Tax Preparer Penalties Under Title 26

Tax Preparer Penalties apply to certified public accountants, enrolled agents and others who prepare tax returns when they engage in misconduct.

How You Know You Owe the Penalty

When we charge you a penalty, we send you a notice or letter by mail. The notice or letter will tell you about the penalty, the reason for the charge and what to do next. These notices and letters include an identification number.

Verify the information in your notice or letter is correct. If you can resolve the issue in your notice or letter, a penalty may not apply.

For more information, see Understanding Your Notice or Letter.

How We Calculate the Penalty

We calculate each Preparer Penalty in a different way. For more information, see the penalties and related regulations below.

Penalties and Regulations

The tax preparer penalties are found in Title 26 of the U.S. Code in the Internal Revenue Code (IRC). See the penalties below for more information.

Understatement of Taxpayer's Liability by Tax Return Preparer – IRC § 6694

  • Understatement due to unreasonable positions – IRC § 6694(a). 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.
  • Understatement due to willful or reckless conduct – IRC § 6694(b). The penalty is the greater of $5,000 or 75% of the income derived by the tax return preparer with respect to the return or claim for refund.

Other Assessable Penalties with Respect to the Preparation of Tax Returns for Other Persons – IRC § 6695

  • Failure to furnish copy to taxpayer – IRC § 6695(a). The penalty is $50 for each failure to comply with IRC § 6107(a) regarding furnishing a copy of a return or claim to a taxpayer. The maximum penalty imposed on any tax return preparer shall not exceed $26,500 in calendar year 2020.
  • Failure to sign return – IRC § 6695(b). 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 $26,500 in calendar year 2020.
  • Failure to furnish identifying number – IRC § 6695(c). 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 $26,500 in calendar year 2020.
  • Failure to retain copy or list – IRC § 6695(d). 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 $26,500 in calendar year 2020.
  • Failure to file correct information returns – IRC § 6695(e). The penalty is $50 for each failure to comply with IRC § 6060. The maximum penalty imposed on any tax return preparer shall not exceed $26,500 in calendar year 2020.
  • Negotiation of check – IRC § 6695(f). The penalty in calendar year 2020 is $530 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. 
  • Failure to be diligent in determining eligibility for certain tax benefits – IRC § 6695(g). This penalty is for failure to determine eligibility or the amount for earned income credit, child tax credit, additional child tax credit, other dependent credit, American Opportunity credit plus Lifetime Learning credit and/or the head of household filing status. The penalty for returns filed in 2020 is $530 for each failure on each return.

Promoting Abusive Tax Shelters, Etc. – IRC § 6700

  • The penalty applies to persons who organize or sell abusive tax shelters. An abusive tax shelter may be a partnership or other entity, any investment plan or arrangement or any other plan or arrangement. We calculate the penalty differently depending on the person's conduct with respect to the transaction. If the person makes statements, the person knows or has reason to know are false or fraudulent as to any material matter regarding the tax benefits of the transaction the penalty is equal to 50% of the gross income derived from the activity. If the person provides a gross valuation overstatement, the penalty is $1,000 for each entity or arrangement (treated as a separate activity) and participation in each sale (or, if lesser, 100% of the income derived from the activity).

Penalties for Aiding and Abetting Understatement of Tax Liability – IRC § 6701

  • The penalty is $1,000 ($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 will be penalized only once for documents relating to the same taxpayer for a single tax period or event. 

Disclosure or Use of Information by Preparers of Returns – IRC § 6713

  • 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 imposed on any person shall not exceed $10,000 in a calendar year. If a disclosure or use is made in connection with a crime relating to the misappropriation of another person's taxpayer identity, whether or not such crime involves any tax filing, the penalty increases to $1,000 for each use or disclosure, with a maximum of $50,000 per person per calendar year. This penalty applies to disclosures or uses that are made on or after July 1, 2019.

Fraud and False Statements – IRC § 7206

  • Persons upon whom this penalty is imposed shall be guilty of a felony and, upon conviction, face 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). This penalty also applies to fraudulent and false activities in connection with offers to compromise a tax liability under IRC § 7122 or a closing agreement under IRC § 7121.

Fraudulent Returns, Statements or Other Documents – IRC § 7207

  • Persons upon whom this penalty is imposed shall be 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.

Disclosure or Use of Information by Preparers of Returns – IRC § 7216

  • Persons who 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 shall be guilty of a misdemeanor. Upon conviction, the penalty includes a fine of not more than $1,000, imprisonment for not more than 1 year or both (together with the costs of prosecution).

Action to Enjoin Tax return Preparers – IRC § 7407

  • The U.S. government may sue in federal district court to obtain an injunction to stop a tax return preparer from engaging in certain conduct proscribed by this IRC section, or to prohibit a person from continuing to act as a tax return preparer altogether.

Actions to Enjoin Specified Conduct Related to Tax Shelters and Reportable Transactions - IRC § 7408

  • The U.S. government may sue in federal district court to obtain an injunction to stop a person from engaging in certain proscribed conduct with respect to tax shelters and reportable transactions, including any action, or failure to take action, which is in violation of Circular 230 PDF and other laws governing practice before the IRS. 

Interest on a Penalty

We charge interest on penalties.

The date from which we begin to charge interest varies by the type of penalty. Interest increases the amount you owe until you pay your balance in full. For more information about the interest we charge on penalties, see Interest on Underpayments and Overpayments.

Pay a Penalty

Send us a payment or pay your penalty in full to stop future penalties and interest from adding up.

Remove or Reduce a Penalty

We may be able to remove or reduce some penalties if you tried to comply with the law, but, because of certain reasons, you weren't able to meet your tax obligations. Some situations may include serious illness or injury, a family member's death or losing your financial records because of a natural disaster.

For more information, see penalty relief.

Dispute a Penalty

If you disagree with the amount you owe, you may dispute the penalty.

Call us at the toll-free number at the top right corner of your notice or letter or write us a letter stating why we should reconsider the penalty. Sign and send the letter along with any supporting documents to the address on your notice or letter.

Have this information when you call or send your letter:

  • The notice or letter we sent you
  • The penalty you want us to reconsider
  • For each penalty, explain why you think we should remove it

If you didn't receive a notice, get telephone assistance.

Avoid a Penalty

You can avoid a penalty by preparing tax returns accurately and on time and complying with return preparation and tax advising laws and regulations. If you can't pay your penalty by the due date, you can apply for a payment plan.

Apply for a Payment Plan

If you can't pay the full amount of your penalties on time, pay what you can now and apply for a payment plan. You may reduce future penalties when you set up a payment plan.

Get Help

For help with a penalty, call the phone number on your notice. If you didn’t receive a notice, use telephone assistance.