IRC §6694 / §6695 Penalty Defense
Protecting your license, livelihood, and reputation.
Protecting your license, livelihood, and reputation.
Protecting your license, livelihood, and reputation.
When the IRS asserts preparer penalties under IRC §6694 (understatements due to preparer conduct) or IRC §6695 (procedural and due-diligence failures), the consequences reach far beyond a dollar figure. You face OPR exposure, EFIN/PTIN risk, software and bank-product holds, and potential criminal referral if the facts suggest willfulness.
When the IRS asserts preparer penalties under IRC §6694 (understatements due to preparer conduct) or IRC §6695 (procedural and due-diligence failures), the consequences reach far beyond a dollar figure. You face OPR exposure, EFIN/PTIN risk, software and bank-product holds, and potential criminal referral if the facts suggest willfulness. At The Walton Firm—Exclusively Defending Tax Professionals—we move fast, control the record, and fight to protect your ability to practice.
What the IRS is alleging—plain English
Protecting your license, livelihood, and reputation.
Protecting your license, livelihood, and reputation.
§6694 (Preparer Understatement Penalties)
- Unreasonable Position (§6694(a)): IRS claims the position lacked the required authority/standards (e.g., not supported by substantial authority or, if disclosed, not at least reasonably based).
- Willful or Reckless Conduct (§6694(b)): IRS says you knowingly disregarded rules or were reckless with f
§6694 (Preparer Understatement Penalties)
- Unreasonable Position (§6694(a)): IRS claims the position lacked the required authority/standards (e.g., not supported by substantial authority or, if disclosed, not at least reasonably based).
- Willful or Reckless Conduct (§6694(b)): IRS says you knowingly disregarded rules or were reckless with facts/law. This is the high-risk tier and can trigger CI/OPR attention.
- Penalty Framework (high level):
- Unreasonable position: greater of a fixed amount or a percentage of fees derived from the engagement.
- Willful/reckless: greater of a higher fixed amount or a higher percentage of fees.
(Exact thresholds/adjustments change—our first step is to verify current amounts and limit IRS overreach.)
- Unreasonable position: greater of a fixed amount or a percentage of fees derived from the engagement.
§6695 (Preparer Procedural Penalties)
Protecting your license, livelihood, and reputation.
§6695 (Preparer Procedural Penalties)
Frequent allegations include:
- Failure to furnish a copy of the return to the taxpayer.
- Failure to sign the return.
- Failure to furnish a PTIN/identifying number.
- Failure to retain copies/lists of returns or to file correct information returns.
- Negotiating client refunds (strictly prohibited).
- Due Diligence for credits (§6695(g)): EITC,
Frequent allegations include:
- Failure to furnish a copy of the return to the taxpayer.
- Failure to sign the return.
- Failure to furnish a PTIN/identifying number.
- Failure to retain copies/lists of returns or to file correct information returns.
- Negotiating client refunds (strictly prohibited).
- Due Diligence for credits (§6695(g)): EITC, CTC/ACTC/ODC, HOH, AOTC—per-return penalties that are inflation-adjusted annually and add up fast.
Why preparer penalty cases against professionals are differe
Experience Matters
Personalized Attention
Personalized Attention
- Higher expectations: The IRS assumes you knew (or should have known) the standards.
Personalized Attention
Personalized Attention
Personalized Attention
Parallel exposure: One letter can cascade into OPR, EFIN suitability, PTIN suspension, and CI leads.
Results-Oriented
Personalized Attention
Results-Oriented
Reputation risk: Findings can impact software relationships, bank-products, and referrals—your pipeline.
How we defend §6694 / §6695 cases
Early Triage & Narrative Control
Authority & Standards Analysis (the heart of §6694)
Authority & Standards Analysis (the heart of §6694)
- Lock down communications; we become the point of contact.
- Build a defensible timeline and theory of the case before you say a word on the merits.
Authority & Standards Analysis (the heart of §6694)
Authority & Standards Analysis (the heart of §6694)
Authority & Standards Analysis (the heart of §6694)
- Map each challenged position to substantial authority, reasonable basis with disclosure, or more-likely-than-not where applicable.
- Deploy ruling hierarchies (statute, regs, court decisions, revenue rulings/procedures, notices, PLRs, etc.) to re-classify alleged “unreasonable” positions.
Fact Development & Documentation
Authority & Standards Analysis (the heart of §6694)
Fact Development & Documentation
- Retrieve engagement letters, questionnaires, organizer notes, computation workpapers, memos, and contemporaneous emails.
- Show client-provided facts, reasonable inquiries, and your reliance (where appropriate).
- For §6695(g), produce due-diligence checklists, third-party verifications, residency/school/enrollment proofs, and HOH substantiation workflows.
Penalty Mitigation & Scope Limitation
Penalty Mitigation & Scope Limitation
Penalty Mitigation & Scope Limitation
- Challenge penalty computations (fee base, duplication, stacking across years/clients).
- Argue supervisory approval defects, timeliness, and improper aggregation.
- Seek concessions, partial abatement, or withdrawal; where needed, posture for Appeals or Tax Court.
Parallel-Track Protection
Penalty Mitigation & Scope Limitation
Penalty Mitigation & Scope Limitation
- Proactively address OPR, EFIN, and PTIN issues so a civil penalty doesn’t become a practice-ending sanction.
- Monitor for CI indicators and adjust strategy to avoid criminal referral.
Common triggers we neutralize
What we gather fast (your “go bag”)
What we gather fast (your “go bag”)
- Patterns in ERC, EITC/CTC/HOH/AOTC claims or amended returns
- Inconsistent Schedule C positions (income shifts, expense normalization, basis)
- Weak documentation of dependency, residency, and support
- Missing signatures/PTINs, poor retention, or staff using shared logins
- Marketing/fee issues that look like improper influence on return positions
What we gather fast (your “go bag”)
What we gather fast (your “go bag”)
What we gather fast (your “go bag”)
- Return packets, organizers, due-diligence checklists, file-audit logs
- Research memos and authority citations supporting positions
- Engagement letters, fee disclosures, and scope/limitation language
- Staff training records, supervision policies, role-based access/MFA proof
- Return packets, organizers, due-diligence checklists, file-audit logs
- Research memos and authority citations supporting positions
- Engagement letters, fee disclosures, and scope/limitation language
- Staff training records, supervision policies, role-based access/MFA proof
- E-file logs, bank-product reports, complaint/incident registers
- Third-party proofs (school records, leases, custody orders, 1098-T, etc.)
Case results (illustrative)
What we gather fast (your “go bag”)
Case results (illustrative)
- §6694(a) Reduced to Warning: IRS alleged unreasonable positions on HOH and CTC. We documented substantial authority + proper disclosure. Penalty withdrawn; managerial caution only.
- §6695(g) Abated: $30k due-diligence penalties tied to EITC/CTC pattern. Our file audits showed contemporaneous inquiries and corroboration. Full abatement.
- S
- §6694(a) Reduced to Warning: IRS alleged unreasonable positions on HOH and CTC. We documented substantial authority + proper disclosure. Penalty withdrawn; managerial caution only.
- §6695(g) Abated: $30k due-diligence penalties tied to EITC/CTC pattern. Our file audits showed contemporaneous inquiries and corroboration. Full abatement.
- Scope Contained—No OPR Referral: Multi-year §6694/§6695 exam with ERC flags. We secured a limited closing and implemented a forward-looking compliance plan adopted by the Service.
The Walton Firm Advantage
iExclusively Defending Tax Professionals—we know the playbook on both sides.
- Authority-driven briefs that reframe §6694 allegations and dismantle §6695 assertions.
- Parallel-proceeding control (OPR/EFIN/PTIN/CI) to protect the whole practice, not just one case.
- Nationwide representation with battle-tested checklists, templates, and remediation kits.se to handle even the most complex tax situations. She has helped countless individuals and businesses save money on their taxes while staying in compliance with all applicable laws and regulations.
A preparer-penalty letter is not “just a fine.” It’s a direct threat to your practice.