6694 - 6662A - and tax fraud

Section 6694(2)(C) requires the "more likely than not standard" for reportable and listed transactions. The final regulations do not mention tax avoidance or tax evasion. In addition to the risk of the 6694(a) penalty, there is the larger risk that if your client is involved with a transaction that has the potential for tax avoidance or evasion, return preparers can be browught in as conspirators with equal criminal risk in any matter involving a client.

Obviously, return preparers need to stay away from transactions that have avoidance or evasion potential.

The reference to 6662A is referenced in the 6694 statute. Note the following languages in section 6662A:


6662A(a) IMPOSITION OF PENALTY. --If a taxpayer has a reportable transaction understatement for any taxable year, there shall be added to the tax an amount equal to 20 percent of the amount of such understatement.
6662A(b)(2) ITEMS TO WHICH SECTION APPLIES. --This section shall apply to any item which is attributable to --
6662A(b)(2)(A) any listed transaction, and
6662A(b)(2)(B) any reportable transaction (other than a listed transaction) if a significant purpose of such transaction is the avoidance or evasion of Federal income tax.6662A(c) HIGHER PENALTY FOR NONDISCLOSED LISTED AND OTHER AVOIDANCE TRANSACTIONS. --Subsection (a) shall be applied by substituting "30 percent" for "20 percent" with respect to the portion of any reportable transaction understatement with respect to which the requirement of section 6664(d)(2)(A) is not met.

For an opinion on any questionable transaction with tax evasion or tax avoidance "potential," contact ab@irstaxattorney.com