Income tax return preparers may be subject to a number of general penalty provisions as well as specific preparer penalties aimed directly at them. Beware getting yourself into a position of having overstated deduction areas repeatedly. You can lose your right to prepare returns if you do.
The Internal Revenue Code incorporates a number of hazards for return preparers. In this era, when everyone second guesses everyone else, preparers must know how to recognize and avoid the dangerous areas.
The most common danger is taking a position that results in understatement of tax liability on the prepared return. However, there are a number of ways in which the preparer can justify the understatement.
A preparer must also be careful when disseminating return information to third parties. Penalties and actions for damages may result. The preparer should be aware of the permissible disclosures and how a taxpayer can consent to disclosure of his return information.
The Internal Revenue Code also imposes numerous record-keeping and reporting requirements on the preparer. Failure to comply can result in imposition of additional penalties.
Finally, for particularly egregious conduct, the IRS may disbar preparers from practice before the IRS or bring an action to enjoin the conduct. If you find yourself the target of such a proceeding brought against you by the IRS, be sure to contact a tax lawyer without delay.