Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2004

State of Hawaii

Sir:

Your Committee on Ways and Means, to which was referred S.B. No. 2989, S.D. 1, entitled:

begs leave to report as follows:

The purpose of this measure is to impose civil penalties and injunctions on a tax return preparer who supports unrealistic positions on tax returns and on a promoter of abusive tax shelters.

Your Committee finds that the overall duty of a preparer is to prepare a proper return. The preparer can generally rely in good faith on information furnished by the taxpayer without verification. The preparer is not required to audit, examine, or review books and records, business operations, documents, or other evidence in order to independently verify the taxpayer's information.

The preparer, however, cannot ignore the implications of the information furnished to, or actually known by the preparer. If the information appears to be incorrect or incomplete, the preparer must make reasonable inquiries as to whether the taxpayer has the proof required to substantiate the taxpayer's claims.

This bill imposes penalties and injunctive relief to prevent certain recurring prohibited conduct that has surfaced in the accounting community. The penalties and injunctive relief under this bill, follows the standard established under the Internal Revenue Code, sections 6694 and 7407.

The bill also imposes penalties and injunctive relief for promoting an abusive tax shelter. The scope of the penalty is broad to discourage abusive shelters that tend to be one step ahead of the law.

Your Committee has amended the bill to correct inadvertent changes made in the earlier draft of this bill, and by making technical changes that have no substantive effect.

As affirmed by the record of votes of the members of your Committee on Ways and Means that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 2989, S.D. 1, as amended herein, and recommends that it pass Third Reading in the form attached hereto as S.B. No. 2989, S.D. 2.