1.6694-1(b) liability for each position

1.6694-1. Section 6694 penalties applicable to tax return preparers


(a) Overview



(b) Tax return preparer

(1) In general. --For purposes of this section, "tax return preparer" means any person who is a tax return preparer within the meaning of section 7701(a)(36) and §301.7701-15 of this chapter. An individual is a tax return preparer subject to section 6694 if the individual is primarily responsible for the position(s) on the return or claim for refund giving rise to an understatement. See §301.7701-15(b)(3). There is only one individual within a firm who is primarily responsible for each position on the return or claim for refund giving rise to an understatement. In the course of identifying the individual who is primarily responsible for the position, the Internal Revenue Service (IRS) may advise multiple individuals within the firm that it may be concluded that they are the individual within the firm who is primarily responsible. In some circumstances, there may be more than one tax return preparer who is primarily responsible for the position(s) giving rise to an understatement if multiple tax return preparers are employed by, or associated with, different firms.
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Comment:


Since there are multiple positions in a tax return, there can be multiple tax return preparers for the same tax return and, indeed, multiple 6694 penalties for same tax return for the 2008 tax year and the forward years. This is the reason in prior blogs I have indicated that, for example, three "reckless" mistakes could result in 3$5,000 6694(b) penalties. Using this same example, you could have three different persons subject to 6694 penalties.

There is a question that has not been covered by the final 6694 regulations. The 6694 penalties will apply to the 2008 tax year. But what if a return preparer amends a prior year tax return.

Consider the following example:

A, a return preparer, files an amended tax return for the 2006 tax year. The 2006 tax year is not covered by the amended section 6694. It is my view that if the position taken in the amended tax return cannot be supported with substantial authority, the 6694 penalty will apply to the amended 2006 tax return. The reasons for this view is that Reg. 301.77-1-15(b)(4) defines a tax return as an "amended" return of tax.

For this reason, the return preparer industry will need to support all amended tax returns with "substantial" authority for undisclosed positions