Section 40-2A-11.1

Civil penalties for unethical tax preparation conduct.

(a) For purposes of the individual income tax imposed by Chapter 18, if there is an understatement of liability on a return that would cause a tax return preparer to be subject to the penalties imposed by 26 U.S.C. §6694, except §6694(c), §6700, or §6701, and if any of the failures enumerated in 26 U.S.C. §6695, except §6695(e) and (g), occurs, the department may impose upon the tax return preparer a penalty in accordance with 26 U.S.C. §§6694(a), (b), (d), (e), and (f); §§6695(a), (b), (c), (d), and (f); §§6696(a) and (c), §6700, and §6701, as in effect from time to time.

(b) For purposes of this section:

(1) "Subject to this title" shall be substituted for references in the specified federal statutes to "imposed by subtitle A."

(2) "Commissioner" will be substituted for references in the specified federal statutes to "secretary."

(3) References in these federal statutes to federal district courts for appeal purposes shall apply in the same manner to Alabama circuit courts.

(4) "Tax return preparer" and "revenue laws" will be substituted for references in the specified federal statutes to "income tax return preparer" and "internal revenue laws," respectively, as in effect from time to time.

(c)(1) A civil action in the name of the State of Alabama may be commenced at the request of the commissioner to enjoin any person who is a tax return preparer, or an employer having knowledge of an employee tax return preparer, who is doing business in this state and engaging in conduct described in this subsection, from further engaging in preparing tax returns. This action may be brought by the department in the circuit court for the judicial circuit of the tax return preparer's residence or principal place of business, or in which the taxpayer with respect to whose tax return the action is brought resides. The court may exercise its jurisdiction over the action separate and apart from any other action brought by the State of Alabama against the tax return preparer or any taxpayer.

(2) In an action under this subsection, the court may issue an injunction prohibiting a person from acting as a tax return preparer if the court finds that the individual has done any of the following:

a. Engaged in any pattern of conduct subject to a civil penalty under subsection (a) or a violation of Section 40-29-115.

b. Misrepresented the preparer's eligibility to practice before the department, or otherwise misrepresented the preparer's experience or education as a tax return preparer.

c. Guaranteed the payment of any tax refund or the allowance of any tax credit.

d. Aided or assisted in, counseled, or advised the preparation or presentation under, or in connection with any matter arising under, the state revenue laws, of any returns, affidavits, claims, or other documents, which may constitute a significant congruous pattern of any of the following:

1. Omissions of income.

2. Excessive or nonexistent deductions.

3. Claims of nonexistent dependents.

4. Fictitious business schedules.

5. Excessive losses.

6. Documents that are fraudulent or false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present the return, affidavit, claim, or document.

(d) For purposes of this section, the term "understatement of liability" means an understatement of the net amount payable with respect to the individual income tax imposed by Chapter 18, or an overstatement of the net amount creditable or refundable with respect to the individual income tax imposed by Chapter 18. The determination of whether there is an understatement of liability must be made without regard to any administrative or judicial action involving the taxpayer. For purposes of this section, the amount determined as an underpayment of estimated income tax under either Sections 40-18-80 or 40-18-80.1 is not considered an understatement of liability.

(e) For purposes of this section, the term "tax refund preparer," "return preparer," or "tax return preparer" means an individual who prepares for compensation, or who employs one or more individuals who prepare for compensation, a tax return or a claim for refund of tax. The preparation of a substantial part of a return or claim for refund is treated as if it were the preparation of the entire return or claim for refund. An individual is not considered a tax return preparer merely because the individual does any of the following:

(1) 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 the individual is regularly and continuously employed.

(3) Prepares a return or claim for refund of any person as a fiduciary for that person.

(4) Prepares a claim for refund for a taxpayer in response to an assessment issued to the taxpayer.

(f)(1) A civil action in the name of the State of Alabama to enjoin any person from further engaging in conduct subject to penalty under 26 U.S.C. §6700, relating to penalty for promoting abusive tax shelters, or 26 U.S.C. §6701, relating to penalties for aiding and abetting understatement of tax liability, may be commenced at the request of the commissioner. Any action under this section shall be brought in the circuit court of Alabama for the judicial circuit in which that person resides, has his or her principal place of business, or has engaged in conduct subject to penalty under §6700 or §6701. The court may exercise its jurisdiction over such action separate and apart from any other action brought by the State of Alabama against that person.

(2) In any action under subdivision (1), the court may enjoin a person from engaging in conduct or in any other activity subject to penalty under 26 U.S.C. §6700 or 26 U.S.C. §6701 if the court finds both of the following:

a. The person has engaged in any conduct subject to penalty under 26 U.S.C. §6700 or 26 U.S.C. §6701.

b. Injunctive relief is appropriate to prevent recurrence of such conduct.

(3) If any citizen or resident of the United States does not reside in, and does not have his or her principal place of business in, any Alabama judicial circuit, that citizen or resident shall be treated for purposes of this section as residing in Montgomery County.

(g) This section shall apply solely to the individual income tax imposed by Chapter 18.

(Act 2006-589, §1.)