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 penalty for an understatement due to an unreasonable position is the greater of $1,000 or 50% of the gross income derived from preparing the return. Since 50% of $500 = $250, the greater amount is $1,000.

So the preparer would face a $1,000 penalty for that return (per return), absent other penalties (e.g., §6694(b) for willful/reckless conduct or fraud).