Preparer penalties are assessed per return, claim, failure, check, disclosure, or activity depending on the provision, and most are adjusted for inflation each year. A firm with a systemic problem across a filing season can see that exposure multiply quickly across its affected clients.  

The amounts below are current for returns and claims filed in calendar year 2026. Where a figure is indexed, the printed Code amount is shown next to the operative one, because the two are far apart and many published summaries quote the wrong one.

What Penalties Can the IRS Assess Against a Tax Return Preparer?

The IRS can assess several different civil penalties against tax return preparers, depending on the conduct involved, and more than one may apply to the same engagement.

Amounts marked “Same” are not indexed for inflation.

The 2026 amounts come from Revenue Procedure 2024-40. Section 6695 penalties are keyed to the year the return is filed, so Revenue Procedure 2025-32 sets the figures for returns filed in 2027, with the per-return amount remaining at $65, the cap rising to $33,000, and the check-negotiation and due-diligence penalties rising to $665.

Each of the § 6695(a) through (e) caps applies separately rather than as one shared pool, so a preparer who fails multiple categories across a filing season can face more than $32,500 in combined exposure from this group of penalties alone. 

Why the Dollar Amounts You Find Online Are Often Wrong

26 U.S.C. § 6695(h) indexes every subsection of § 6695 for inflation, but the Code text itself is never updated to match.

The statute still reads $50 and $500, numbers that stopped applying in 2014. The $520 figure on many practitioners’ sites is the 2019 amount, set by Revenue Procedure 2017-58, and the $500 due diligence figure is the unindexed statutory base. 

Two exceptions: §§ 6694, 6700, 6701, and 6713 aren’t indexed, so their printed amounts are correct as-is. And the IRS’s preparer penalties page still shows 2025 figures rather than the 2026 amounts. The annual revenue procedure is the better primary source for the current indexed amounts. 

What Is the Section 6694 Penalty for an Unreasonable Position?

The penalty is the greater of $1,000 or 50% of the income derived from preparing the return or claim, assessed with respect to each return or claim when an understatement results from a position that fails the applicable §6694(a) standard.

Section 6694(a) applies when any part of an understatement is due to a position that fails the applicable standard. Note the measure: 50% of income derived means the penalty is tied to the preparer’s compensation for the return or claim, so a higher-fee engagement can produce a larger penalty.

Section 6694(a)(3) provides a reasonable-cause-and-good-faith exception. The preparer avoids the penalty if the understatement was due to reasonable cause and the preparer acted in good faith.

What Standard Does the Position Have to Meet?

It depends on whether the position was disclosed and whether a tax shelter or reportable transaction is involved.

For an ordinary position, adequate disclosure generally lets the preparer rely on the reasonable-basis standard rather than the substantial-authority standard. Disclosure does not, however, eliminate the need to satisfy the applicable § 6694 requirements, and it does not change the more-likely-than-not standard that applies to tax shelters and reportable transactions.

What Is the Willful or Reckless Conduct Penalty?

Section 6694(b) penalizes willful or reckless conduct at the greater of $5,000 or 75% of the income derived from the return.

The subsection covers two things: a willful attempt to understate liability and a reckless or intentional disregard for rules or regulations. Section 6694(b) does not contain the reasonable-cause-and-good-faith exception found in § 6694(a)(3). Any § 6694(a) penalty already paid on the same return reduces the § 6694(b) penalty. 

This provision can shift an examination of your client into an examination of you. In serious cases, the same conduct can also lead to a criminal investigation or referral.

What Are the Due Diligence Penalties?

The penalty is $650 for each failure to meet the due diligence requirements for a covered benefit or filing status claimed on returns filed in 2026, so multiple failures on the same return produce multiple penalties.

Section 6695(g) now covers four categories. The Tax Cuts and Jobs Act added head-of-household filing status in 2017 to the credit-based due-diligence requirements already in place. The categories are: 

• The earned income credit under section 32
• The child tax credit, additional child tax credit, and credit for other dependents under section 24
• The American Opportunity Tax Credit under section 25A(a)(1)
• Head of household filing status under section 2(b)

The Instructions for Form 8867 put the arithmetic plainly: a preparer who fails the due diligence requirements for all four on a single return filed in 2026 faces $2,600, being $650 for each of the four. There is no annual cap on this penalty.

The IRS’s own preparer penalties page still lists the Lifetime Learning Credit among the covered benefits, but § 6695(g)(2) points only to § 25A(a)(1), the American Opportunity Credit. Current Form 8867 instructions confirm the same four categories above, with no Lifetime Learning Credit among them. Current requirements are on the IRS page for due diligence law, regulations, and requirements.

Note also that Treasury Regulation § 1.6695-2(c) extends the penalty to the employing firm in defined circumstances. A single preparer’s failures can become the firm’s liability.

What Happens if You Disclose Client Information?

Disclosing client information can trigger a civil penalty, a criminal misdemeanor, or both, depending on your state of mind.

Section 6713 is the civil provision: $250 per disclosure or use, capped at $10,000 a year, rising to $1,000 and $50,000 where identity theft is involved. It has no scienter requirement, though § 6713(c) incorporates the same statutory exceptions found in § 7216(b). 

Section 7216 is the criminal counterpart, and it requires that the disclosure be knowing or reckless. It is a misdemeanor carrying up to one year. That distinction matters: § 6713 doesn’t require the knowing-or-reckless state of mind that § 7216 requires for criminal liability. 

What Preparer Conduct Is Criminal?

Two federal criminal provisions are particularly relevant to preparers: § 7206(2), which covers aiding or assisting in preparing a false or fraudulent return, and § 7216, which covers knowing or reckless misuse of client data. Both carry statutory maximum prison terms stated per count, and multiple false returns or improper disclosures can result in multiple counts (though the federal sentencing guidelines’ grouping rules, U.S.S.G. § 3D1.2, often combine related tax counts rather than stacking their sentences consecutively). 

(Statute references are to 26 U.S.C.) *§ 7216 itself sets a $100,000 fine, rather than $1,000, where the disclosure or use is connected to a crime involving another person’s identity.

For federal criminal fines, the general fine provisions of 18 U.S.C. § 3571 let a court impose the greatest of the amount specified in the offense statute, the general felony/misdemeanor maximums shown above, or an alternative fine of up to twice the gross gain or twice the gross loss, as provided in § 3571(d). That last option means the actual ceiling in a given case can exceed the $250,000/$100,000 figures shown here if the gain or loss involved is large enough. This framework applies unless the offense statute, by specific reference, exempts the offense from the otherwise applicable § 3571 fine provisions and neither § 7206(2) nor § 7216 does. 

Under § 7206(2), the taxpayer’s knowledge or consent is not required. The statute expressly reaches a preparer whether or not “such falsity or fraud is with the knowledge or consent of the person” filing. Our page on criminal tax exposure for CPAs and other preparers covers the exposure in depth.

Can the IRS Shut Down Your Practice?

A federal court can, on the government’s motion, and the standard has two parts.

Section 7407 lets a district court enjoin conduct where a preparer has engaged in conduct subject to penalty under § 6694 or § 6695 or any criminal penalty, misrepresented eligibility to practice or their experience or education, guaranteed a refund or credit, or engaged in other fraudulent or deceptive conduct that substantially interferes with tax administration.

A conduct-specific injunction is the ordinary remedy. The full bar is different. The court may enjoin someone from acting as a return preparer at all only where it finds they have “continually or repeatedly” engaged in that conduct and that a narrower injunction “would not be sufficient.” Courts and the government often describe this as a permanent injunction, but the statute itself requires the court to find both continual or repeated conduct and that a narrower injunction would be insufficient. 

Section 7408 is the parallel provision for conduct subject to penalty under §§ 6700, 6701, 6707, or 6708, and for violations of the Circular 230 regulations.

What Can the Office of Professional Responsibility Do?

Censure you, suspend or disbar you from practice before the IRS, or impose a monetary penalty. 

The authority is 31 U.S.C. § 330 and Treasury Department Circular No. 230, codified at 31 C.F.R. Part 10. Section 10.50 sets out the sanctions: censure, which is a public reprimand, suspension, disbarment, disqualification of appraisers, and a monetary penalty.

The monetary penalty can be significant: under § 10.50(c)(2) it “shall not exceed the gross income derived (or to be derived) from the conduct giving rise to the penalty,” and the statute allows it in addition to or in lieu of a suspension. Where the practitioner was acting for a firm, 31 U.S.C. § 330(c) permits the same penalty against the firm if it knew or reasonably should have known of the conduct.

Treasury published a proposed overhaul of Circular 230 in December 2024. Because the proposal could change the rules governing practice before the IRS if finalized, confirm the current regulations when evaluating an open matter. The current program is described on the IRS Office of Professional Responsibility page.

How Often Does the IRS Pursue Preparers?

Prosecution recommendations in the IRS’s abusive return preparer program rose sharply in fiscal year 2025, to 169 from 91 the year before.

The investigation count barely moved, but the rate at which those investigations turned into prosecution recommendations nearly doubled. Figures are from the IRS Criminal Investigation annual report.

What Should You Do if the IRS Contacted You?

Separate your own exposure from your client’s, and do it before you answer anything.

A preparer penalty examination is not the same as your client’s audit, even when it starts there. Continuing to represent a client whose return is the subject of your own potential penalty creates a conflict, and statements you make while defending the return are statements about your own conduct.

Keep your PTIN current while this is pending. Renewal for the 2026 season is $18.75, and the requirement itself comes from 26 U.S.C. § 6109(a)(4). Details are on the IRS PTIN requirements page.

If a client is alleging you did something wrong, our page on what tax preparer fraud is covers how those claims arise.

Talk to a Michigan Tax Attorney Before You Respond

Preparer cases can involve two tracks at once: a penalty examination and a professional-discipline or licensing matter. A response that helps resolve one may complicate the other.

Ayar Law defends return preparers, CPAs, and enrolled agents in penalty examinations, OPR referrals, and criminal investigations. If you’re facing any of these issues, please call (248) 262-3400 to request a case review.

This page is general information about federal tax practice and procedure. It is not legal advice, and reading it does not create an attorney-client relationship. Section 6695 penalty amounts are indexed annually and are keyed to the year a return is filed, and Circular 230 is subject to pending revision. Outcomes depend on the facts of each case, and prior results do not predict future outcomes. Speak with a licensed tax attorney before responding to a preparer penalty examination or an OPR inquiry.