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.