In a recent IRS response to an inquiry, it addresses certain concerns regarding tax return preparer penalties.  In part, it indicated that the three-year statute of limitations for penalties under 26 U.S.C. §§ 6694(a) and 6695 begins to run with the due date and filing date of the underlying return.  Penalties under the former statute are for understatement of a taxpayer’s liability due to unreasonable positions, and penalties under the latter are for other assessable penalties.  The determination as to whether such penalties are warranted is developed during the examination of an underlying return, meaning that generally a penalty will not be proposed until such examination is complete.  However, an investigation of a preparer may begin while the examination of the return is ongoing.

For more, see IRS Response No. 201425012 (Jun. 20, 2014).

Posted by Morgan Yuan, Esq., Associate Editor, Wealth Strategies Journal.