STAND. COM. REP. NO. 877-04
Honolulu, Hawaii
, 2004
RE: S.B. No. 2989
S.D. 2
H.D. 1
Honorable Calvin K.Y. Say
Speaker, House of Representatives
Twenty-Second State Legislature
Regular Session of 2004
State of Hawaii
Sir:
Your Committee on Judiciary, to which was referred S.B. No. 2989, S.D. 2, entitled:
"A BILL FOR AN ACT RELATING TO TAX ADMINISTRATION,"
begs leave to report as follows:
The purpose of this bill is to provide the Department of Taxation (DoTAX) with the authority to impose civil penalties and injunctions on tax return preparers (preparer) who support unrealistic positions on tax returns and on promoters of abusive tax shelters.
DoTAX testified in support of this measure. The Tax Foundation of Hawaii provided comments.
Your Committee finds that there are no laws that currently hold a preparer responsible for making reasonable inquiry into whether the taxpayer can substantiate tax claims. This bill would penalize and/or enjoin a preparer who makes understatements of tax liability based on unrealistic positions that would have been disclosed upon reasonable inquiry.
Similarly, there are no laws that currently hold a person liable for promoting abusive tax shelters. This bill would penalize and/or enjoin a person from such activities.
Your Committee has amended this bill by:
(1) Clarifying the language providing that the preparer is liable for enhanced penalties for willfully understating a tax liability or recklessly disregarding tax laws or rules;
(2) Removing reference to the enhanced penalty for preparers who intentionally disregard any tax law or rule, because the term "reckless" is a lower standard that would include intentional and knowing violations of the tax laws or rules;
(3) Clarifying that a court proceeding to collect the penalty from the preparer may be commenced 30 days after the preparer fails to file an appeal to the tax court:
(a) Within 30 days after DoTAX denies the preparer's claim for refund of the partial penalty paid; or
(b) For the determination of the preparer's liability within six months after the day on which the claim for refund of penalties paid was filed;
(4) Specifying that the penalty is void when there is an administrative or judicial determination that no understatement of liability exists in the tax return;
(5) Placing the new section relating to promoting abusive tax shelters in the administrative section of the tax law, under chapter 231, Hawaii Revised Statutes;
(6) Amending the definition of "income tax return preparer" to include persons preparing tax returns or claims without compensation; and
(7) Making technical, nonsubstantive changes for style, clarity, and consistency.
As affirmed by the record of votes of the members of your Committee on Judiciary that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 2989, S.D. 2, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 2989, S.D. 2, H.D. 1, and be referred to the Committee on Finance.
Respectfully submitted on behalf of the members of the Committee on Judiciary,
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____________________________ ERIC G. HAMAKAWA, Chair |
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