due to willful neglect. The maximum penalty imposed under this subsection on any person with respect to documents filed during any calendar year shall not exceed $25,000.

(b) Any person who is a compensated income tax return preparer with respect to any return or claim for refund, who is required by law to sign such return or claim, and who fails to comply with such law with respect to such return or claim shall pay a penalty of $50 for such failure, unless it is shown that such failure is due to reasonable cause and not due to willful neglect. The maximum penalty imposed under this subsection on any person with respect to documents filed during any calendar year shall not exceed $25,000.

(c) Any person who is a compensated income tax return preparer with respect to any return or claim for refund and who fails to furnish identifying numbers as described in 26 U.S.C. 6109(a)(4) with respect to such return or claim shall pay a penalty of $50 for such failure, unless it is shown that such failure is due to reasonable cause and not due to willful neglect. The maximum penalty imposed under this subsection on any person with respect to documents filed during any calendar year shall not exceed $25,000.

(d) Any person who is a compensated income tax return preparer with respect to any return or claim for refund who fails to retain copies or a list as described in 26 U.S.C 6107(b) with respect to such return or claim shall pay a penalty of $50 for each such failure, unless it is shown that such failure is due to reasonable cause and not due to willful neglect. The maximum penalty imposed under this subsection on any person with respect to any return period shall not exceed $25,000.

(e) Any person required to make a return shall pay a penalty of $50 for each failure to file a return as required by law, unless it is shown that such failure is due to reasonable cause and not due to willful neglect. The maximum penalty imposed under this subsection on any person with respect to any return period shall not exceed $25,000.

(f) Any person who is a compensated income tax return preparer who endorses or otherwise negotiates (directly or through an agent) any check made in respect of the taxes imposed by this chapter which is issued to a taxpayer (other than the income tax return preparer) shall pay a penalty of $500 with respect to each such check. The preceding sentence shall not apply with respect to the deposit by a bank of the full amount of the check in the taxpayer's account in such bank for the benefit of the taxpayer.

(g) Any person who is a compensated income tax return preparer with respect to any return or claim for refund who fails to comply with federal due diligence regulations with respect to determining eligibility for, or the amount of, the credit allowable by 26 U.S.C. 32 shall pay a penalty of $100 for each such failure."

SECTION 4. Section 235-1, Hawaii Revised Statutes, is amended by adding a new definition to be appropriately inserted and to read as follows:

"Income tax return preparer" means any person who prepares or substantially prepares for compensation, or who employs one or more persons to prepare or substantially prepare for compensation, any return of tax imposed by law or any claim for refund of tax imposed by law.

The term "income tax preparer" shall not apply to a person who: (1) merely furnishes typing, reproducing, or other mechanical assistance, (2) prepares a return or claim for refund of the employer (or an officer or employee of the employer) by whom he is regularly and continuously employed, (3) prepares as a fiduciary a return or claim for refund for any person, or (4) prepares a claim for refund for a taxpayer in response to any notice of deficiency issued to such taxpayer or in response to any waiver of restriction after the commencement of an audit of such taxpayer or another taxpayer if a determination in such audit of such other taxpayer directly or indirectly affects the tax liability of such taxpayer."

SECTION 5. New statutory material is underscored.

SECTION 6. This Act shall take effect upon its approval, and shall be effective for taxable years beginning after December 31, 2003.

 

 

INTRODUCED BY:

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