[§231-36.5] Understatement of taxpayer's liability by tax return preparer. (a) A tax return preparer who understates a person's tax liability based upon unreasonable positions on a tax return or claim for tax refund shall pay a penalty of $500 with respect to each such tax return or claim for tax refund.
(b) A tax return preparer who:
based upon unreasonable positions on a tax return or claim for tax refund shall pay a penalty of $1,000, with respect to each such tax return or claim for tax refund.
(c) For purposes of subsections (a) and (b), understatements of liability using unreasonable positions occur when:
(d) If within thirty days after the notice and demand of any penalty under subsection (a) or (b) is made, the tax return preparer:
no action to levy or file a proceeding in court to collect the remainder of the penalty shall be commenced except in accordance with subsection (e).
(e) An action that is stayed pursuant to subsection (d) may be brought thirty days after either of the following events, whichever occurs first:
Nothing in this subsection shall be construed to prohibit any counterclaim for the remainder of the penalty in any proceeding.
(f) If there is a final administrative determination pursuant to section 231-7.5, or a final judicial decision that the penalty assessed under subsection (a) or (b) should not apply, then that portion of the penalty assessed shall be voided. Any portion of the penalty that has been paid shall be refunded to the tax return preparer as an overpayment of tax without regard to any period of limitations that, but for this subsection, would apply to the making of the refund.
(g) At the request of the director of taxation, a civil action may be brought to enjoin a tax return preparer from further acting as a tax return preparer or from engaging in conduct prohibited under subsection (a) or (b) as follows:
(h) For purposes of this section:
"Disclosed item" means any item where:
"Substantial authority" means, in addition to any definition of substantial authority incorporated by subsection (j), that the following authority supports the tax treatment of an item:
"Tax return preparer" means any person who prepares for compensation, or who employs one or more persons to prepare for compensation, any return of tax imposed under title 14 or any claim for refund of tax imposed under title 14. For purposes of this definition, the preparation of a substantial portion of a return or claim for refund shall be treated as if it were the preparation of the return or claim for refund.
A person shall not be a tax return preparer merely because the person:
"Understatement of liability" shall have the same meaning as stated in section 231-36.6(b). The determination of whether there is an understatement of liability may be made without regard to any administrative or judicial action involving the taxpayer.
(i) The penalty imposed by this section shall be in addition to any other penalty provided by law.
(j) This section shall be construed in accordance with regulations and judicial interpretations for section 6694 of the Internal Revenue Code. [L 2009, c 166, §1]