Accountants who prepared K-1s were not "preparers." (Adler and Drobny, Ltd.) (Brief Article)

The accountants were promoters of research and development partnerships who prepared the partnership returns and distributed the schedules K-1 to partnership investors. The Internal Revenue Service assessed penalties under Internal Revenue Code section 6694(b) against the accountants, claiming they had willfully understated the tax liability of 17 investors.

The IRS also claimed the accountants were "return preparers" for purposes of the section 6694(b) penalties.

IRC section 7701(a)(36)--in defining return preparer--says preparing a "substantial portion" of a return gives an individual preparer status. Treasury regulations section 301.7701-15(b) provides two tests for determining substantial portion. The entry or schedule in question must pass certain de minimis tests, and, even if these tests are passed, the length and complexity of the prepared portion must be compared with the length and complexity of the entire return.

Result: For the accountants. They were not return preparers because the K-1s, when compared with the rest of the investors' returns as the regulation required, were not a substantial portion of the returns.

Note: Compare the opposite result in Goulding (7th Cir., 1992); see JofA, June 92, "Attorney Who Prepared Partnership Returns Was 'Preparer' of Limited Partners' Returns," page 35. * Adler & Drobny, Ltd. (D.C.N. Ill., 1992).