1. 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% % (Frivolous) % 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

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

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