Question

What is the penalty a paid tax return preparer would face who failed to report all their client's income by taking an unreasonable position on the tax return? (The preparer charged $500 for the tax preparation.

Answer 1

Under IRC §6694(a) the preparer penalty for an unreasonable position is the greater of $1,000 or 50% of the income derived from preparing the return. With a $500 fee, 50% × $500 = $250, so the greater amount is $1,000 — that is the penalty.

If the preparer’s behavior is willful or shows reckless disregard, a stiffer penalty under IRC §6694(b) applies: the greater of $5,000 or 75% of the preparer’s income (which in this case would be $5,000). There may also be other civil or criminal sanctions depending on the facts.