Positions Taken On a Tax Return Estimated % chance that position is correct Standard to meet regarding reliance on authority Taxpayer Risk Preparer Risk Less than 10% 0% (Frivolous) 20% Negligence Willful/Reckless 20% Substantial $1,000 Unrealistic Understatement position $250 (disclosure will not prevent) 10 – 30% Reasonable Basis *20% Substantial *Willful/Reckless Understatement $1,000 *Unrealistic position $250 33% Realistic Possibility *20% Substantial None of being sustained Understatement 35 – 40% Substantial Authority None None Greater than 50% More than likely None None * Unless Disclosed

Preparer Penalties - Summary Conduct Description Code Section Amount Protection from the Section 6694 Penalties a) Understatement due to 1. Realistic possibility of position……………… 6694(a) $ 250 being sustained b) Understatement due to 2. Adequate disclosure willful understatement of tax or reckless or 3. Reasonable cause intentional disregard of rules or regulations…… 6694(b) $ 1,000 4. Had no reason to know c) Aiding and abetting understatement of tax liability 6701 $ 10,000 d) Copy of return, failure to furnish……………. 6695(a) $ 50 e) Improper disclosure or use of information…… 7216 $ 1,000 or jail

Preparer Penalties – cont. Conduct Description Code Section Amount f) Sign return, failure to… 6695(b) $ 50 g) Identifying number, failure to furnish……... 6695(c) $ 50 h) List or copies of returns failure to retain……….. 6695(d) $ 50 i) List of employee preparers, failure to retain…………………... 6695(e) $ 50 j) Negotiation of refund check…………………... 6695(f) $ 500