This IRM adheres to Penalty Policy Statement, P-20-1 which addresses fair and equitable implementation and application of penalty provisions and requires all Service functions to develop procedures that promote:

Appeals accomplishes this mission by considering protested and Tax Court cases, holding conferences, and negotiating settlements in a manner which ensure Appeals employees act in accord with the Taxpayer Bill of Rights (TBOR) in every interaction with taxpayers. See IRC 7803(a)(3). See Pub 5170, Taxpayer Bill of Rights. For more information, see IRM 8.1.1 Appeals Operating Directives and Guidelines.

This IRM is supplemental guidance to IRM 20.1.6,Penalty Handbook, Preparer, Promoter, Material Advisor Penalties, and outlines the procedures for working Return Preparer Penalty cases by Appeals Technical Employees. The IRS has penalty and injunctive authority to address improper tax return preparation and abusive transaction promoters. The Internal Revenue Code (IRC) contains penalties to stop fraudulent, unscrupulous, and/or incompetent tax return preparers, abusive transaction promoters, and material advisors who fail to furnish information or maintain lists with respect to reportable transactions. Penalty assertion is one enforcement vehicle for noncompliant return preparers, promoters, and material advisors.

The Director, Case and Operations Support (C&OS) is the executive responsible for designing, developing, delivering, and monitoring short-and-long-range tax administration policies, programs, strategies, and objectives for the Appeals organization.

The Director, Policy, is responsible for providing technical and procedural guidance to Appeals employees, establishing and maintaining policies and standard procedures for Appeals work streams.

The Policy analyst shown on the Product Catalog page as the originator is the assigned author of this IRM.

Planning, Quality, and Analysis (PQ&A) provides trends and data analyses and detailed summary reports for Appeals.

See IRM 8.1.1-1 Exhibit, Common Terms Use in Appeals for common terms and definitions use in IRM Part 8. Terms listed in the exhibit are not included in the table.

The table lists commonly used acronyms and their definitions:

This IRM is related to IRM 20.1.6, which provides information regarding the servicewide preparer, promoter, and material advisor, penalties, policies, and procedures. It serves as a supplemental procedural guide for Appeals Technical Employees.

The definition of a tax return preparer for purposes of Sections 6694 and 6695 is provided in IRC 7701(a)(36) and Treasury Regulation 301.7701-15.

IRC 6694 penalties can only apply if there is an understatement of tax liability.

The IRC 6694(a) penalty is the greater of $1,000 or 50% of the income derived (or to be derived) by the tax return preparer with respect to each return, amended return or claim for refund prepared if there is an understatement on the return or claim due to an unreasonable position taken on the return or claim that the preparer knew or reasonably should have known about. A position is unreasonable if:

The IRC 6694(b) penalty is the greater of $5,000 or 75% of the income derived (or to be derived) by the tax return preparer with respect to returns, amended returns, and claims for refund prepared for taxable years ending after December 18, 2015. The penalty may be imposed against a tax return preparer if:

Reduce the IRC 6694(b) penalty by the amount of the IRC 6694(a) penalty if both the IRC 6694(a) and (b) penalties are asserted against the preparer on the same return or claim.

Because the IRC 6694(b) penalty involves willfulness, there is no statutory period for assessment of this penalty. On tax return preparer penalties asserted under section 6694(a) and 6695, the three year statute of limitations for assessment begins to run on the filing date of the return or claim for refund. The statute of limitations on assessment for the section 6694(a) and 6695 penalties may be extended using a Form 872-D, Consent to Extend the Time on Assessment of Tax Return Preparer Penalty. IRC 6696(d) addresses periods of limitation.

Refer to IRM 20.1.6.4, IRC 6694 Understatement of Taxpayer's Liability by Tax Return Preparer, for additional information.

These penalties are generally processed under the pre-assessment penalty procedures.

The return preparer penalties under IRC 6695 are assessed against preparers who:

These penalties are generally processed under the pre-assessment penalty procedures.

Refer to IRM 20.1.6.5, IRC 6695 Penalties That May Apply to a Tax Return Preparer, for additional information.

The penalty under IRC 6713 is assessed against preparers who:

The penalty is $250 for each disclosure or use, up to a maximum of $10,000 for each calendar year.

These penalties are generally processed under the pre-assessment penalty procedures.

Refer to IRM 20.1.6.7,Penalty for Unauthorized Preparer Disclosure or Use - IRC 6713, for additional information.

Differences in preparer penalty cases.

Upon receipt of the case, the Appeals Technical Employee (ATE) must follow the procedures outlined in IRM 8.11.1.2.6, New Receipt Procedures for Appeals Technical Employees. This includes, but is not limited to the following:

Consideration of the penalty case will include an analysis of the litigating hazards. See IRM 8.11.1.2.7.5, Hazards of Litigation .

Process return preparer penalties as follows:

Refer all IRC 6694(b) preparer penalties asserted by Appeals against an attorney, certified public accountant, enrolled agent or enrolled actuary, to the Office of Professional Responsibility (OPR). See IRM 8.10.2.1.2.2, Reports to Outside Officials, for procedures on reports to the Office of Professional Responsibility and IRM 20.1.6.12.3, Referral to the Office of Professional Responsibility.

ATEs should exercise discretion in making referrals to OPR for other return preparer penalties. Referrals of asserted IRC 6694(a) and/or IRC 6695(a) through (g) penalties to OPR should be based on a pattern of behavior or penalties across multiple taxpayers, tax issues or tax years.