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Tax Preparer Penalty Calculator

Calculate IRC § 6694, § 6695, and § 6713 preparer penalties in seconds

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Preparer Penalty Types

IRC § 6694

Understatement of Taxpayer's Liability

§ 6694(a) Unreasonable:
Greater of $1,000 or 50% of preparer fee

§ 6694(b) Willful:
Greater of $5,000 or 75% of preparer fee

IRC § 6695

Administrative Penalties

• Failure to furnish copy: $60

• Failure to sign: $60

• Failure to furnish PTIN: $60

• Negotiating check: $600

Annual caps: $30,500

IRC § 6695(g)

Due Diligence (HIGHEST RISK)

$635 per failure

NO annual cap

Applies to:

• EIC, CTC, ACTC, AOTC, HOH

• Per credit per return

§ 6695(g) Due Diligence: Most Common Preparer Penalty

⚠️ Critical Facts

  • $635 per failure for 2025 (inflation adjusted annually)
  • NO annual cap - penalty applies per credit per return
  • Form 8867 required for EACH credit on EACH return
  • 3-year retention required for all Form 8867s and documentation

Which Credits Require Form 8867?

EIC - Earned Income Credit

Form: Schedule EIC

CTC - Child Tax Credit

Form: Form 1040 / Schedule 8812

ACTC - Additional Child Tax Credit

Form: Schedule 8812

AOTC - American Opportunity Tax Credit

Form: Form 8863

HOH - Head of Household Filing Status

Form: Form 1040

Example Penalty Calculation

Scenario: Tax preparer prepared 50 returns claiming EIC and 30 returns claiming CTC, but failed to complete Form 8867.

EIC returns: 50 × $635 = $31,750

CTC returns: 30 × $635 = $19,050

Total Penalty: $50,800

Position Standards (IRC § 6694)

The standard required depends on whether the position is disclosed and whether it involves a tax shelter:

Reasonable Basis (>20% likelihood)

When: Disclosed positions (Form 8275 or 8275-R)
Standard: Reasonable basis for the position

Substantial Authority (>40% likelihood)

When: Undisclosed positions (non-tax shelter)
Standard: Substantial authority for the position

More Likely Than Not (>50% likelihood)

When: Tax shelter positions
Standard: More likely than not that position is correct
Note: Disclosure does NOT provide exception for tax shelters

Frequently Asked Questions

Can preparer penalties stack?

Yes. Unlike taxpayer penalties, preparer penalties CAN stack. You can be assessed penalties under § 6694, § 6695, § 6695(g), and § 6713 simultaneously for the same tax year.

Is there a reasonable cause defense?

§ 6694(a): Yes, reasonable cause defense is available.
§ 6694(b): No, no reasonable cause defense for willful conduct.
§ 6695(g): No, due diligence penalties are strict liability.
§ 6695 (admin): Limited, case-by-case basis.

How long must I retain Form 8867?

You must retain Form 8867, along with all worksheets, checklists, and documentation reviewed, for 3 years from the later of:
• The due date of the return, or
• The date the return was filed

What happens if I negotiate a taxpayer's refund check?

Negotiating or endorsing a taxpayer's refund check is a $600 penalty per check under IRC § 6695(f), with NO annual cap. This is strictly prohibited.

Are penalty amounts adjusted for inflation?

Yes. The IRS adjusts § 6695 and § 6695(g) penalty amounts annually for inflation via Revenue Procedure. For 2025:
• § 6695 administrative penalties: $60 per failure
• § 6695(f) negotiating check: $600
• § 6695(g) due diligence: $635
• § 6713 disclosure: $250 per disclosure

How do I avoid due diligence penalties?

To avoid § 6695(g) penalties:
1. Complete Form 8867 for EACH qualifying credit on EACH return
2. Ask appropriate questions during taxpayer interview
3. Review required documentation (W-2s, 1099s, school records, etc.)
4. Apply consistency check - ensure information is internally consistent
5. Make reasonable inquiries if information appears incorrect
6. Retain Form 8867, worksheets, and documents for 3 years

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