26 U.S.C. § 6694 — Understatement of taxpayer’s liability by tax return preparer
submitted 50 years ago by Pub. L. 94-455 to r/title-26-INTERNAL-REVENUE-CODE · 987 words · no verdicts yet
A tax return preparer can owe a penalty when an understatement comes from an unreasonable position, or from willful or reckless conduct. The section sets different amounts, a refund-and-lawsuit procedure, abatement if there was no understatement, and the meaning of “understatement of liability.”
(a) Unreasonable positions. (1) A preparer who prepares a return or refund claim and knows or reasonably should know that an understatement comes partly from a position described in paragraph (2) owes, for each return or claim, the greater of $1,000 or 50 percent of the preparer’s related income. (2) A position is described unless substantial authority supports it. A disclosed position is described unless it has a reasonable basis, unless paragraph (C) applies. A tax-shelter position or section 6662A reportable-transaction position is described unless it is reasonable to believe it would more likely than not succeed on its merits. (3) No penalty applies if reasonable cause caused the understatement and the preparer acted in good faith. (b) Willful or reckless conduct. (1) A preparer whose return or claim contains an understatement caused by conduct in paragraph (2) owes the greater of $5,000 or 75 percent of related income. (2) The conduct is a willful attempt to understate tax, or reckless or intentional disregard of rules or regulations. (3) This penalty is reduced by any penalty the person paid under subsection (a) for the same return or claim. (c) Collection extension. Within 30 days after notice and demand, a preparer may stop collection of the rest by paying at least 15 percent, filing a refund claim for that payment, and proceeding as paragraph (2) provides. A court may enjoin collection during the protection, and a counterclaim remains allowed. If the claim is denied, or six months pass without action on it, the preparer must start a district-court case within 30 days or the protection ends the next day. The section 6502 period is suspended during the protection. (d) Abatement. If a final administrative determination or court decision finds no understatement for the return or claim, the assessment must be abated and any payment refunded as an overpayment without the usual limitation period. (e) Definition. “Understatement of liability” means an understatement of the net tax payable or an overstatement of the net tax creditable or refundable. Except for subsection (d), whether there is an understatement is decided without considering administrative or court action involving the taxpayer*. (f) The definition of “tax return preparer*” is in section 7701(a)(36).
If a tax return preparer*—
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
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.
Except as otherwise provided in this paragraph, a position is described in this paragraph unless there is or was substantial authority for the position.
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.
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.
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.
Any tax return preparer who prepares any return or claim for refund with respect to which any part of an understatement of liability is due to a conduct described in paragraph (2) shall pay a penalty with respect to each such return or claim in an amount equal to the greater of—
$5,000, or
75 percent of the income derived (or to be derived) by the tax return preparer with respect to the return or claim.
Conduct described in this paragraph is conduct by the tax return preparer which is—
a willful attempt in any manner to understate the liability for tax on the return or claim, or
a reckless or intentional disregard of rules or regulations.
The amount of any penalty payable by any person by reason of this subsection for any return or claim for refund shall be reduced by the amount of the penalty paid by such person by reason of subsection (a).
If, within 30 days after the day on which notice and demand of any penalty under subsection (a) or (b) is made against any person who is a tax return preparer, such person pays an amount which is not less than 15 percent of the amount of such penalty and files a claim for refund of the amount so paid, no levy* or proceeding in court for the collection of the remainder of such penalty shall be made, begun, or prosecuted until the final resolution of a proceeding begun as provided in paragraph (2). Notwithstanding the provisions of section 7421(a), the beginning of such proceeding or levy during the time such prohibition is in force may be enjoined by a proceeding in the proper court. Nothing in this paragraph shall be construed to prohibit any counterclaim for the remainder of such penalty in a proceeding begun as provided in paragraph (2).
If, within 30 days after the day on which his claim for refund of any partial payment of any penalty under subsection (a) or (b) is denied (or, if earlier, within 30 days after the expiration of 6 months after the day on which he filed the claim for refund), the tax return preparer fails to begin a proceeding in the appropriate United States district court for the determination of his liability for such penalty, paragraph (1) shall cease to apply with respect to such penalty, effective on the day following the close of the applicable 30-day period referred to in this paragraph.
The running of the period of limitations provided in section 6502 on the collection by levy or by a proceeding in court in respect of any penalty described in paragraph (1) shall be suspended for the period during which the Secretary* is prohibited from collecting by levy or a proceeding in court.
If at any time there is a final administrative determination or a final judicial decision that there was no understatement of liability in the case of any return or claim for refund with respect to which a penalty under subsection (a) or (b) has been assessed, such assessment shall be abated, and if any portion of such penalty has been paid the amount so paid shall be refunded to the person who made such payment as an overpayment of tax without regard to any period of limitations which, but for this subsection, would apply to the making of such refund.
For purposes of this section, the term “understatement of liability” means any understatement of the net amount payable with respect to any tax imposed by this title or any overstatement of the net amount creditable or refundable with respect to any such tax. Except as otherwise provided in subsection (d), the determination of whether or not there is an understatement of liability shall be made without regard to any administrative or judicial action involving the taxpayer*.
Source credit: (Added Pub. L. 94–455, title XII, § 1203(b)(1), Oct. 4, 1976, 90 Stat. 1689; amended Pub. L. 101–239, title VII, §§ 7732(a), 7737(a), Dec. 19, 1989, 103 Stat. 2402, 2404; Pub. L. 110–28, title VIII, § 8246(a)(2)(F)(i), (b), May 25, 2007, 121 Stat. 201, 203; Pub. L. 110–343, div. C, title V, § 506(a), Oct. 3, 2008, 122 Stat. 3880; Pub. L. 114–113, div. Q, title II, § 210(a), Dec. 18, 2015, 129 Stat. 3085.)
- 1976Enacted · Pub. L. 94-455 · 90 Stat. 1689
- 1989Amended · Pub. L. 101-239 · 103 Stat. 2402, 2404
- 2007Amended · Pub. L. 110-28 · 121 Stat. 201, 203
- 2008Amended · Pub. L. 110-343 · 122 Stat. 3880
- 2015Amended · Pub. L. 114-113 · 129 Stat. 3085
A history note hasn’t been published yet. The record shows enactment by Pub. L. 94-455 on 1976-10-04.
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