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Summary of Preparer Penalties under Title 26

IRC § 6694 – Understatement of taxpayer’s liability by tax return preparer.

IRC § 6694(a) – Understatement due to unreasonable positions.  The penalty is the greater of $1,000 or 50% of the income derived by the tax return preparer with respect to the return or claim for refund.

IRC § 6694(b) – Understatement due to willful or reckless conduct.  The penalty is the greater of $5,000 or 50% of the income derived by the tax return preparer with respect to the return or claim for refund.

IRC § 6695 – Other assessable penalties with respect to the preparation of tax returns for other persons.

IRC § 6695(a)Failure to furnish copy to taxpayer.  The penalty is $50 for each failure to comply with IRC § 6107 regarding furnishing a copy of a return or claim to a taxpayer. The maximum penalty imposed on any tax return preparer shall not exceed $25,000 in a calendar year.

IRC § 6695(b)Failure to sign return.  The penalty is $50 for each failure to sign a return or claim for refund as required by regulations.  The maximum penalty imposed on any tax return preparer shall not exceed $25,000 in a calendar year.

IRC § 6695(c)Failure to furnish identifying number.  The penalty is $50 for each failure to comply with IRC § 6109(a)(4) regarding furnishing an identifying number on a return or claim.  The maximum penalty imposed on any tax return preparer shall not exceed $25,000 in a calendar year.

IRC § 6695(d)Failure to retain copy or list.  The penalty is $50 for each failure to comply with IRC § 6107(b) regarding retaining a copy or list of a return or claim.  The maximum penalty imposed on any tax return preparer shall not exceed $25,000 in a return period.

IRC § 6695(e)Failure to file correct information returns.  The penalty is $50 for each failure to comply with IRC § 6060.  The maximum penalty imposed on any tax return preparer shall not exceed $25,000 in a return period.

IRC § 6695(f)Negotiation of check.  The penalty is $500 for a tax return preparer who endorses or negotiates any check made in respect of taxes imposed by Title 26 which is issued to a taxpayer.

IRC § 6695(g)Failure to be diligent in determining eligibility for earned income credit.  The penalty is $500 for each failure to comply with the EIC due diligence requirements imposed in regulations.

IRC § 6700 – Promoting abusive tax shelters 

The penalty is for a promoter of an abusive tax shelter and is generally equal to $1,000 for each organization or sale of an abusive plan or arrangement  (or, if lesser, 100 percent of the income derived from the activity). 

IRC § 6701 – Penalties for aiding and abetting understatement of tax liability.

The penalty is $1000 ($10,000 if the conduct relates to a corporation’s tax return) for aiding and abetting in an understatement of a tax liability.  Any person subject to the penalty shall be penalized only once for documents relating to the same taxpayer for a single tax period or event.  

IRC § 6713 – Disclosure or use of information by preparers of returns.

The penalty is $250 for each  unauthorized disclosure or use of information furnished for, or in connection with, the preparation of a return.  The maximum penalty on any person shall not exceed $10,000 in a calendar year.

IRC § 7206 – Fraud and false statements.

Guilty of a felony and, upon conviction, a fine of not more than $100,000 ($500,000 in the case of a corporation), imprisonment of not more than three years, or both (together with the costs of prosecution).

IRC § 7207 – Fraudulent returns, statements, or other documents.

Guilty of a misdemeanor and, upon conviction, a fine of not more than $10,000 ($50,000 in the case of a corporation), imprisonment of not more than one year, or both.

IRC § 7216 – Disclosure or use of information by preparers of returns. 

Guilty of a misdemeanor for knowingly or recklessly disclosing information furnished in connection with a tax return or using such information for any purpose other than preparing or assisting in the preparation of such return.  Upon conviction, a fine of not more than $1,000, imprisonment for not more than 1 year, or both (together with the costs of prosecution).

IRC § 7407 – Action to enjoin tax return preparers.

A federal district court may enjoin a tax return preparer from engaging in certain proscribed conduct, or in extreme cases, from continuing to act as a tax return preparer altogether.

IRC § 7408 – Action to enjoin specified conduct related to tax shelters and reportable transactions

A federal district court may enjoin a person from engaging in certain proscribed conduct (including any action, or failure to take action, which is in violation of Circular 230).  

Note:  Please see the Internal Revenue Code, corresponding Treasury Regulations, and other related published guidance for additional information on each penalty section. 

Page Last Reviewed or Updated: 17-Aug-2012