Internal Revenue Code · 26 U.S.C.
§ 6694. Understatement of taxpayer’s liability by tax return preparer
Official text, no changes From the Office of the Law Revision Counsel, release point 119-121 (current through Public Law 119-121 (October 9, 2026)). Compare it with the official text at uscode.house.gov (external site).
Cite as 26 U.S.C. § 6694
At a glance
Read from the text, the source credit and the official notes. Not part of the law.
- Status
- In force
- Added
- October 4, 1976 by Pub. L. 94–455
- Last amended
- December 18, 2015 by Pub. L. 114–113
- Amendments
- 4 dated changes in the source credit
- Length
- 6 subsections · 1,062 words · about 5 min to read
- Defines
- 1 term
- Cross-references
- cites 5; cited by 10 Code sections and 2 other regulations
- Regulations
- 62 issued under this section
Except as otherwise provided in this paragraph, a position is described in this paragraph unless there is or was substantial authority for the position.
If the position was disclosed as provided in section 6662(d)(2)(B)(ii)(I) and is not a position to which subparagraph (C) applies, the position is described in this paragraph unless there is a reasonable basis for the position.
If the position is with respect to a tax shelter (as defined in section 6662(d)(2)(C)(ii)) or a reportable transaction to which section 6662A applies, the position is described in this paragraph unless it is reasonable to believe that the position would more likely than not be sustained on its merits.
No penalty shall be imposed under this subsection if it is shown that there is reasonable cause for the understatement and the tax return preparer acted in good faith.
If, within 30 days after the day on which notice and demand of any penalty under subsection (a) or (b) is made against any person who is a tax return preparer, such person pays an amount which is not less than 15 percent of the amount of such penalty and files a claim for refund of the amount so paid, no levy or proceeding in court for the collection of the remainder of such penalty shall be made, begun, or prosecuted until the final resolution of a proceeding begun as provided in paragraph (2). Notwithstanding the provisions of section 7421(a), the beginning of such proceeding or levy during the time such prohibition is in force may be enjoined by a proceeding in the proper court. Nothing in this paragraph shall be construed to prohibit any counterclaim for the remainder of such penalty in a proceeding begun as provided in paragraph (2).
If, within 30 days after the day on which his claim for refund of any partial payment of any penalty under subsection (a) or (b) is denied (or, if earlier, within 30 days after the expiration of 6 months after the day on which he filed the claim for refund), the tax return preparer fails to begin a proceeding in the appropriate United States district court for the determination of his liability for such penalty, paragraph (1) shall cease to apply with respect to such penalty, effective on the day following the close of the applicable 30-day period referred to in this paragraph.
The running of the period of limitations provided in section 6502 on the collection by levy or by a proceeding in court in respect of any penalty described in paragraph (1) shall be suspended for the period during which the Secretary is prohibited from collecting by levy or a proceeding in court.
If at any time there is a final administrative determination or a final judicial decision that there was no understatement of liability in the case of any return or claim for refund with respect to which a penalty under subsection (a) or (b) has been assessed, such assessment shall be abated, and if any portion of such penalty has been paid the amount so paid shall be refunded to the person who made such payment as an overpayment of tax without regard to any period of limitations which, but for this subsection, would apply to the making of such refund.
For purposes of this section, the term “understatement of liability” means any understatement of the net amount payable with respect to any tax imposed by this title or any overstatement of the net amount creditable or refundable with respect to any such tax. Except as otherwise provided in subsection (d), the determination of whether or not there is an understatement of liability shall be made without regard to any administrative or judicial action involving the taxpayer.
(Added Pub. L. 94–455, title XII, § 1203(b)(1), Oct. 4, 1976, 90 Stat. 1689; amended Pub. L. 101–239, title VII, §§ 7732(a), 7737(a), Dec. 19, 1989, 103 Stat. 2402, 2404; Pub. L. 110–28, title VIII, § 8246(a)(2)(F)(i), (b), May 25, 2007, 121 Stat. 201, 203; Pub. L. 110–343, div. C, title V, § 506(a), Oct. 3, 2008, 122 Stat. 3880; Pub. L. 114–113, div. Q, title II, § 210(a), Dec. 18, 2015, 129 Stat. 3085.)
Terms defined here
Where the text says “the term … means”. Select a term to jump to its definition.
Regulations under this section
Treasury regulations (26 CFR) issued under § 6694
- § 1.6694-0 Table of contents.
- § 1.6694-1 Section 6694 penalties applicable to tax return preparers.
- § 1.6694-2 Penalty for understatement due to an unreasonable position.
- § 1.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.
- § 1.6694-4 Extension of period of collection when tax return preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.
- § 20.6694-1 Section 6694 penalties applicable to tax return preparer.
- § 20.6694-2 Penalties for understatement due to an unreasonable position.
- § 20.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.
- § 20.6694-4 Extension of period of collection when preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.
- § 25.6694-1 Section 6694 penalties applicable to tax return preparer.
- § 25.6694-2 Penalties for understatement due to an unreasonable position.
- § 25.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.
- § 25.6694-4 Extension of period of collection when tax return preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.
- § 26.6694-1 Section 6694 penalties applicable to tax return preparer.
- § 26.6694-2 Penalties for understatement due to an unreasonable position.
- § 26.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.
- § 26.6694-4 Extension of period of collection when preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.
- § 28.6694-1 Section 6694 penalties applicable to return preparer.
- § 28.6694-2 Penalties for understatement due to an unreasonable position.
- § 28.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.
- § 28.6694-4 Extension of period of collection when tax return preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.
- § 31.6694-1 Section 6694 penalties applicable to tax return preparer.
- § 31.6694-2 Penalties for understatement due to an unreasonable position.
- § 31.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.
- § 31.6694-4 Extension of period of collection when tax return preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.
- § 40.6694-1 Section 6694 penalties applicable to tax return preparer.
- § 40.6694-2 Penalties for understatement due to an unreasonable position.
- § 40.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.
- § 40.6694-4 Extension of period of collection when tax return preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.
- § 41.6694-1 Section 6694 penalties applicable to tax return preparer.
- § 41.6694-2 Penalties for understatement due to an unreasonable position.
- § 41.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.
- § 41.6694-4 Extension of period of collection when preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.
- § 44.6694-1 Section 6694 penalties applicable to tax return preparer.
- § 44.6694-2 Penalties for understatement due to an unreasonable position.
- § 44.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.
- § 44.6694-4 Extension of period of collection when preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.
- § 53.6694-1 Section 6694 penalties applicable to tax return preparer.
- § 53.6694-2 Penalties for understatement due to an unreasonable position.
- § 53.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.
- § 53.6694-4 Extension of period of collection when tax return preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.
- § 54.6694-1 Section 6694 penalties applicable to tax return preparer.
- § 54.6694-2 Penalties for understatement due to an unreasonable position.
- § 54.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.
- § 54.6694-4 Extension of period of collection when tax return preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.
- § 55.6694-1 Section 6694 penalties applicable to tax return preparer.
- § 55.6694-2 Penalties for understatement due to an unreasonable position.
- § 55.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.
- § 55.6694-4 Extension of period of collection when tax return preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.
- § 56.6694-1 Section 6694 penalties applicable to tax return preparer.
- § 56.6694-2 Penalties for understatement due to an unreasonable position.
- § 56.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.
- § 56.6694-4 Extension of period of collection when tax return preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.
- § 58.6694-1 Section 6694 penalties.
- § 156.6694-1 Section 6694 penalties applicable to tax return preparer.
- § 156.6694-2 Penalties for understatement due to an unreasonable position.
- § 156.6694-3 Penalty for understatement due to willful, reckless, or intentional conduct.
- § 156.6694-4 Extension of period of collection when tax return preparer pays 15 percent of a penalty for understatement of taxpayer's liability and certain other procedural matters.
- § 157.6694-1 Section 6694 penalties applicable to tax return preparer.
- § 157.6694-2 Penalties for understatement due to an unreasonable position.
Cross-references
Computed from the citations in the text of Title 26 and 26 CFR.
This section cites 5 other sections
- § 6662(d)(2)(B)(ii)(I) Imposition of accuracy-related penalty on underpayments
- § 6662A Imposition of accuracy-related penalty on understatements with respect to reportable transactions
- § 7421(a) Prohibition of suits to restrain assessment or collection
- § 6502 Collection after assessment
- § 7701(a)(36) Definitions
Cited by 10 Code sections
- § 6103(k)(5) Confidentiality and disclosure of returns and return information
- § 6503(k)(4) Suspension of running of period of limitation
- § 6504(10) Cross references
- § 6511(i)(7) Limitations on credit or refund
- § 6662(d)(3) Imposition of accuracy-related penalty on underpayments
- § 6696(a) Rules applicable with respect to sections 6694, 6695, 6695A, and 6695B
- § 6701(f)(2) Penalties for aiding and abetting understatement of tax liability
- § 7407(b)(1)(A) Action to enjoin tax return preparers
- § 7421(a) Prohibition of suits to restrain assessment or collection
- § 7427 Tax return preparers
Cited in 2 regulations not issued under it
Amendment history
From the source credit and the official notes, newest first.
Where it sits in the Code
- Subtitle F Procedure and Administration
- Chapter 68 ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE PENALTIES
- Subchapter B Assessable Penalties
- Part I GENERAL PROVISIONS
Nearby sections
- § 6690 Fraudulent statement or failure to furnish statement to plan participant
- § 6691 Reserved
- § 6692 Failure to file actuarial report
- § 6693 Failure to provide reports on certain tax-favored accounts or annuities; penalties relating to designated nondeductible contributions
- § 6694 Understatement of taxpayer’s liability by tax return preparer
- § 6695 Other assessable penalties with respect to the preparation of tax returns for other persons
- § 6695B Penalty for substantial misstatements on certification provided by supplier
- § 6695A Substantial and gross valuation misstatements attributable to incorrect appraisals
- § 6696 Rules applicable with respect to sections 6694, 6695, 6695A, and 6695B
Official notes
Show the Law Revision Counsel's notes (amendments, effective dates)
Editorial Notes
Codification
Another section 6694, relating to failure to file information with respect to carryover basis property, which was added by Pub. L. 94–455, § 2005(d)(2), was renumbered section 6698 by Pub. L. 95–600, renumbered section 6698A by Pub. L. 96–222, and repealed by Pub. L. 96–223.
Amendments
2015—Subsec. (b)(1)(B). Pub. L. 114–113 substituted “75 percent” for “50 percent”.
2008—Subsec. (a). Pub. L. 110–343 amended subsec. (a) generally. Prior to amendment, subsec. (a) provided penalty for understatement due to unreasonable positions.
2007—Pub. L. 110–28, § 8246(a)(2)(F)(i)(I), substituted “tax return preparer” for “income tax return preparer” in section catchline.
Subsec. (a). Pub. L. 110–28, § 8246(b), amended heading and text of subsec. (a) generally. Prior to amendment, text read as follows: “If—
“(1) any part of any understatement of liability with respect to any return or claim for refund is due to a position for which there was not a realistic possibility of being sustained on its merits,
“(2) any person who is an income tax return preparer with respect to such return or claim knew (or reasonably should have known) of such position, and
“(3) such position was not disclosed as provided in section 6662(d)(2)(B)(ii) or was frivolous,
such person shall pay a penalty of $250 with respect to such return or claim unless it is shown that there is reasonable cause for the understatement and such person acted in good faith.”
Subsec. (b). Pub. L. 110–28, § 8246(b), amended heading and text of subsec. (b) generally. Prior to amendment, text read as follows: “If any part of any understatement of liability with respect to any return or claim for refund is due—
“(1) to a willful attempt in any manner to understate the liability for tax by a person who is an income tax return preparer with respect to such return or claim, or
“(2) to any reckless or intentional disregard of rules or regulations by any such person,
such person shall pay a penalty of $1,000 with respect to such return or claim. With respect to any return or claim, the amount of the penalty payable by any person by reason of this subsection shall be reduced by the amount of the penalty paid by such person by reason of subsection (a).”
Subsec. (c)(1). Pub. L. 110–28, § 8246(a)(2)(F)(i)(II), substituted “a tax return preparer” for “an income tax return preparer”.
Subsec. (c)(2). Pub. L. 110–28, § 8246(a)(2)(F)(i)(III), substituted “the tax return preparer” for “the income tax return preparer”.
Subsec. (e). Pub. L. 110–28, § 8246(a)(2)(F)(i)(IV), substituted “this title” for “subtitle A”.
Subsec. (f). Pub. L. 110–28, § 8246(a)(2)(F)(i)(V), substituted “tax return preparer” for “income tax return preparer”.
1989—Subsec. (a). Pub. L. 101–239, § 7732(a), substituted “Understatements due to unrealistic positions” for “Negligent or intentional disregard of rules and regulations” in heading and amended text generally. Prior to amendment, text read as follows: “If any part of any understatement of liability with respect to any return or claim for refund is due to the negligent or intentional disregard of rules and regulations by any person who is an income tax return preparer with respect to such return or claim, such person shall pay a penalty of $100 with respect to such return or claim.”
Subsec. (b). Pub. L. 101–239, § 7732(a), substituted “Willful or reckless conduct” for “Willful understatement of liability” in heading and amended text generally. Prior to amendment, text read as follows: “If any part of any understatement of liability with respect to any return or claim for refund is due to a willful attempt in any manner to understate the liability for a tax by a person who is an income tax return preparer with respect to such return or claim, such person shall pay a penalty of $500 with respect to such return or claim. With respect to any return or claim, the amount of the penalty payable by any person by reason of this subsection shall be reduced by the amount of the penalty paid by such person by reason of subsection (a).”
Subsec. (c)(1). Pub. L. 101–239, § 7737(a), inserted at end “Nothing in this paragraph shall be construed to prohibit any counterclaim for the remainder of such penalty in a proceeding begun as provided in paragraph (2).”
Statutory Notes and Related Subsidiaries
Effective Date of 2015 Amendment
Pub. L. 114–113, div. Q, title II, § 210(b), Dec. 18, 2015, 129 Stat. 3085, provided that: “The amendment made by this section [amending this section] shall apply to returns prepared for taxable years ending after the date of the enactment of this Act [Dec. 18, 2015].”
Effective Date of 2008 Amendment
Pub. L. 110–343, div. C, title V, § 506(b), Oct. 3, 2008, 122 Stat. 3880, provided that:
“The amendment made by this section [amending this section] shall apply—“(1) in the case of a position other than a position described in subparagraph (C) of section 6694(a)(2) of the Internal Revenue Code of 1986 (as amended by this section), to returns prepared after May 25, 2007, and“(2) in the case of a position described in such subparagraph (C), to returns prepared for taxable years ending after the date of the enactment of this Act [Oct. 3, 2008].”
Effective Date of 2007 Amendment
Amendment by Pub. L. 110–28 applicable to returns prepared after May 25, 2007, see section 8246(c) of Pub. L. 110–28, set out as a note under section 6060 of this title.
Effective Date of 1989 Amendment
Pub. L. 101–239, title VII, § 7732(b), Dec. 19, 1989, 103 Stat. 2402, provided that: “The amendment made by subsection (a) [amending this section] shall apply with respect to documents prepared after December 31, 1989.”