Preparer Penalties (Filing) - Tax Year 2024

Why This Matters for the Exam

IRC §6695 penalties are testable because they involve specific dollar amounts that change annually with inflation. For the exam window (May 2025 - Feb 2026), you need to know the Tax Year 2024 penalty amounts.

The exam may also test when these penalties apply and whether there are maximums.

The Legal Foundation: IRC §6695

IRC §6695 imposes penalties on tax return preparers for specific administrative failures. These are civil penalties (not criminal) and are assessed per failure.

Key Distinction: These are preparer penalties (assessed against the preparer), not taxpayer penalties (assessed against the taxpayer).

The Four Main IRC §6695 Penalties

Penalty #1: Failure to Furnish Copy to Taxpayer (§6695(a))

Rule: The preparer must provide the taxpayer with a complete copy of the return before it is filed (or within a reasonable time after filing).

Penalty (2024): $60 per failure Maximum (2024): $30,000 per calendar year

Example: A preparer fails to furnish copies to 10 clients in 2024. The penalty is 10 × $60 = $600.

Common Exam Trap: The exam may ask if this applies to both e-filed and paper-filed returns. Answer: Yes, it applies to all returns.

Penalty #2: Failure to Sign Return (§6695(b))

Rule: The preparer must sign the return (with their PTIN) before it is filed. For e-filed returns, this means the preparer's electronic signature is applied.

Penalty (2024): $60 per failure Maximum (2024): $30,000 per calendar year

Example: A preparer forgets to sign 5 returns in 2024. The penalty is 5 × $60 = $300.

Reasonable Cause Exception: If the preparer can show reasonable cause for the failure (e.g., serious illness, natural disaster), the penalty may be waived.

Penalty #3: Failure to Retain Copy or List (§6695(d))

Rule: The preparer must retain either:

• A copy of the return, or
• A list of taxpayers for whom returns were prepared (with name, TIN, and tax year).

Retention Period: 3 years from the later of:

• The return due date, or
• The date the return was filed.

Penalty (2024): $60 per failure Maximum (2024): $30,000 per calendar year

Example: A preparer fails to retain copies or a list for 20 clients. The penalty is 20 × $60 = $1,200.

Penalty #4: Negotiation of Check (§6695(f))

Rule: A preparer cannot endorse or negotiate a refund check issued to a taxpayer. The check must go directly to the taxpayer (or be deposited into the taxpayer's account).

Penalty (2024): $635 per check No Maximum

Why It's High: This penalty is designed to deter "refund theft" schemes where preparers divert taxpayers' refunds into their own accounts.

Example: A preparer endorses and cashes a $2,000 refund check for a client. The penalty is $635 (in addition to potential criminal charges for theft).

Zero Tolerance: Unlike the other §6695 penalties, there is no maximum and no reasonable cause exception for negotiating a check.

Preparer Penalties Summary Table

Inflation Adjustments

The IRS adjusts these penalty amounts annually for inflation. For Tax Year 2024 (tested in the May 2025 - Feb 2026 exam window):

• $60 penalties (sign, furnish, retain) are indexed from an original $50 base.
• $635 penalty (check negotiation) is indexed from an original $500 base.

Exam Tip: The exam may provide penalty amounts and ask you to identify which year they apply to. Always look for the most recent amounts.

On the Exam

Expect 2-3 questions on IRC §6695 penalties, typically:

1. Amount Questions: "What is the penalty for a preparer who endorses or negotiates a client's refund check (Tax Year 2024)?"
2. Application Questions: "Is a preparer required to furnish a copy of the return to the taxpayer?"
3. Maximum Questions: "What is the maximum penalty for failure to sign returns in 2024?"

Key takeaway: $60 for sign/furnish/retain (max $30,000). $635 for check negotiation (no max).