Preparer Penalties with Respect to the Preparation of Tax Returns for Others
IRC 6695(A) – Requirement to Furnish Taxpayer with A Copy of a Return and Related Penalty for Not Doing So
Tax return preparers who fail to provide a taxpayer with a copy of the return or claim for refund not later than the time such return or claim is presented for the taxpayer’s signature is subject to a penalty. The penalty is $50 for each failure. The maximum penalty imposed under this subsection on any tax return preparer for any calendar year may not exceed $26,500.
IRC 6695(B) – Requirement for Signing the Return as a Return Preparer and Related Penalty for Not Doing So
Paid preparers who fail to sign a return for which payment was received, may be fined $50 per return, up to a maximum of $26,500 per the calendar year. Anyone paid to prepare a return or claim for refund must sign it in the space provided. A paid preparer can sign the return manually or use a rubber stamp, mechanical device, or computer software program. The preparer is personally responsible for affixing his signature.
IRC 6695(C) – Requirement to Furnish Identifying Number as Return Preparer and Related Penalty for Not Doing So
Paid preparers who fail to provide a preparer tax identification number (PTIN) may be fined $50 per return, up to a maximum of $26,500 per the calendar year.
Regulations require all paid tax return preparers (including attorneys, CPAs, and Enrolled Agents) to apply for a Preparer Tax Identification Number (PTIN) before preparing any federal tax returns. Paid preparers are required to include a preparer tax identification number (PTIN) in the paid preparer section of the taxpayer’s return. Individuals who are planning to prepare returns professionally should complete Form W-12, Application for Preparer Tax Identification Number, to apply for a PTIN. The use of the PTIN prevents theft or fraudulent use of a preparer’s SSN and to protect the paid preparer’s privacy.
IRC 6695(D) – Requirement to Retain A Copy of Return or List and Related Penalty for Not Doing So
Paid preparers who fail to maintain copies of returns or a list of clients face a fine of $50 per return, up to a maximum of $26,500 per year.
Paid tax preparers are required to retain copies of returns prepared or to maintain a list of clients. Records must be maintained for the duration of the statute of limitations for the individual return. Usually, the statute of limitations is later of three years from the date the return is due or three years from the date the return is filed.
IRC 6695(F) – Prohibition on Negotiation of Client Refund Checks
A tax preparer who endorses or negotiates any check made in respect of taxes which is issued to a taxpayer is subject to a penalty of
for each check.
No attorney certified public accountant, enrolled agent, or enrolled actuary who is an income tax return preparer shall endorse or otherwise negotiate any check made in respect of income taxes issued to a taxpayer.
§6694 (a) Penalty for Understatement Due to Unreasonable Positions
A tax return preparer is subject to a $1,000 (or, if greater, 50% of the income derived with respect to which the penalty was imposed) fine per return for an understatement of taxpayer’s liability due to an unreasonable position.
§6694(b) Penalty for Negligence or Intentional Disregard of Rules and Regulations and Willful Understatement of Liability
A tax return preparer is subject to a penalty under §6694(b) equal to the greater of $5,000 or 75% of the income derived (or to be derived) with respect to a tax return or claim for refund if any part of the understatement of a taxpayer’s liability on the tax return or claim is due to the preparer’s: (1) reckless or intentional disregard of rules or regulations, or (2) willful attempt to understate the tax liability.
Negligence or Intentional Disregard
The term “negligence” is defined as (1) failure to make a reasonable attempt to comply with the tax law, or (2) being reckless, careless, or intentional disregard of IRS rules or regulations. Negligence also includes failure to keep adequate books and records, or properly substantiate items on a tax return. A negligence penalty will not be assessed to the taxpayer if he can show a reasonable basis for his position.
Disregard of rules or regulation includes “careless,” “reckless,” or “intentional disregard.” If a taxpayer does not exercise reasonable diligence in determining a return position that is not supported by relevant rule or regulation in preparing a tax return, then he is “careless.” If a taxpayer makes little or no effort in determining whether such rule or regulation exists, then he is “reckless.” If a taxpayer knows that a specific rule or regulation requires a different position, then he is “intentional disregard.”
A tax return preparer is not considered to have recklessly or intentionally disregarded a rule or regulation if the position contrary to the rule or regulation has a reasonable basis and is adequately disclosed on the return.
Willful Attempt to Understate Tax Liability
A preparer is considered to have a willful attempt to understate tax liability if the tax return preparer disregards, in an attempt wrongfully to lower the taxpayer’s tax liability, information provided by the taxpayer or other persons. For example, the tax return preparer is subject to the penalty if he disregards information regarding certain items of taxable income furnished by a taxpayer or other persons. Similarly, if a taxpayer tells the preparer that he has only one dependent, but the preparer reports three dependents on the return, the tax return preparer is subject to the penalty.