View all text of Part I [§ 6671 - § 6720C]
§ 6694. Understatement of taxpayer’s liability by tax return preparer
(a) Understatement due to unreasonable positions
(1) In general
If a tax return preparer—
(A) 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
(B) 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.
(2) Unreasonable position
(A) In general
(B) Disclosed positions
(C) Tax shelters and reportable transactions
(3) Reasonable cause exception
(b) Understatement due to willful or reckless conduct
(1) In general
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—
(A) $5,000, or
(B) 75 percent of the income derived (or to be derived) by the tax return preparer with respect to the return or claim.
(2) Willful or reckless conduct
Conduct described in this paragraph is conduct by the tax return preparer which is—
(A) a willful attempt in any manner to understate the liability for tax on the return or claim, or
(B) a reckless or intentional disregard of rules or regulations.
(3) Reduction in penalty
(c) Extension of period of collection where preparer pays 15 percent of penalty
(1) In general
(2) Preparer must bring suit in district court to determine his liability for penalty
(3) Suspension of running of period of limitations on collection
(d) Abatement of penalty where taxpayer’s liability not understated
(e) Understatement of liability defined
(f) Cross reference
(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.)