When Collection employees secure delinquent returns or claims for refund, and determine that a preparer has not complied with the provisions of IRC 6695 for signing a prepared tax return or claim, for placing his/her taxpayer identification number (TIN) or preparer tax identification number (PTIN) on the prepared return or claim, or for providing the taxpayer with a completed copy of the prepared return or claim, a penalty will be asserted. The Collection employee who secures the delinquent return or claim will be responsible for requesting the assertion of these penalties.

Effective January 1, 2011, tax return preparers must have a preparer identification number (PTIN) to prepare returns. The PTIN is to be used as of January 1, 2011 as the preparer identifying number. See the PTIN application website at - http://www.irs.gov/taxpros/article/0,,id=210909,00.html?banner=PTIN. If there is an employment arrangement or association, the related EIN must also be on the tax return.

The return preparer may be contacted if relevant information is needed.

Form 8278, Assessment and Abatement of Miscellaneous Civil Penalties, is used to assert preparer penalties. Form 8278 will be forwarded to Collection Centralized Case Processing (CCP). function for input.

See IRM 20.1.6.12, Office of Professional Responsibility (OPR).

See IRM 20.1.6.21, Statute of Limitations.

See IRM 20.1.6.19, Appeals Rights.

IRM 20.1.6.6, Program Action Case Overview, guidance is applicable to all OD/BU PAC.

However, an OD/BU may have additional guidance they require for their functional coordinators and it should also be followed.

Examiners asserted the penalty, (e.g., tax auditors, tax compliance officers, estate and gift tax examiners, and revenue agents).

If disclosure or use of return or return related information was made pursuant to court order or one of the provisions of the Code that permits disclosure, then the penalty will not be asserted.

Taxpayers, during examinations, may express their concern that their tax information was disclosed or used for any purpose other than to prepare, or assist in preparing, their income tax return.

The procedures for IRC 6694 provide guidance for managerial approval. The ERCS controls are established using Form 5809, Preparer Penalty Case Control Card, or functional equivalent. See IRM 20.1.6.8 for OD/BU functional procedure cites.

If any person prepares a return for compensation or provides services in connection with the preparation of an income tax return, and knowingly or recklessly discloses or uses return information improperly, the examiner should consider making a criminal referral under IRC 7216, Disclosure or Use of Information by Preparers of Returns, to the Treasury Inspector General for Tax Administration (TIGTA). Visit TIGTA's website at http://www.treas.gov/tigta/contact_report.shtml#theform for further guidance for a criminal referral under IRC 7216

For each unauthorized disclosure or use of return information, a penalty of $250 may be asserted. The total amount cannot exceed $10,000 per person per calendar year.

The IRC 6713 penalty can be asserted in conjunction with any other preparer penalty.

See IRM 20.1.6.19, Appeal Rights.

There is no statute of limitations for this penalty.

See IRM 20.1.6.12, Office of Professional Responsibility (OPR).

The OD/BU functional guidance addresses:

The OD/BU functional procedures are located at:

When multiple penalties apply to the same preparer for the same period:

Form 8278 requires that both the originator and manager sign and date the Form. If the Form 8278 is not signed by both the manager and the originator, the form and associated case file should be returned to the sender using Form 3210 procedures. Expedited handling is required for imminent statute cases.

Any examiner conducting an investigation under IRC 6694, IRC 6695, IRC 6700, IRC 6701, IRC 6707, or IRC 6708 will consider whether an injunction should be sought under IRC 7407 or IRC 7408. In addition, an injunction may be sought by an examiner to whom an investigation is assigned for activities specified in IRC 7407 or other specified conduct under IRC 7408.

The injunction authorized under IRC 7407 is coordinated with civil penalties under IRC 6694 and IRC 6695 and criminal tax provisions. In addition, IRC 7407 can be used in conjunction with IRC 7408 if appropriate.

An injunction may be sought without regard to whether penalties have been or may be assessed against any return preparer.

The IRC does not explicitly provide any limitation period for seeking an injunction under IRC 7407.

See IRM 20.1.6.12, Office of Professional Responsibility.

Preparers in the IRS e-file program must meet standards reflected in Rev. Proc. 2007-40, 2007-26, I.R.B. 1488, Pub 1345, Handbook for Authorized IRS e-file Providers of Individual Income Tax Returns. Penalties asserted against preparers are a factor in determining suitability for the IRS e-file program, RPCs will notify Electronic Filing Coordinators (EFCs) of all penalties asserted on return preparers.

Section 6 of Rev. Proc. 2007-40, 2007-26, I.R.B. 1488 broadly defines the applicability of return preparer penalties for those participating in the IRS e-file program. The Service may assert all appropriate preparer, non-preparer, and disclosure penalties against an Authorized IRS e-file Provider as warranted under the circumstances.

SB/SE Area offices may establish multi-functional teams to visit electronic filers to determine their compliance with the IRS e-file program procedures. A team approach is preferred if resources are available. A team consists of two (2) representatives who may be from Examination. Examiners who participate on these teams charge their time to Activity Code 522.

See IRM 4.21.1, Monitoring The IRS e-file Program, for more information.

See IRM 3.42.4, Electronic Tax Administration - IRS e-file for Business Tax Returns, and IRM 3.42.5, Electronic Tax Administration - IRS e-file for Individual Income Tax Returns, for more information on the e-file program.

The Worker, Homeownership, and Business Assistance Act of 2009 added a special rule for preparers of individual income tax returns. See IRC 6011(e)(3), General Requirement of Return, Statement, or List.

The provision generally requires that any individual income tax return prepared and filed by a tax return preparer be filed on magnetic media when such return preparer is a specified tax return preparer for the calendar year during which such return is filed.

"Specified tax return preparer" means, with respect to any calendar year, any tax return preparer, as defined in IRC 7701(a)(36) and Treas. Reg. 301.7701-15, unless such preparer reasonably expects to file 10 or fewer individual income tax returns during such calendar year. If a person who is a tax return preparer is a member of a firm, that person is a specified tax return preparer unless the firm members in the aggregate reasonably expect to file 10 or fewer individual income returns in a calendar year.

Solely for the 2011 calendar year, a tax return preparer will not be considered a specified tax return preparer if the preparer reasonably expects, or if the preparer is a member of a firm, the firm's members in the aggregate reasonably expect, to file fewer than 100 individual income tax returns in the 2011 calendar year. See Treas. Reg. 301.6011-7.

The term "individual income tax return" means any return of the tax imposed by subtitle A on individuals, estates, or trusts.

The effective date is for returns filed after December 31, 2010.

Practice before the IRS encompasses all matters connected with a presentation to the IRS or any of its officers or employees relating to a taxpayer's rights, privileges, or liabilities under laws or regulations administered by the IRS.

Such presentations include, but are not limited to

Practice also may consist of providing written advice based on an unreasonable factual or legal assumption as well as giving a false opinion, knowingly, recklessly or through gross incompetence.

A registered tax return preparer who prepares and signs a taxpayer's tax return as the preparer may represent the taxpayer before examiners, customer service representatives or similar officers and employees of the Internal Revenue Service during an examination of the taxable year or period covered by that tax return. This right does not permit these individuals to represent the taxpayer, regardless of the circumstances requiring representation, before appeals officers, revenue officers, counsel or similar officers or employees.

OPR may sanction a practitioner, after notice and an opportunity for a proceeding, who is shown to be incompetent or disreputable (within the meaning of Section 10.51 of Circular 230) or who fails to comply with and/or knowingly and willfully violates any regulation enumerated by Circular 230 or, who with intent to defraud, willfully and knowingly misleads or threatens a client or prospective client.

Sanctions available to OPR include issuing a censure (a public reprimand), and suspending or disbarring the practitioner's privilege to practice before the IRS.

In certain situations, OPR may impose a monetary sanction against the practitioner, in addition to the previously mentioned sanctions, as well as the practitioner's employer, firm, or entity if it knew, or reasonably should have known of the misconduct.

OPR may also seek Department of Justice assistance in obtaining an injunction.

OPR may also disqualify any appraiser for violation of these rules as applicable to appraisers.

Circular 230 Section 10.53 specifies that if an officer or employee of the Internal Revenue Service has reason to believe that a practitioner, as described above, has violated any provision of Circular 230, the officer or employee must promptly make a written report to the Director of the Office of Professional Responsibility of the suspected violation.

Based on the above, the decision to refer a particular matter to OPR is not an issue for negotiation with a taxpayer or practitioner. OPR referrals may not be negotiated as a settlement item with respect to any IRS or Title 26 tax matter.

The potential that a matter may be referred to OPR should never be discussed with a taxpayer or a representative in a manner that may be perceived in any way as a threat. In certain situations, it is acceptable to remind a practitioner of his/her duties relative to Circular 230; however, IRS employees should never imply or infer that a referral to OPR will result in disciplinary action against a practitioner.

Each referral to OPR should describe and document the practitioners actions in order to support disciplinary action. Include a summary of the suspected misconduct that provides as much detail as possible regarding the misconduct in question along with supporting documentation. Provide as much information, documentation and evidence as possible to make a referral that is complete and provides as much information about the alleged misconduct as reasonably possible.

Once an IRS employee makes a referral, OPR will contact the employee within 30 days to acknowledge the referral and possibly follow up with a request for information.

Examiners should exercise discretion in making referrals of asserted IRC 6694(a) penalties to OPR. Referrals of asserted IRC 6694(a) penalties to OPR should be based on a pattern of failing to meet the required penalty standards under IRC 6694(a).

Asserted preparer penalties under IRC 6694(b) are mandatory referrals to OPR. For IRC 6694(b), these mandatory referrals are made to OPR in matters where preparer penalties are asserted when there is willful or reckless conduct when closed agreed or unagreed by examiners.

For IRC 6695(a) through (g), examiners should exercise discretion in making referrals to OPR. However, in matters where preparer penalties are asserted when there is willful neglect, examiners should consider making a referral to OPR.

The RPC, based on asserted IRC 6694(a) penalties may identify a pattern of penalties pertinent to a particular examination or across multiple clients that warrant a referral to OPR and initiate a referral to OPR.

IRC 6700 and IRC 6701 penalties when proposed, are mandatory referrals to OPR.

Federal courts have the authority to permanently prohibit individuals from practicing before the IRS. This usually results from an IRC 6700 or IRC 6701 investigation. Examiners assigned promoter investigations should consider a referral to OPR where preparer misconduct is present and a compliant for injunction is not filed for the preparer misconduct.

When making a return preparer referral involving a Circular 230 practitioner to OPR, examiners will:

Form 8484, Report of Suspected Practitioner Misconduct, is used for the referral to OPR.

Completing the Referral

Under no circumstances should an examiner start a promoter examination without documented approval from the LDC for SB/SE and TE/GE or Technical Tax Shelter Promoter Committee (TTSPC) for LB&I.

IRM 4.32.2.1, Transaction (AT) Program, contains an overview of the IRC 6700 and IRC 6701 penalty program concerning the promoters of abusive tax avoidance transactions (ATAT) and the examination of taxpayer participants.

IRM 4.32.2, Transactions (AT) Program, contains the administrative procedures.

IRM 4.32.3, Coordination and Roles of Cross Functional Units, contains the cross functional guidance.

The following websites contain functional procedures and guidance. They are

The SB/SE LDC processes referrals concerning promoters of abusive tax avoidance transactions. The LDC evaluates referrals based on established criteria and authorizes IRC 6700 investigations when warranted. After investigations are authorized, case files are forwarded to the appropriate Areas Planning and Special Procedures Programs (PSP) unit for assignment to the field.

The LB&I Office of Tax Shelter Analysis (OTSA) processes all leads of potential promoters of tax shelters. LB&I Financial Services is responsible for the field assignments of all LB&I approved promoter investigations.

Examiners assert the penalty. Also refer to IRM 4.32.2.11, Penalty Assessment.

See IRM 4.32.2.11.3.2, Computation of IRC 6700 Penalties. Section 818 of The American Jobs Creation Act of 2004 amended the penalty amount to equal 50 percent of the gross income derived by the person from any activity, occurring after October 22, 2004, that involves a statement regarding the allowability of any deduction or credit, the excludability of any income, or the securing of any other tax benefit by reason of holding an interest in the entity or participating in the plan or arrangement which the person knows, or has reason to know, is false or fraudulent as to any material. The amount of the penalty remains unchanged for gross valuation overstatement violations under IRC 6700(a)(2)(B), Rules for relating to penalty for gross valuation overstatements, and equals $1,000 (or if the person established that it is less, 100 percent of the gross income derived or to be derived by the person from such activity).

This penalty is in addition to all other penalties that may be imposed under the Code. However, under IRC 6701(f)(3), Coordination With Section 6700, no penalty may be assessed under IRC 6700 on any person with respect to any document for which a penalty is assessed on such person under IRC 6701. This provision allows the IRS to choose which penalty to assert if both apply to a set of facts, but prohibits the Service from assessing penalties under both sections for the same document.

IRC 6694(b) imposes a penalty if a return preparer understates a taxpayer’s liability as a result of willful or reckless conduct. In some instances, a person who is subject to the penalty under IRC 6700 may also be subject to the penalty under IRC 6694(b).

IRC 7206(2), Fraud and False Statements, relates to any person who willfully aids or assists in making fraudulent or false statements. In some cases, promoters might be criminally prosecuted under IRC 7206(2), Report of Suspected Practitioner Misconduct, for assisting, procuring, or advising the preparation or presentation of a return or other document which is fraudulent or false.

IRC 7408 authorizes the United States to commence a civil action at the request of the Secretary to enjoin any person from further engaging in conduct subject to the penalty under IRC 6700, Promoting Abusive Tax Shelters, etc. The promoter penalty under IRC 6700 and the injunction actions under IRC 7408 are more effective when applied prior to the time investors file their returns. Therefore, abusive tax avoidance transactions should be identified and IRC 6700 penalty investigations that have been authorized by the LDC should be initiated promptly. Also refer to IRM 4.32.2.5, Case Control / Case Assignment Procedures.

See IRM 20.1.6.12, Office of Professional Responsibility.

See IRM 4.32.2.11.7.1, Promoter Rights for IRC 6700 and IRC 6701.

See IRM 4.32.2.11.7.1.1, Special Claim Procedures, applicable per IRC 6701(c).

There is no statute of limitations on assessment with respect to the promoter penalty imposed by IRC 6700

Key words in the penalty are "document," "knows," and "understatement." For the penalty to be imposed, the person penalized must be implicated in the preparation or presentation of a document some portion of which he or she knows or has reason to know, will be used in connection with a material matter arising under the tax laws and knows that such position would result in an understatement of tax liability if so used.

Meaning of Aid, Assist, Procure, or Advise.

Congressional Intent in Enacting the Provision.

Single Penalty per Taxpayer Per Period.

Under no circumstances should an IRC 6701 penalty examination be started without documented approval from

IRM 4.32.2, The Abusive Transactions (AT) Process, contains the administrative procedures.

IRM 4.32.3, Coordination and Roles of Cross Functional Units, contains the cross functional guidance.

The following websites contain functional procedures and guidance.

The SB/SE LDC processes referrals for IRC 6701 penalty examination. The LDC evaluates referrals based on established criteria and authorizes IRC 6701 investigations when warranted. After investigations are authorized, case files are forwarded to the appropriate Areas Planning and Special Procedures Programs (PSP) unit for assignment to the field.

The LB&I Office of Tax Shelter Analysis (OTSA) evaluates referrals based on established criteria and presents the referral to the Technical Tax Shelter Promoter Committee (TTSPC). The TTSPC authorizes IRC 6701 investigations when warranted for reportable transactions. For tax return preparer investigations in LB&I which do not involve a reportable transaction, approval of the RPC is required and assistance of local counsel should be requested.

A person subject to penalty under IRC 6701 may be identified by a(n):

The penalty under IRC 6701 is not imposed on a person with respect to a federal tax document if a penalty with respect to such document has been assessed on such person under IRC 6694, relating to tax return preparers. The penalty may be imposed, however, with respect to any other federal tax document for which the penalty under IRC 6694 has not been assessed, even though the document relates to the same taxpayer and taxable year as a document with respect to which the penalty under IRC 6694 has been assessed.

A penalty under IRC 6701 may not be applied to the same activities that result in the application of a penalty under IRC 6700. Therefore, if a promoter develops promotional materials such as a prospectus and other documents which explain the promotion and those documents are used as the evidence supporting a penalty under IRC 6700 for organizing and promoting an abusive tax shelter, a penalty under IRC 6701 will not be assessed for those same documents. However, if the same promoter prepares a partnership tax return relating to the same tax plan or arrangement, a penalty can be assessed under IRC 6701 for each Schedule K-1 if an understatement of tax liability is reported on the investor’s federal tax returns.