Notice: Paid Preparer Return Requirements for Returns Prepared on Behalf of Individuals, Fiduciaries, and Claimants
NOTICE: PAID PREPARER RETURN REQUIREMENTS FOR RETURNS PREPARED ON BEHALF OF INDIVIDUALS, FIDUCIARIES AND CLAIMANTS
Issued: June 24, 2020
This notice addresses the Michigan Taxpayer Protection Act requirements for certain paid preparers. The requirements take effect January 1, 2021.
The Taxpayer Protection Act. 2020 PA 77, effective April 2, 2020, amends the Revenue Act by adding the Taxpayer Protection Act, MCL 205.4a. Beginning January 1, 2021, various duties and fines are placed upon certain paid preparers that prepare individual, fiduciary and claimant returns under Part 1 of the Michigan Income Tax Act. The Act covers returns filed after December 31, 2020 regardless of the tax year for which the return is filed.
Filings covered by the Act
The Act applies to “any return or claim for refund filed pursuant to part 1 of the income tax act.” MCL 205.4a(1). The filings covered by this Act are any of the following returns or claims filed after December 31, 2020:
- Annual income tax return for individuals (original and amended)
- Annual income tax return for fiduciaries (original and amended)
- Form 807
- Annual composite tax return
- Homestead Property Tax Credit Claim
- Homestead Property Tax Credit Claim for Veterans and Blind People
- Farmland Preservation Tax Credit Claim
- Homestead Heating Credit Claim
Filings not covered by the Act
The following filings are not subject to the Act:
- State estimated payment coupons for individuals
- State estimated payment coupons for fiduciaries
- All City Forms
- City income tax returns administered by the Department
- All CIT Forms
- Corporate income tax returns
- Form 5080
- Sales, Use and Withholding Taxes Monthly/Quarterly Return
- Form 5081
- Sales, Use and Withholding Taxes Annual Return
- Form 5082
- Sales, Use and Withholding Taxes Amended Annual Return
- Form 5092
- Sales, Use and Withholding Taxes Amended Monthly/Quarterly Return
- Form 5094
- Sales, Use and Withholding Payment Voucher
Preparers not subject to the Act. Certified public accountants (CPAs), their firms and the CPA firm’s employees are not subject to the Act. Individuals who prepare returns as volunteers through an organization that offers tax assistance are also not subject to the Act.
Paid tax preparers subject to the Act. Except for preparers that are expressly excluded from the requirements of the Act, the Department will follow IRC 7701 to determine who is a “preparer.”
Generally, paid tax preparers are subject to the Act. Under IRC 7701 and this Notice, a “preparer” is the person who prepares all or a substantial portion of a return or claim for refund and is the person who must sign the return. When multiple paid preparers are involved in preparation and/or review of a return, the signing preparer is the individual who has the primary responsibility for the overall accuracy of the return.
Under IRC 7701 and under this Notice, a paid preparer does not include:
- A person who furnishes typing, reproducing, or other mechanical assistance,
- An employee who prepares a return for his or her employer, and
- A fiduciary who prepares a return for the estate or trust.
Identification number and signature on a return or claim for a refund. Failure to sign the return or the claim for refund and include an identification number which is either the preparer’s Social Security number or other federal identification number, carries with it a nondiscretionary penalty of $50 per return to a maximum of $25,000 for each preparer, unless the failure is due to reasonable cause.
The Taxpayer Protection Act is modeled after the signature requirements of IRC 6695. Therefore, the Department will generally follow the guidance issued by the Internal Revenue Service under Reg § 1.6695-1 as adapted for Michigan returns and claims:
Preparer signatures for paper filed returns. A preparer that is not electronically submitting a return must sign the return or claim for refund after it is completed and before it is presented to the taxpayer for the taxpayer’s signature. If the preparer is unavailable for signature, another preparer must review the entire preparation of the return or claim for refund, and then sign the return or claim for refund.
Preparer signatures for e-filed returns. For e-filed returns, the preparer is not required to sign the return prior to presenting a completed copy of the return to the taxpayer. The preparer, however, must furnish all of the information that will be transmitted as the electronically signed tax return to the taxpayer contemporaneously with furnishing the e-file signature form.
If the Michigan return is transmitted with the federal return, Michigan will accept the federal signature method (Practitioner PIN) as fulfilling the Michigan preparer signature requirement. The preparer may also use a federal Form 8879 to satisfy the signature requirement. The Department recommends that the tax preparer retain that form for six years. Do not mail the form to the Department.
If the Michigan return is not linked to the federal return, the preparer may sign the return using “shared secrets” or Form MI-8453. Shared secrets consist of the SSN(s), previous year’s AGI or total household resources, and the previous year’s tax due or refund amount. If Form MI-8453 is used, the tax preparer should retain a copy of Form MI-8453. Do not mail this form to the Department.
Other preparer requirements of the Taxpayer Protection Act. In addition to the requirement that a paid preparer sign a return and include an identification number, which is either the preparer’s Social Security number or other federal identification number, the Act places additional responsibilities upon paid preparers:
Paid preparers must:
- Retain copies of workpapers and records
- Determine eligibility for tax benefits.
Paid preparers must not:
- Understate the tax based on an unreasonable position or willful or reckless conduct.
- Negotiate or otherwise receive a taxpayer’s refund without the taxpayer’s consent.
- Engage in any conduct subject to criminal penalty under the act.
- Misrepresent experience, education or eligibility to practice before Treasury.
- Guarantee a refund or credit.
- Engage in any other fraudulent or deceptive conduct that substantially interferes with the administration of the tax.
Paid preparer penalties: As noted earlier, failure to sign the return and to use an identification carries a $50 per return nondiscretionary penalty up to a maximum of $25,000 for each preparer, unless the failure is due to reasonable cause. In addition, the Department may seek a circuit court injunction to stop prohibited conduct or to stop the preparer from filing returns. An injunction by the federal government or another state within 5 years creates a prima facie case for the injunction.