6694 Article II
6694 Article III
RevProc 2009-5
S. 2851
H.R. 5719
H.R. 5716
H.R. 6049
Related FAQ
Notice 2008-11
Notice 2008-12
Notice 2008-13
2008-13 Examples
Notice 2008-20
Notice 2008-46
Notice 2007-54
Rev. Proc. 2008-7
IRS Memorandum 5-2-08
Circular 230 (Rev. 4-2008)
Circular 230 FAQs
Unenrolled Return Preparer
Misc. Data
8275 Instructions
8275 Disclosure Form
8275-R Instauctions
8275-R Regulation Disclosure
Blue Book 2/5/2008
AICPA Letter 11/7/2007
AICPA Letter 8/7/2008
Internal Revenue Manual 4.1.10 Preparer Coordinator
4.1.10 (Continued)
8.11.3 Preparer Penalty Cases
9.5.3.2.5 Criminal
20.1.5 Related Penalties
20.1.5 (Continued)
20.1.6 Penalties
20.1.6 (Continued 1)
Committee Reports Summary of P.L. 110-28
Crminal Investigation IR-2003-23
IRS Webpage
Nat'l Assoc. of Tax Professionals NATP 8/27/2007
American Bar Association. ABA 5/1/2008
ABA 11/19/2007
ABA Comments
AICPA AICPA 7/12/2007
AICPA 11/7/2007
Interim Relief
Final Section 6694 Regulations Revised T.D. 9436 - December 16, 2008
Tax return preparers : Definitions : Penalties : Standards : Calculation : Disclosure requirements.
Section 6694(a) as amended Ocrober 3, 2008
H.R.1424. , 110th Congress - Emergency Economic Stabilization Act of 2008, Enrolled, as Signed by the President on October 3, 2008
SEC. 506. MODIFICATION OF PENALTY ON UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY TAX RETURN PREPARER .
(a) IN GENERAL - Subsection (a) of section 6694 is amended to read as follows:
(a) UNDERSTATEMENT DUE TO UNREASONABLE POSITIONS -
(1) IN GENERAL - If a tax return preparer --
(A) prepares any return or claim of refund with respect to which any part of an understatement of liability is due to a position described in paragraph (2), and
(B) knew (or reasonably should have known) of the position,
such tax return preparer shall pay a penalty with respect to each such return or claim in an amount equal to the greater of $1,000 or 50 percent of the income derived (or to be derived) by the tax return preparer with respect to the return or claim.
(2) UNREASONABLE POSITION -
(A) IN GENERAL - Except as otherwise provided in this paragraph, a position is described in this paragraph unless there is or was substantial authority for the position.
(B) DISCLOSED POSITIONS - If the position was disclosed as provided in section 6662(d)(2)(B)(ii)(I) and is not a position to which subparagraph (C) applies, the position is described in this paragraph unless there is a reasonable basis for the position.
(C) TAX SHELTERS AND REPORTABLE TRANSACTIONS - If the position is with respect to a tax shelter (as defined in section 6662(d)(2)(C)(ii)) or a reportable transaction to which section 6662A applies, the position is described in this paragraph unless it is reasonable to believe that the position would more likely than not be sustained on its merits.
(3) REASONABLE CAUSE EXCEPTION - No penalty shall be imposed under this subsection if it is shown that there is reasonable cause for the understatement and the tax return preparer acted in good faith.'.
(b) EFFECTIVE DATE - The amendment made by this section shall apply --
(1) in the case of a position other than a position described in subparagraph (C) of section 6694(a)(2) of the Internal Revenue Code of 1986 (as amended by this section), to returns prepared after May 25, 2007, and
(2) in the case of a position described in such subparagraph (C), to returns prepared for taxable years ending after the date of the enactment of this Act.
Devil Is in the Details -
Section 6694 Proposed Regulations
IRS proposed regulations, NPRM REG-
129243-07,1 issued on June 17, 2008,
implement amendments to the tax return
preparer penalties under Sec. 6694 and 6695 of
the Internal Revenue Code reflecting amendments
to the Code made by the Small Business
and Work Opportunity Tax Act of 2007. The
proposed regulations affect return preparers
and provide guidance regarding Sec. 6694, as
amended by the Small Business Act. Thanks to
the lobbying efforts of the ABA, AICPA, and
NAEA, Sec. 6694(a) has been amended2 to
eliminate the more-likely-than-not standard
of conduct for unreasonable and undisclosed
positions. Under the new law, return preparers
will not be assessed by the penalty if there is or...
After months of speculation, the IRS on June 16 released proposed return preparer penalty regulations. The proposed regulations, the IRS explained, do not only provide guidance on the new Code Sec. 6694(a) more-likely-than-not preparer standard, they also contain a comprehensive overhaul of all preparer penalties. The IRS predicted that final regulations will be in place for the 2009 filing season. A hearing on the proposed regulations is scheduled for August 18, 2008, at the IRS National Office in Washington, D.C.
This web page provides educational services for all tax return preparers with an emphasis on the enlarged section 6694 penalty. This web page also contains other technical information on other tax statutes that affect tax return preparers.
- As indicated in the attached article the penalty may be imposed by the IRS even if a "unreasonable position" is disclosed to the IRS if there is no "reasonable basis for the position."
- IRS guidelines indicate that the position taken, whether or not The IRS requires an "analysis of the pertinent facts and authorities in the manner described in §1.6662-4(d)(3)(ii)for both disclosed and undisclosed positions. That analysis and authority is the most effective when substantiated in a written memorandum on the facts and the law. disclosed, must be supported by technical analysis and technical authority.
- The "more than likely standard, the "substantial authority standard and the "reasonable basis standard are subjective. Therefore, return preparers must take into account an aggressive IRS with the discretion to impose the 6694 standard and take advantage of their presumption of correctness.
- Disclosed positions are likely to be "red flagged" for audit examination unless they are supported with technical analysis and technical authority.
- The strategy of tax return preparers should be to discourage the IRS from selecting a return for examination with the requisite technical analysis and authority filed with Form 875. The same analysis and authority will assist in preventing the negligence penalty on the client of the return preparer for the underpayment of tax.
- If the IRS assesses the 6694 penalty, the return preparer will have the burden of proof in proving that the penalty should not be applied. That burden of proof will be difficult if there is insufficient technical analysis and authority to negate the penalty.
- The tax preparation industry is under aggressive scrutiny by the IRS civil and criminal investigation divisions, and the Department of Justice has ongoing litigation against unscrupulous tax return preparers.
- Although negligence is a defense against the felony of filing a false statement (section 7206), the IRS is often aggressive in making criminal allegations where there are serious errors in tax returns.
- The requisite technical analysis and authority will substantially benefit the return preparer´s client from the
negligence penalty, the civil fraud penalty, and the criminal fraud penalty. - Clients need to be prepared to address the additional billing time needed to address the complex factual and legal issues.
- The requisite technical analysis and authority should be done at the time complex factual and legal issues are identified
because there is insufficient time to document this authority during the tax filing season. - Ignorance of the law is not a defense to the imposition of the section 6694 penalty.
- For purposes of determining whether the tax return preparer has a reasonable belief that the position would more likely than not to be
sustained on the merits, a tax return preparer may rely in good faith without verification upon information furnished
by the taxpayer, as provided in §1.6694-1(e). In addition, a tax return preparer may rely in good faith and
without verification upon information furnished by another advisor, tax return preparer or other third party. - Ignorance of the law is not a defense to the imposition of the section 6694 penalty.