The IRS assesses penalties on tax preparers who understate their clients’ income, disclose client information improperly, file fraudulent returns, or make other missteps. Generally, you will only face penalties if the issue leads to an understated tax liability, but some penalties are unrelated to income understatements, as discussed below.
If you have incurred penalties as a tax preparer, you may want to seek legal assistance. The team at Wiggam Law has experience representing both taxpayers and tax professionals. We can also offer guidance if you’re worried about the potential implications of certain situations. Reach out today by calling (404) 609-1300 or fill out the online contact form for more details.
Tax Preparer Penalties
The IRS assesses the following penalties on tax preparers:
- Understatement of taxpayer liability
- Promoting abusive tax shelters
- Disclosure or use of information by preparers of returns
- Fraud and false statements
- Reckless disclosure or use of information
Each of these penalties is explained in more detail in the sections below.
What to Expect If the IRS Assesses Tax Preparer Penalties
The IRS will send you a notice outlining the penalties and the steps you should take. If you agree, contact the IRS and pay the penalties in full or make payment arrangements immediately. If you disagree with the penalties, be prepared to dispute them or go through the IRS appeals process.
Because this is a very specific aspect of the tax code, you may want to work with a tax professional with experience representing tax preparers.
How to Appeal Tax Preparer Penalties
The IRS will send you a notice if it proposes any tax preparer penalties on you. If you disagree with the penalty, you must request a penalty appeal 30 days from the letter date. Send your appeal to the address on the notice, not to the Office of Appeals.
The Collection Office that proposed the penalty will review your letter. If they cannot resolve the issue with you directly, they will send the request to appeals. Although you are a tax preparer, you may want an attorney to represent you through this process.
Significant Tax Preparer Penalties
The following penalties for tax preparers can be very significant. They tend to be the greater of a set amount or a percentage of the income you received for doing the return.
Understatement of Taxpayer’s Liability
If you prepare a return that understates the taxpayer’s liability, you may face a penalty if the following apply:
- Unreasonable position – The greater of $1,000 or 50% of the income you received to prepare the return.
- Willful or reckless conduct – The greater of $5,000 or 75%.
The penalties can be very steep. That’s why it’s critical to prepare tax returns carefully and vet the information to the best of your ability.
However, if you took a reasonable position and if the materials you received from your client appeared to be complete, you should not face penalties simply because they gave you information that misrepresented their income.
There is also a penalty of $1,000 for helping to underestimate tax on an individual return or $10,000 on a corporate return. The IRS can assess this penalty once per taxpayer for a single tax period or event.
What Is Reasonable Cause for Understatement of Tax Liability?
The IRS may not assess the income understatement penalty if you had reasonable cause and acted in good faith when filing the return. These concepts are subjective, and the IRS considers the following:
- Type of error – Did you deal with a complex part of the tax code?
- Frequency and materiality of the error – Was the error significant? Do you have a pattern of making this error?
- Operating procedures – Do you have safeguards in place that generally prevent this type of error?
- Good faith reliance – Did you rely on information provided by the taxpayer that seemed accurate?
- Industry practices – Were your actions and decisions reflective of industry standards?
If you disagree with the IRS’ reasoning behind proposing these penalties, you should reach out for help.
Promoting Abusive Tax Shelters
The IRS assesses this penalty on people who organize, sell, or otherwise promote abusive tax shelters. For example, in recent years, many promoters of Syndicated Conservation Easements received penalties and legal charges in many cases. The penalties are as follows:
- False statements about tax benefits of the shelter – 50% of the income you derived from the activity.
- Gross valuation overstatement – The lesser of $1,000 or 100% of the gross income you made from the activity.
The IRS may also sue you in federal court to stop you from promoting the tax shelter. Because this conduct may also include Circular 230 violations, you risk losing your credentials if applicable.
Disclosure or Use of Taxpayer Information
If you use your client’s information or disclose it to other parties, you can face a penalty of $250 per disclosure, up to $10,000 per year. If the disclosure was related to identity theft, the fine is $1,000 per disclosure, up to $50,000 per year.
If you recklessly use the information you received to prepare a tax return, you may face fines of up to $1,000, up to one year in prison, and be required to pay for prosecution costs.
Fraud or False Statements and Preparing Fraudulent Returns
If you make fraudulent statements on a tax return or another filing, such as an offer in compromise application, you can face fines of up to $100,000 ($500,000 for corporations), up to three years in prison, and be held responsible for legal costs.
You may also face penalties for preparing fraudulent returns. These can include misdemeanor charges, fines of up to $10,000 ($50,000 in the case of a corporation), and up to one year in prison.
Other Tax Preparer Penalties
Tax preparers also have other responsibilities, such as providing clients with copies of their returns and keeping client lists. However, these incidents are not as severe, and thus, the penalties are much lower.
However, these penalties apply per return and can stack. As of calendar year 2025, the following offenses lead to a penalty of $60 per return, up to $31,500 per year. For the calendar year 2024, these penalties were $60 each, up to $30,000 annually.
You may incur these penalties for the following actions:
- Failure to provide tax return to client
- Failure to sign a return
- Failure to provide PTIN
- Failure to retain a copy or list
- Failure to file correct information returns
Some slightly higher preparer penalties fall into the miscellaneous category.
If you endorse or negotiate (transfer) a check for another party, you can face a penalty of $635 as of calendar year 2025. For example, if you have a client endorse their refund check over to you to pay for your services, you may face this penalty.
You also must be diligent about helping clients to claim all credits for which they are eligible. If you are not diligent, you may incur a penalty of $635 for not helping clients obtain credits such as the Child Tax Credit, American Opportunity Credit, Earned Income Tax Credit, or the Lifetime Learning Credit.
Get Help With Tax Preparer Penalties Now
Dealing with IRS penalty assessments requires a very specific skill and experience set, and the need for the right experience is even higher if you’re dealing with tax preparer penalties.
At Wiggam Law, we know how stressful it can be to be a tax preparer, especially if something goes wrong and you incur an unexpected penalty. We can help you whether you are a Seasonal Tax Preparer, an accountant, a CPA, an enrolled agent, a tax attorney, or a non-credentialed tax preparer.
To get assistance now, contact us at Wiggam Law today. Call us at (404) 233-9800 or use the online contact form to request a consultation. We can also help if you have legal concerns about tax fraud or other potential criminal exposure.