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The Top 10 Preparer
And Other Penalties: Not Going
To Jail, But It Still Hurts
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com

2
Preparer And Other Tax Penalties
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
What We Will Cover:
1. Section 7701(a)(36) Tax Return Preparer Defined. P. 3
2. Section 6694: Understatement Of Taxpayer’s Liability. P. 7
3. Section 6695: Other Assessable Penalties. P. 18
4. Section 6696: Rules Applicable To Other Sections. P. 23
5. Section 6662: Accuracy‐Related Penalty. P. 27
6. Section 6663: Imposition Of Fraud Penalty. P. 39
7. Section 6664: Definitions And Special Rules. P. 43
8, What Good Can A Tax Opinion Do? P. 49
9. Section 6700: Promoting Abusive Tax Shelters, Etc. P. 55
10. Section 6701: Aiding And Abetting Understatement. P. 60
11. Section 6702: Frivolous Tax Submissions. P. 65
12. Section 6703: Rules Applicable To 6700, 6701 and 6702. P. 72
13. Section 6707A: Reportable Transaction Information. P. 74
14. Section 6713: Disclosure Or Use Of Information By TRPs. P. 78
15. Section 7201: Attempt To Evade Or Defeat Tax. P. 80
16. Section 7206: False And Fraudulent Statements. P. 82
17. Section 7212: Attempts To Interfere With Administration Of Code. P. 85
18. Section 7216: Disclosure Or Use Of Information By TRPs. P. 88
19. Section 7407: Action To Enjoin Tax Return Preparers. P. 90
20. Section 7408: Actions To Enjoin Conduct Related To Tax Shelters, Etc. P. 93
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Section 7701(a)(36) – Tax Return Preparer [“TRP”]
(A) In General. The term “TRP” means any person who prepares for compensation,
or who employs one or more persons to prepare for compensation, any return of tax….
….[T]he preparation of a substantial portion of a return or refund claim shall be treated as
if it were the preparation of such return or claim for refund.
(B) Exceptions. A person shall not be a “TRP” merely because such person –
(i) furnishes typing, reproducing, or other mechanical assistance,
(ii) prepares a return or refund claim of the employer (or of an officer or employee of
the employer) by whom he is regularly and continuously employed),
(iii) prepares as a fiduciary a return or claim for refund for any person, or
(iv) prepares a refund claim for a taxpayer in response to any deficiency notice
issued to such taxpayer or in response to any waiver of restriction after the
beginning of an audit of such taxpayer or another taxpayer if a determination
in that audit directly or indirectly affects the tax liability of such taxpayer.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
3

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Section 7701(a)(36) – Tax Return Preparer [“TRP”] (cont’d)
Before May 25, 2007, the penalty only applied to income tax return preparers.
This penalty does not apply to preparers of FinCen 114, which is required not under the
Internal Revenue Code but under the Bank Secrecy Act.
TAM 8731004: A corporation was considered to be a preparer even though, under its franchise
agreement, it was prohibited from physically preparing returns.
A person who reviews a return for substantive correctness is considered a preparer, whether or
not the review results in any changes to the return. Rev. Rul. 84-3.
A person who renders tax advice on a position that is directly relevant to the determination of
the existence, characterization, or amount of an entry on a return or claim for refund will be regarded as
having prepared that entry. Reg. Section 301.7701-15(b)(3).
An advisor who conducted a study of the taxpayer's allowable research credits for prior years
is a preparer where the results of the study, including the improper election and computation, formed the
basis of the taxpayer's reporting on his tax return. FAA 20032601F.
A company that furnishes computerized tax return preparation services (and the computer
programmer) is treated as preparing the tax returns that utilized the program where the program goes
beyond mere mechanical and clerical assistance and makes substantive determinations concerning the
application of the tax law to the information provided. Rev. Ruls. 85-187; 85-188; and 85-189.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
4

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Section 7701(a)(36) – Tax Return Preparer [“TRP”] (cont’d)
A tax return preparer as to one return is not considered a tax return preparer of another return
merely because one or more entries reported on the first return may affect an entry reported on the other
return.
If, however, the entries reported on the first return are directly reflected on the other return and
constitute a “substantial portion” of the other return, the preparer is also considered a preparer of the other
return. Reg. Section 301.7701-15(b)(3)(iii).
The sole preparer of a partnership or S corporation income tax return is considered a preparer
of the returns of a partner or shareholder, if the entries on the partnership or S corporation return that are
reportable on the partner's or shareholder's return constitute a substantial portion of such returns. Reg.
Section 301.7701-15(b)(3)(iii). Goulding v. U.S., 957 F.2d 1420 (7th Cir. 1992).
The tax return preparer of a return showing an NOL is also a preparer of each return that
reflects a carryback or carryover of that loss as a substantial portion of such return. Rev. Rul. 81-171.
A single tax entry may constitute a substantial portion of the tax required to be shown on the
return. Reg. Section 301.7701-15(b)(3)(i).
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
5

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Section 7701(a)(36) – Tax Return Preparer [“TRP”] (cont’d)
After December 31, 2008, the regulations distinguish between a “signing” and “nonsigning” tax
return preparer. Reg. Section 301.7701-15(b)(1), as amended by T.D. 9436.
A “nonsigning tax return preparer” is any TRP who is not a signing TRP but who prepares all or
a substantial portion of a return or claim for refund as to events that have occurred when the advice is
rendered. Reg. Section 301.7701-15(b)(2).
In determining whether an individual is a nonsigning TRP, any time spent on advice that is given
as to events that have occurred that represents less than 5% of the total time spent by the individual as to
the positions giving rise to the understatement is not considered. Reg. Section 301.7701-15(b)(2). The
less-than-5% test is intended to encourage tax professionals who principally rendered advice regarding
events that have not yet occurred to provide follow-up advice requested by the taxpayer without the
concern that, by providing such advice, the professional would become a TRP.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
6

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Section 6694
Understatement of taxpayer’s liability by tax return preparer
(a) Understatement due to unreasonable positions.
(1) In General.
If a tax return preparer –
(A) prepares any return or claim of refund with respect to
which any part of an understatement of liability is due to a position described in
paragraph (2), and
(B) knew (or reasonably should have known) of the position,
such tax return preparer shall pay a penalty with respect to each such return or claim
in an amount equal to the greater of $1,000 or 50% of the income derived (or to be
derived) by the tax return preparer with respect to the return or claim.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
7

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Section 6694 [continued]
(2) Unreasonable position.
(A) In General. Except as otherwise provided in this paragraph, a
position is described in this paragraph unless there is or was substantial authority for
the position.
(B) Disclosed positions. 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.
(C) Tax shelters and reportable transactions. 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.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
8

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Section 6694 [continued]
(3) Reasonable cause exception. No penalty shall be imposed under
this subsection if it is shown that there is reasonable cause for the understatement
and the TRP acted in good faith.
(b) Understatement due to willful or reckless conduct.
(1) In general. Any TRP who prepares any return or refund claim as to
which any part of an understatement is due to a conduct described in paragraph (2)
shall pay a penalty as to such return or claim in an amount equal to the greater of –
(A) $5,000, or
(B) 50% of the income derived (or to be derived) by the TRP
as to the return or claim.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
9

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Section 6694 [continued]
(2) Willful or reckless conduct. Conduct described in this paragraph
is conduct by the TRP which is –
(A) a willful attempt in any manner to understate the liability
for tax on the return or claim, or
(B) a reckless or intentional disregard of rules or regulations.
(3) Reduction in penalty. The amount of any penalty payable by any
person by reason of this subsection for any return or claim for refund shall be
reduced by the amount of the penalty paid by such person by reason of subsection
(a).
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
10

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Section 6694 [continued]
(c) Extension of period of collection where preparer pays 15% of penalty.
(1) In general. If, within 30 days after the day on which notice and
demand for 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% 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 proceeding in the proper court. Nothing in this paragraph shall be constructed to
prohibit any counterclaim for the remainder of such penalty in a proceeding begun as
provided in paragraph (2).
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
11

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Section 6694 [continued]
(2) Preparer must bring suit in district court to determine his liability for penalty.
If within 30 days after the day on which his claim for refund of any partial payment of
any penalty under subsection (a) or (b0 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 being a proceeding in the appropriate U.S. 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.
(3) Suspension of running of period of limitations on collection. 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.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
12

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Section 6694 [continued]
(d) Abatement of penalty where taxpayer’s liability not understated. 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 the
subsection, would apply to the making of such refund.
(e) Understatement of liability defined. For purposes of this section,
“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.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
13

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Section 6694 - Updates
U.S. v. Hand-Bostick, (2011, DC TX) 108 AFTR 2d 2011-6235.
TRPs were granted in part and denied in part summary judgment on
govt.'s complaint for injunctive relief under §§7408, 7407 and 7402 from their
promotion of fraudulent nonconventional fuel source tax credit scheme: TRPs
were entitled to summary judgment as to their alleged conduct subject to §6701
penalty because they lacked actual knowledge of fraudulent scheme, material
fact issues remained as to whether they engaged in conduct subject to §6700
penalty due to complex issues and govt.'s evidence suggested they furnished
gross valuation overstatements for scheme and later loss deductions to
customers via assignment agreements and production reports. Evidence showed
TRPs didn't engage in fraudulent or deceptive conduct under §7407(b)(1)(D),
questions existed as to whether they had reasonable cause for understatements
on returns within meaning of §6694(a) and as to whether their conduct was
reasonable under §6694(b).
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
14

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Section 6694 - Updates
U.S. v. Aparicio, (2011, DC CA) 108 AFTR 2d 2011-5502.
Stipulated order of permanent injunction was entered against
TRP barring him and his employees from acting as preparers, instructing
or advising others to violate tax laws, engaging in conduct subject to
penalty under §§6694. 6700 and 6701 and representing others before
IRS. TRP was also ordered to send injunction copy to clients. While
prohibited from owning, controlling or managing any tax preparation
business, he wasn't precluded from working in non-professional capacity
in any such business.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
15

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Section 6694 - Updates
U.S. v. Littrice, (2011, DC IL) 108 AFTR 2d 2011-5710.
Govt.'s complaint for broad injunction, permanently barring TRP
and her solely owned accounting business from preparing returns for
others and from violating tax laws, was granted on summary judgment:
injunction was warranted under §7407 when considering her prior
§7206(2) conviction and other evidence that she had engaged in conduct
subject to penalty under §6694 and 6695, by recklessly or willfully
understating client liabilities and by using someone else's PTIN; that
she kept doing so even after learning of IRS investigation; and that she
was likely to continue absent injunction. Alternately, evidence
supported injunction under either §7408 or 7402.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
16

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Section 6694 - Updates
U.S. v. Giroud, (2011, DC CA) 108 AFTR 2d 2011-6372.
Permanent injunction was entered against TRP, barring him and
those acting with him from acting as preparers, engaging in conduct
subject to penalty under §6694 and 6701, preparing his own returns with
false tax withholding and refunds based on amounts shown in Forms
1099-OID, filing or abetting filing of frivolous returns, and engaging in
conduct subject to penalty under IRC or that otherwise interfered with tax
law administration and enforcement. TRP was ordered to inform clients
of injunction order and provide govt. with client list.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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Section 6695
Other Assessable penalties with respect to the preparation
of tax returns for other persons
(a) Failure to furnish copy to taxpayer. Any person who is a TRP as to any
return or claim for refund who fails to comply with section 6107(a) as to such return or
claim shall pay a penalty of $50 for such failure, unless it is shown that such failure is
due to reasonable cause and not due to willful neglect. The maximum penalty
imposed under this subsection on any person with respect to documents filed during
any calendar year shall not exceed $25,000.
(b) Failure to sign return. Any person who is a TRP with respect to any return
or claim for refund, who is required by regulations prescribed by the Secretary to sign
such return or claim, and who fails to comply with such regulations with respect to
such return or claim shall pay a penalty of $50 for such failure, unless it is shown that
such failure is due to reasonable cause and not due to willful neglect. The maximum
penalty imposed under this subsection on any person with respect to documents filed
during any calendar year shall not exceed $25,000.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
18

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Section 6695 [continued]
(c) Failure to furnish identifying number. Any person who is a TRP as to any
return or claim for refund and who fails to comply with section 6109(a)(4) with respect
to such return or claim shall pay a penalty of $50 for such failure, unless it is shown
that such failure is due to reasonable cause and not due to willful neglect. The
maximum penalty imposed under this subsection on any person with respect to
documents filed during any calendar year shall not exceed $25,000.
(d) Failure to retain copy or list. Any person who is a tax return preparer with
respect to any return or claim for refund who fails to comply with section 6107(b) with
respect to such return or claim shall pay a penalty of $50 for each such failure, unless
it is shown that such failure is due to reasonable cause and not due to willful neglect.
The maximum penalty imposed under this subsection on any person with respect to
any return period shall not exceed $25,000.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
19

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Section 6695 [continued]
(e) Failure to file correct information returns. Any person required to make a
return under section 6060 who fails to comply with the requirements of such section
shall pay a penalty of $50 for (1) each failure to9 file a return as required under such
section, and (2) each failure to set forth an item in the return as required under such
section, unless it is shown that such failure is due to reasonable cause and not due to
willful neglect. The maximum penalty imposed under this subsection on any person
with respect to any return period shall not exceed $25,000.
(f) Negotiation of check. Any person who is a tax return preparer who
endorses or otherwise negotiates (directly or through an agent) any check made in
respect of the taxes imposed by this title which is issued to a taxpayer (other than the
tax return preparer) shall pay a penalty of $500 with respect to each such check. The
preceding sentence shall not apply with respect to the deposit by a bank…of the full
amount of the check in the taxpayer’s account in such bank for the taxpayer’s benefit.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
20

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Section 6695 [continued]
(g) Failure to be diligent in determining eligibility for earned income credit. Any
person who is a tax return preparer with respect to any return or claim for refund who
fails to comply with due diligence requirements imposed by the Secretary by
regulations with respect to determining eligibility for, or the amount of, the credit
allowable by section 32 shall pay a penalty of $500 for each such failure.
$500 for returns required to filed after 12/31/2011 due to H.R. 3080, the U.S.-Korea
Free Trade Agreement Implementation Act just signed by the president.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
21

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U.S. v. Penny Lea Jones
July 7, 2011 Dist. Ct. Idaho
Ms. Jones submitted phony IRS Forms 1099-OID which purport to have
been issued to or received by the taxpayer from a creditor that withholds nearly all
of the interest income reported on the returns in the amount of the debt, usually a
mortgage, car loan, or credit card balance owed by the taxpayer. Based on what is
commonly referred to as “redemption theories,” which claim taxpayers are entitled
to access a secret treasury account to satisfy their tax liabilities by using IRS forms.
Under this theory there exists an “unrestricted right for collections and return of
funds/securities” issued to every child born in the U.S. The birth certificates issued
to the children become a registered security representing that child’s life-long labor
on a general average basis. The security is held in trust by the U.S. government, in
whom the children are its stockholders, as a redeemable bond. Etc.
She filed 437 returns claiming $168 million in refunds. So she violated
§6694 by understating her customers’ liabilities and §6695 by failing to remit a list of
customers or copies of returns to the IRS when requested (IRC §6107(b)).
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
22

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Section 6696 Rules applicable as to sections 6694, 6695 and 6695A
(a) Penalties to be additional to any other penalties. The penalties
provided by §6694, 6695 and 6695A shall be in addition to any other
penalties provided by law.
(b) Deficiency procedures not to apply. Subchapter B of chapter 63
(relating to deficiency procedures for income, estate, gift, and certain
excise taxes) shall not apply as to the assessment or collection of the
penalties provided by §§6694, 6695 and 6695A.
(c) Procedure for claiming refund. Any claim for credit or refund of
any penalty…shall be filed in accordance with regulations prescribed by
the Secretary.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
23

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Section 6696 Rules applicable to sections 6694, 6695 and 6695A
[continued]
(d) (1) Assessment. The amount of any penalty under §6694(a), 6695
or 6695A shall be assessed within 3 years after the return or claim for
refund as to which the penalty is assessed was filed, and no proceeding in
court without assessment for the collection of such tax shall be begun
after the end of such period. In the case of any 6694(b) penalty, it may be
assessed or a court proceeding for the collection may be begun without
assessment at any time.
(2) Claim for refund. Except as provided in section 6694(d), any
refund claim for an overpayment of any penalty…shall be filed within 3
years from the time the penalty was paid.
(e) Definitions. [not the same as 7701(a)(36)]
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
24

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Section 6696 Rules applicable to sections 6694, 6695 and 6695A
[Regulations]
The IRS may, within the applicable period of limitations, credit any
amount of an overpayment by a TRP or appraiser of a penalty (or penalties) paid
under §6694 and Reg. §1.6694-1, under §6695 and Reg. §1.6695-1, or under
§6695A (and any later issued regulations) against any outstanding liability for
any tax (or for any interest, additional amount, addition to the tax, or assessable
penalty) owed by the TRP or appraiser making the overpayment. If a portion of
an overpayment was so credited, only the balance will be refunded to the TRP or
appraiser. Reg. §1.6696-1(h).
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
25

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Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
26

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§ 6662 Imposition of accuracy-related penalty on underpayments.
(a) Imposition of penalty. If this section applies to any portion of an underpayment of tax required to be shown
on a return, there shall be added to the tax an amount equal to 20% of the portion of the underpayment to which
this section applies.
(b) Portion of underpayment to which section applies. This section shall apply to the portion of any
underpayment which is attributable to 1 or more of the following:
(1) Negligence or disregard of rules or regulations.
(2) Any substantial understatement of income tax.
(3) Any substantial valuation misstatement under chapter 1.
(4) Any substantial overstatement of pension liabilities.
(5) Any substantial estate or gift tax valuation understatement.
(6) Any disallowance of claimed tax benefits by reason of a transaction lacking economic substance
(within the meaning of §7701(o)) or failing to meet the requirements of any similar rule of law.
(7) Any undisclosed foreign financial asset understatement.
This section shall not apply to any portion of an underpayment on which a penalty is imposed under section
6663. Except as provided in paragraph (1) or (2)(B) of section 6662A(e), this section shall not apply to the
portion of any underpayment which is attributable to a reportable transaction understatement on which a penalty
is imposed under §6662A.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
27

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§ 6662 [continued].
(c) Negligence. For purposes of this section, “negligence” includes any failure to make a reasonable
attempt to comply with the provisions of this title, and “disregard” includes any careless, reckless, or
intentional disregard.
(d) Substantial understatement of income tax.
(1) Substantial understatement.—
(A) In general. For purposes of this section, there is a substantial understatement of income tax
for any taxable year if the amount of the understatement for the taxable year exceeds the greater of—
(i) 10 percent of the tax required to be shown on the return for the taxable year, or
(ii) $5,000.
(B) Special rule for corporations. In the case of a corporation other than an S corporation or a
personal holding company (as defined in section 542), there is a substantial understatement of income
tax for any taxable year if the amount of the understatement for the taxable year exceeds the lesser of—
(i) 10% of the tax required to be shown on the return for the taxable year (or, if greater,
$10,000), or
(ii) $10,000,000.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
28

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§ 6662 [continued].
(2) Understatement.
(A) In general. For purposes of paragraph (1), “understatement” means the excess of—
(i) the amount of the tax required to be shown on the return for the taxable year, over
(ii) the amount of the tax imposed which is shown on the return, reduced by any rebate (within the
meaning of §6211(b)(2)).
The excess under the preceding sentence shall be determined without regard to items to which §6662A
applies.
(B) Reduction for understatement due to position of taxpayer or disclosed item. The amount of the
understatement under subparagraph (A) shall be reduced by that portion of the understatement which is
attributable to—
(i) the tax treatment of any item by the taxpayer if there is or was substantial authority for such
treatment, or
(ii) any item if—
(I) the relevant facts affecting the item's tax treatment are adequately disclosed in the return or
in a statement attached to the return, and
(II) there is a reasonable basis for the tax treatment of such item by the taxpayer.
For purposes of clause (ii)(II), in no event shall a corporation be treated as having a reasonable basis for its tax
treatment of an item attributable to a multiple-party financing transaction if such treatment does not clearly
reflect the income of the corporation.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
29

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§ 6662 [continued].
(e) Substantial valuation misstatement under chapter 1.
(1) In general. [T]here is a substantial valuation misstatement under chapter 1 if—
(A) the value of any property (or the adjusted basis of any property) claimed on any return of
tax imposed by chapter l is 150% or more of the amount determined to be the correct amount of such
valuation or adjusted basis (as the case may be), or
(B)
(i) the price for any property or services (or for the use of property) claimed on any such
return in connection with any transaction between persons described in §482 is 200% or more (or 50%
or less) of the amount determined under §482 to be the correct amount of such price, or
(ii) the net §482 transfer price adjustment for the taxable year exceeds the lesser of
$5,000,000 or 10% of the taxpayer's gross receipts.
(2) Limitation. No penalty shall be imposed due to subsection (b)(3) unless the portion of the
underpayment for the taxable year attributable to substantial valuation misstatements under chapter 1
exceeds $5,000 ($10,000 in the case of a corporation other than an S corporation or a PHC (as defined
in §542)).
(3) Net §482 transfer price adjustment. [omitted]
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
30

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§ 6662 [continued].
(f) Substantial overstatement of pension liabilities. [omitted]
(g) Substantial estate or gift tax valuation understatement.
(1) In general. For purposes of this section, there is a substantial estate or gift tax valuation
understatement if the value of any property claimed on any return of tax imposed by subtitle B is 65
percent or less of the amount determined to be the correct amount of such valuation.
(2) Limitation. No penalty shall be imposed due to subsection (b)(5) unless the portion of the
underpayment attributable to substantial estate or gift tax valuation understatements for the taxable
period (or, in the case of the tax imposed by chapter 11, as to the decedent’s estate) exceeds $5,000.
(h) Increase in penalty in case of gross valuation misstatements.
(1) In general. To the extent that a portion of the underpayment to which this section applies is
attributable to one or more gross valuation misstatements, subsection (a) shall be applied to such
portion by substituting “40%” for “20%”.
(2) Gross valuation misstatements. [omitted]
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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§ 6662 [continued].
(i) Increase in penalty in case of nondisclosed noneconomic substance transactions.
(1) In general. In the case of any portion of an underpayment which is attributable to one or more
nondisclosed noneconomic substance transactions, subsection (a) shall be applied as to such portion by
substituting “40%” for “20%”.
(2) Nondisclosed noneconomic substance transactions. …“nondisclosed noneconomic
substance transaction” means any portion of a transaction described in subsection (b)(6) as to which the
relevant facts affecting the tax treatment are not adequately disclosed in the return nor in a statement
attached to the return.
(3) Special rule for amended returns. In no event shall any amendment or supplement to a return
of tax be taken into account for purposes of this subsection if the amendment or supplement is filed after
the earlier of the date the taxpayer is first contacted by the Secretary regarding the examination of the
return or such other date as is specified by the Secretary.
(j) Undisclosed foreign financial asset understatement. [omitted]
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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33
William P. Crouse, Jr., Et Ux., (2011) TC Memo 2011-97.
Accuracy-related substantial understatement penalty was upheld
against 50% owner of multiple LLCs/partnerships and W, albeit subject to §6015
relief determinations as to W: IRS met its burden of production with proof that
taxpayers had significant income omissions and misstated losses resulting in
understatement that was substantial within meaning of §6662(d) for year at
issue; and only argument they raised in response was meritless claim that they
were owed credit for subject year.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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34
Donald T. Robinson, Et Ux., (2011) TC Memo 2011-99.
Accuracy-related substantial understatement penalties were upheld
against married couple/professor and marketing co. manager for years for which
they claimed multiple unsubstantiated deductions: IRS met its burden of
production on penalties' applicability with proof that taxpayers had
understatements that were substantial within meaning of §6662(d)(1) for each
year at issue; and they didn't offer any substantial authority or other grounds
for reducing understatements.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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35
Wadsworth v. Comm., (10/25/10, CA9) 106 AFTR 2d 2010-6879.
Tax Court properly upheld accuracy-related substantial understatement
penalties against partner and spouse for years for which they filed amended
returns claiming refunds to which they weren't entitled: taxpayers' argument that
IRS failed to present any evidence of underpayments failed in face of facts that
their refund claims led to underpayments, which in turn were due to substantial
understatements on which §6662 penalties were based. And alternative
arguments that §6662 penalties couldn't apply because understatements arose
from refunds rather than returns or that §6676 vs. §6662 was proper statute for
imposing penalties were misguided.
Also, taxpayers didn't explain why they disregarded longtime
preparer's advice to not amend returns, didn't show reasonable basis for their
position, and didn't support or made insupportable claims about TEFRA issues
and deficiency notice invalidity.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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36
Khatchatour Akopian, Et Ux., (2011) TC Memo 2011-237.
Accuracy-related substantial understatement and negligence penalties
were upheld against movie producer/investor and TRP who had unreported
income from personal use of movie production/investment corps.' funds: IRS met
its burden of production as to both substantial understatement and negligence;
and taxpayers didn't address §6662(a) at trial or show reasonable cause for
negligence or underpayment.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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37
Frederick D. Todd, Ii, Et Ux., (2011) TC Memo 2011-123.
Accuracy-related penalty was upheld against neurosurgeon and W as
to underpayment from H’s unreported welfare benefit fund distribution, which
he improperly treated as nontaxable loan: IRS met its burden of production by
showing both that taxpayers' understatement was substantial within meaning of
§6662(d) and that they negligently disregarded rules and regs, by failing to make
reasonable attempt to ascertain correctness of distribution's treatment; and they
had no reasonable cause for same.
Although they claimed reliance on CPA/return preparer, such was
unavailing absent evidence that CPA has some expertise in benefit plans, was
given all relevant information, and actually advised taxpayers on subject
transaction.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
37

38
Weekend Warriors Trailers, Inc., Et Al., (2011) TC Memo 2011-105.
Accuracy-related negligence or substantial understatement penalties
were largely upheld against solely owned travel trailer manufacturing S corp. and
owner for years for which they misreported income and deductions; IRS met its
burden of production as to substantial understatement component of penalties as
to both corp. and owner for all years save one, for which owner's understatement
didn't qualify as substantial under §6662(d); and, foregoing understatement
aside, no reasonable cause or good faith excusing penalties was shown.
Although taxpayers did claim reliance on return preparers and other
business/tax advisors, such wasn't sufficient to show reasonable cause or
good faith absent proof that advisors gave specific advice about pertinent
transactions or that preparers had background and justifying taxpayers'
reliance. Also, preparers weren't given all relevant information.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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39
§ 6663 Imposition of fraud penalty.
(a) Imposition of penalty. If any part of any underpayment of tax required to
be shown on a return is due to fraud, there shall be added to the tax an amount
equal to 75% of the portion of the underpayment which is attributable to fraud.
(b) Determination of portion attributable to fraud. If the Secretary
establishes that any portion of an underpayment is attributable to fraud, the
entire underpayment shall be treated as attributable to fraud, except with respect
to any portion of the underpayment which the taxpayer establishes (by a
preponderance of the evidence) is not attributable to fraud.
(c) Special rule for joint returns. In the case of a joint return, this section
shall not apply with respect to a spouse unless some part of the underpayment is
due to the fraud of such spouse.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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40
Rick Fishman, (2011) TC Memo 2011-102.
A criminal investigation was began but dropped. Fraud penalties
weren't upheld against ins. sales division leader for years for which he worked
as independent contractor for sales assn. doing business through his sole
proprietorship: IRS failed to prove that taxpayer even had any underpayments for
stated years on which to base penalties. Rather, IRS based its determination on
unsupported gross income recharacterization of reimbursements which taxpayer
received for certain expense payments he made on behalf of other
salespersons/independent contractors and which evidence showed to be nothing
more than nontaxable loan repayments. Evidence included taxpayer's and other
contractors' contractor status and manner in which expenses were treated.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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William Norris, Et Ux., (2011) TC Memo 2011-161.
Fraud penalties were upheld against husband/welder for 1 of 2 years for
which he and wife/bookkeeper operated gas station/convenience store and out of
which he ran illegal poker machine: IRS proved there was underpayment and
husband was estopped by his guilty plea to §7201 offense for that year from
denying fraud. IRS didn't clearly prove fraud for 2d year. IRS showed some fraud
factors, including that H understated income and engaged in illegal activities as to
poker machines, countervailing factors that he wasn't uncooperative, didn't try to
conceal income, gave consistently credible testimony, and regularly dealt in cash as
part of normal business rather than in effort to avoid reporting requirements,
outweighed fraud indicators. IRS failed to prove fraudulent intent on W’s part for
either year. IRS largely rested penalties against her on assumptions that she must
have known of H’s illegal poker machines and underreporting of gas station receipts,
but even if she were aware of machines, that knowledge in itself didn't prove
fraudulent intent; moreover, she gave plausible explanation for underreporting
mistake; and IRS failed to counter with any proof of intentionality.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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42
Charles L. Garavaglia, Et Ux., (2011) TC Memo 2011-228.
Fraud penalties were upheld against owner of consulting S corp. and
other related businesses who used same in connection with scheme to defraud
worker's compensation ins. cos. and Treas. Dept.: IRS proved owner had
underpayments for each year, from unreported passthrough income, that were
attributable to fraud. Evidence included letters indicating owner knew payrolls
were “scaled down” and worker's compensation liabilities were understated; he
engaged in pattern of underreporting and instructed accountants to destroy
records; he pled guilty to mail fraud and conspiracy offenses relating to subject
scheme; he engaged in and gave implausible and inconsistent behavior and
explanations; he tried to conceal his misdeeds from and didn't cooperate with
Criminal Investigation Division; and he didn't file accurate returns.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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§6664 Definitions and special rules.
(a) Underpayment. For purposes of this part, “underpayment” means the amount by
which any tax imposed by this title exceeds the excess of—
(1) the sum of—
(A) the amount shown as the tax by the taxpayer on his return, plus
(B) amounts not so shown previously assessed (or collected without
assessment), over
(2) the amount of rebates made.
For purposes of paragraph (2), “rebate” means so much of an abatement, credit, refund, or
other repayment, as was made on the ground that the tax imposed was less than the
excess of the amount specified in paragraph (1) over the rebates previously made.
(b) Penalties applicable only where return filed. The penalties provided in this part
shall apply only in cases where a return of tax is filed (other than a return prepared by the
Secretary under the authority of §6020(b)).
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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§6664 Definitions and special rules [continued].
(c) Reasonable cause exception for underpayments.
(1) In general. No penalty shall be imposed under §6662 or 6663 as to any portion of an
underpayment if it is shown that there was a reasonable cause for such portion and that the taxpayer
acted in good faith with respect to such portion.
(2) Exception. Paragraph (1) shall not apply to any portion of an underpayment which is
attributable to one or more transactions described in §6662(b)(6).
(3) Special rule for certain valuation overstatements. In the case of any underpayment
attributable to a substantial or gross valuation overstatement under chapter 1 with respect to charitable
deduction property, paragraph (1) shall not apply. The preceding sentence shall not apply to a
substantial valuation overstatement under chapter 1 if—
(A) the claimed value of the property was based on a qualified appraisal made by a qualified
appraiser, and
(B) in addition to obtaining such appraisal, the taxpayer made a good faith investigation of
the value of the contributed property.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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§6664 Definitions and special rules [continued].
(4) Definitions. For purposes of this subsection —
(A) Charitable deduction property. The term “charitable deduction property”
means any property contributed by the taxpayer in a contribution for which a
deduction was claimed under §170. For purposes of paragraph (3), such term
shall not include any securities for which (as of the date of the contribution)
market quotations are readily available on an established securities market.
(B) Qualified appraisal. The term “qualified appraisal” has the meaning
given such term by §170(f)(11)(E)(i).
(C) Qualified appraiser. The term “qualified appraiser” has the meaning
given such term by §170(f)(11)(E)(ii).
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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§6664 Definitions and special rules [continued].
(d) Reasonable cause exception for reportable transaction understatements.
(1) In general. No penalty shall be imposed under section 6662A as to any portion of a reportable
transaction understatement if it is shown that there was a reasonable cause for such portion and that
the taxpayer acted in good faith with respect to such portion.
(2) Exception. Paragraph (1) shall not apply to any portion of a reportable transaction
understatement which is attributable to one or more transactions described in §6662(b)(6).
(3) Special rules. Paragraph (1) shall not apply to any reportable transaction understatement
unless—
(A) the relevant facts affecting the tax treatment of the item are adequately disclosed in
accordance with the regulations prescribed under section 6011,
(B) there is or was substantial authority for such treatment, and
(C) the taxpayer reasonably believed that such treatment was more likely than not the proper
treatment.
A taxpayer failing to adequately disclose in accordance with section 6011 shall be treated as meeting the
requirements of subparagraph (A) if the penalty for such failure was rescinded under §6707A(d).
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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§ 6664 Definitions and special rules [continued].
(4) Rules relating to reasonable belief. For purposes of paragraph (3)(C) —
(A) In general. A taxpayer shall be treated as having a reasonable belief with respect to the tax
treatment of an item only if such belief—
(i) is based on the facts and law that exist at the time the return of tax which includes such tax
treatment is filed, and
(ii) relates solely to the taxpayer's chances of success on the merits of such treatment and
does not take into account the possibility that a return will not be audited, such treatment will not be
raised on audit, or such treatment will be resolved through settlement if it is raised.
(B) Certain opinions may not be relied upon.
(i) In general. An opinion of a tax advisor may not be relied upon to establish the reasonable
belief of a taxpayer if—
(I) the tax advisor is described in clause (ii) , or
(II) the opinion is described in clause (iii) .
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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§ 6664 Definitions and special rules [continued].
(ii) Disqualified tax advisors. A tax advisor is described in this clause if the tax advisor—
(I) is a material advisor (within the meaning of §6111(b)(1)) and participates in the organization,
management, promotion, or sale of the transaction or is related (within the meaning of §267(b) or
707(b)(1)) to any person who so participates,
(II) is compensated directly or indirectly by a material advisor as to the transaction,
(III) has a fee arrangement as to the transaction which is contingent on all or part of the intended
tax benefits from the transaction being sustained, or
(IV) as determined under regulations prescribed by the Secretary, has a disqualifying financial
interest with respect to the transaction.
(iii) Disqualified opinions. For purposes of clause (i) , an opinion is disqualified if the opinion—
(I) is based on unreasonable factual or legal assumptions (including assumptions as to future
events),
(II) unreasonably relies on representations, statements, findings, or agreements of the taxpayer
or any other person,
(III) does not identify and consider all relevant facts, or
(IV) fails to meet any other requirement as the Secretary may prescribe.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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What Good Can A Tax Opinion Do?
The IRS effective recognizes five levels of
(i) Frivolous.
(ii) Colorable.
(iii) Reasonable Basis.
(iv) Substantial Authority.
(v) More Likely Than Not.
If the taxpayer’s position on the return is either Frivolous or Colorable, the taxpayer should be
prepared to be hit with an accuracy-related penalty. Similarly, the tax return preparer who signs the
return should assume that he or she will be hit with the IRC Section 6694 preparer penalty.
By contrast, if the taxpayer’s position has a Reasonable Basis – generally viewed as having a 20%
to 1/3rd chance of prevailing on the merits – then the position should not be penalized as long as the
position is disclosed on an IRS Form 8275 or 8275-R attached to the return.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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What Good Can A Tax Opinion Do?
If the taxpayer’s position has Substantial Authority – generally viewed as having a 40% or
greater chance of prevailing on the merits – then the taxpayer should not be subject to the accuracy-
related penalty even in the absence of disclosure.
Of course Nirvana is to have a position that is More Likely Than Not going to prevail on the
merits.
One problem is: how do you know what the chances are that a taxpayer’s position will
prevail on the merits? One answer is to have an opinion written by a tax lawyer (some CPAs will also
prepare opinion letters). Of course, the fact that the taxpayer possesses such a letter does not insulate
the taxpayer from a penalty since there is no guaranty that the IRS (and the FTB) will agree. However,
depending upon the dollars involved in a potential penalty and the cost of the opinion letter, this is often
an attractive expenditure.
There are many concerns about the creation of an opinion letter, e.g., that it must be firmly
based on the taxpayer’s actual facts, not suppositions about intent; that is must be grounded in the
Internal Revenue Code; regulations; rulings; case law; and other independent authority. And, of course,
the opinion letter writer must not have a contingent interest in the outcome.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
52

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Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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§ 6700 Promoting abusive tax shelters, etc.
(a) Imposition of penalty. Any person who –
(1)
(A) organizes (or assists in the organization of –
(i) a partnership or other entity,
(ii) any investment plan or arrangement, or
(iii) any other plan or arrangement, or
(B) participates (directly or indirectly) in the same of any interest in an entity or plan or
arrangement referred to in subparagraph (A), and
(2) makes or furnishes or causes another person to make or furnish (in connection with such
organization or sale -
(A) a statement with respect to the allowability of any deduction or credit, the excludability
of any income, or the securing of any other tax benefit by reason of holding an interest in the entity or
participating in the plan or arrangement which the person knows or has reason to know is false or
fraudulent as to any material matter, or
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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§ 6700 Promoting abusive tax shelters, etc. [continued]
(B) gross valuation overstatement as to any material matter,
shall pay, as to each activity described in paragraph (1), a penalty equal to $1,000 or, if the person
establishes that it is lesser, 100% of the gross income derived (or to be derived) by such person from
such activity. …activities described in paragraph (1)(A) as to each entity or arrangement shall be treated
as a separate activity and participation in each sale described in paragraph (1)(B) shall be so treated.
Despite the first sentence, if an activity as to which a penalty imposed under this subsection involves a
statement described in paragraph (2)(A), the amount of the penalty shall be equal to 50% of the gross
income derived (or to be derived) from such activity by the person on which the penalty is imposed.
(b) Rules relating to penalty for gross valuation overstatements. …
(c) Penalty in addition to other penalties. The penalty imposed by this section shall be in addition to
any other penalty imposed by law.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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In Re: Settles, Sr., (2011, Bktcy Ct TN) 107 AFTR 2d 2011-2552.
Taxpayer/attorney-CPA/tax scheme promoter's liabilities for back taxes,
penalties and interest: he was collaterally estopped by prior disbarment
proceedings from seeking abatement of §6700 and 6662 penalties. Taxpayer
had been given opportunity to litigate penalties issues during disbarment
proceedings; those issues were central to disbarment; and decision and its
affirmance on appeal comprised final judgment on merits. Argument that
taxpayer was denied due process in those proceedings because he couldn't
afford to hire counsel to represent him was meritless. To extent he was seeking
abatement of §6662 penalties on grounds of substantial authority for his tax
shelter, his position was meritless since there was no such authority. No valid
claim for abatement of additional §6651(a) failure to pay penalties when
considering that he had substantial income at his disposal and used same for
discretionary items at time he was obligated, but failed, to pay taxes.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
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U.S. v. Sommerstedt, (2011, CA6) 107 AFTR 2d 2011-2422.
District court summary judgment decision to permanently enjoin pro
se TRP from promoting, organizing and selling abusive tax evasion and shelter
products was affirmed in part and vacated and remanded in part. Court was
correct insofar as finding that TRP failed to raise material fact issue as to
whether tax avoidance plans that he promoted constituted conduct subject to
penalty under §6700. TRP improperly invoked his 5th Amendment privilege
against self-incrimination as to requirement that he notify clients of
injunction. However, court erred in compelling TRP to provide govt. with
client list as such could lead to incriminating evidence in later
investigation.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
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U.S. v. Boone, (2011, DC FL) 107 AFTR 2d 2011-2385.
Abusive tax scheme promoter/TRP and those acting with him were
permanently enjoined from preparing or giving advice about Form 1099-OID
or other tax forms, owning or operating any website that participates in
preparing false documents, promoting tax shelters or abusive arrangements
including abusive Form 1099-OID scheme, posting any scheme-related material
on any website, and engaging in other activity that was subject to penalty under
§6700, et seq. or that otherwise interfered with tax law administration. TRP was
also barred from making any false Form 1099-OID claims on his own returns
and was ordered to provide clients with injunction copy.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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§ 6701 Penalties for aiding and abetting understatement of tax liability.
(a) Imposition of penalty. Any person –
(1) who aids or assists in, procures, or advises as to, the preparation or presentation
of any portion of a return, affidavit, claim or other document,
(2) who knows (or has reason to believe) that such portion will be used in
connection with any material matter arising under the internal revenue laws, and
(3) who knows that such portion (if so used) would result in an understatement of
the liability for tax of another person,
shall pay a penalty as to each document in the amount determined under subsection (b).
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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§ 6701 Penalties for aiding and abetting understatement of tax liability.
[continued]
(b) Amount of penalty.
(1) In general. Except as provided in paragraph (2), the amount of the penalty
imposed by subsection (a) shall be $1,000.
(2) Corporations. If the return, affidavit, claim or other document relates to the tax
liability of a corporation, the amount of the penalty imposed by (a) shall be $10,000.
(3) Only 1 penalty per person per period. If any person is subject to a penalty under
(a) with respect to any document relating to any taxpayer for any taxable period (or where
there is no taxable period, any taxable event), such person shall not be subject to a penalty
under subsection (a) with respect to any other document relating to such taxpayer for such
taxable period (or event).
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
Preparer And Other Tax Penalties
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§ 6701 Penalties for aiding and abetting understatement of tax liability.
[continued]
(c) Activities of subordinates.
(1) In general. For purposes of (a), the term “procures” includes –
(A) ordering (or otherwise causing) a subordinate to do an act, and
(B) knowing of, and not trying to prevent, participation by a subordinate in an act.
(2) Subordinates. For purposes of paragraph (1), “subordinate” means any other
person (whether or not a director, officer, employee, or agent of the taxpayer involved) over
whose activities the person has direction, supervision or control.
(d) Taxpayer not required to have knowledge. Subsection (a) shall apply whether or not
the understatement is with the knowledge or consent of the persons authorized or required
to present the return, affidavit, claim, or other document.
Givner & Kaye,
A Professional Corporation
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§ 6701 Penalties for aiding and abetting understatement of tax liability.
[continued]
(e) Certain actions not treated as aid or assistance. For purposes of (a)(1), a person
furnishing typing, reproducing, or other mechanical assistance as to a document shall not
be treated as having aided or assisted in the preparation of the document due to such
assistance.
(f) Penalty in addition to other penalties.
(1) In General. Except as provided in (2) and (3), the penalty imposed by this
section shall be in addition to any other penalty provided by law.
(2) Coordination with return preparer penalties. No penalty shall be assessed
under 6694(a) or (b) on any person as to any document for which a penalty is assessed on
such person under subsection (a).
(3) Coordination with section 6700. No penalty shall be assessed under §6700
on any person as to any document for which a penalty is assessed on such person under
subsection (a).
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
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U.S. v. William Alexander, (2011, DC CA) 107 AFTR 2d 2011-1793.
Final judgment of permanent injunction was entered against tax scheme
promoter and those acting with him from selling or promoting abusive schemes
such as described welfare benefit scheme, making false statements about
deductions, providing tax advice about pension or welfare benefit plans,
engaging in other conduct subject to penalty under §6700 or 6701, preparing
returns for fee, and representing others before IRS.
Givner & Kaye,
A Professional Corporation
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§ 6702 Frivolous tax submissions.
(a) Civil penalty for frivolous tax returns. A person shall pay a penalty of $5,000 if –
(1) such person files what purports to be a return of a tax imposed by this title but
which
(A) does not contain information on which the substantial correctness of the self-
assessment may be judged, or
(B) contains information that on its face indicates that the self-assessment is
substantially incorrect, and,
(2) the conduct referred to in paragraph (1) –
(A) is based on a position which the Secretary has identified as frivolous under
subsection (c), or
(B) reflects a desire to delay or impede the administration of Federal tax laws.
Givner & Kaye,
A Professional Corporation
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§ 6702 Frivolous tax submissions [continued].
(b) Civil penalty for specified frivolous submissions.
(1) Imposition of penalty. Except as provided in paragraph (3), any person who
submits a specified frivolous submission shall pay a penalty of $5,000.
(2) Specified frivolous submission. For purposes of this section –
(A) Specified Frivolous Submission. The term “specified frivolous submission”
means a specified submission if any portion of such submission –
(i) is based on a position which the Secretary has identified as frivolous
under subsection (c), or
(ii) reflects a desire to delay or impede the administration of Federal tax
laws.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com
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§ 6702 Frivolous tax submissions [continued].
(B) Specified submission. The term “specified submission” means –
(i) a request for a hearing under –
(I) §6320 (relating to notice and opportunity for hearing upon filing of notice of lien),
or
(II) §6330 (relating to notice and opportunity for hearing before levy), and
(ii) an application under –
(I) §6159 (relating to agreements for payment of tax liability in installments),
(II) §7122 (relating to compromises), or
(III) §7811 (relating to taxpayer assistance orders).
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§ 6702 Frivolous tax submissions [continued].
(3) Opportunity to withdraw submission. If the Secretary provides a person with
notice that a submission is a specified frivolous submission and such person withdraws such
submission within 30 days after such notice, the penalty imposed under paragraph (1) shall
not apply with respect to such submission.
(c) Listing of frivolous positions. The Secretary shall prescribe (and periodically revise) a
list of positions which the Secretary has identified as being frivolous for purposes of this
subsection. The Secretary shall not include in such list any position that the Secretary
determines meets the requirement of §6662(d)(2)(B)(ii)(II).
(d) Reduction of penalty. The Secretary may reduce the amount of any penalty imposed
under this section if the Secretary determines that such reduction would promote compliance
with and administration of the Federal tax laws.
(e) Penalties in addition to other penalties. The penalties imposed by this section shall be
in addition to any other penalty provided by law.
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Notice 2010-33, 2010-17 (4/07/2010)
Identifies 46 frivolous positions, with 21 subparts, including:
(6) A taxpayer has been untaxed, detaxed, or removed or redeemed from the Federal tax system
though the taxpayer remains a United States citizen or resident, or similar arguments described as
frivolous in Rev. Rul. 2004-31, 2004-1 C.B. 617.
(10) A taxpayer is not a “person” within the meaning of Section 7701(a)(14) or other provisions of the
Internal Revenue Code, or similar arguments described as frivolous in Rev. Rul. 2007-22, 2007-1 C.B.
866.
(12) Federal Reserve Notes are not taxable income when paid to a taxpayer because they are not gold
or silver and may not be redeemed for gold or silver.
(33) A Notice of Federal Tax Lien is invalid because it is not signed by a particular official (such as by the
Secretary of the Treasury), or because it was filed by someone without delegated authority.
(45) The Service is not an agency of the United States government but rather a private-sector
corporation or an agency of a State or Territory without authority to administer the internal revenue laws.
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California Revenue and Taxation Code Section 19179
(a) A penalty shall be imposed for filing a frivolous return and shall be determined
in accordance with §6702 of the Internal Revenue Code, except as otherwise
provided.
(b) §6702 of the Internal Revenue Code shall be applied to returns required to be
filed under this part.
(c) §6702 of the Internal Revenue Code is modified as follows:
…
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Minor L. McNeil, (2011) TC Memo 2011-150.
IRS's administrative determination to proceed with collection of §6702
penalties for years for which nurse filed zero returns was upheld. Penalties
liability was shown by evidence that taxpayer's purported returns were based on
frivolous protester-type arguments that he had been warned against making
and that returns lacked sufficient information for IRS to be able to judge
substantial correctness of self-assessments thereon. And collection
determination was supported by evidence that appeals officer complied with all
§6330 CDP requirements, including requirement to verify that all applicable legal
and administrative requirements were met and that levy balanced IRS's efficient
collection needs against taxpayer's intrusiveness concerns.
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A Professional Corporation
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§ 6703 Rules applicable to penalties under §§6700, 6701, and 6702.
(a) Burden of proof.
In any proceeding involving the issue of whether or not any person is liable for a penalty under §6700,
6701 or 6702, the burden of proof with respect to such issue shall be on the Secretary.
(b) Deficiency procedures not to apply.
Subchapter B of chapter 63 (relating to deficiency procedures) shall not apply with respect to the
assessment or collection of the penalties provided by sections 6700, 6701 and 6702.
(c) Extension of period of collection where person pays 15% of penalty.
(1) In general. If, within 30 days after the day on which notice and demand of any penalty under
section 6700 or 6701 is made against any person, such person pays an amount which is not less than
15% 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 §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).
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§ 6703 Rules applicable to penalties under §§6700, 6701, and 6702.
[continued]
(2) Person must bring suit in district court to determine his liability for penalty.
If, within 30 days after the day on which his claim for refund of any partial payment of any
penalty under §6700 or 6701 is denied (or, if earlier, within 30 days after the end of 6
months after the day on which he filed the claim for refund), the person fails to begin a
proceeding in the appropriate U.S. district court for the determination of his liability for such
penalty, paragraph (1) shall cease to apply as to the penalty, effective on the day after the
close of the applicable 30-day period referred to in this paragraph.
(3) Suspension of running of period of limitations on collection.
The running of the period of limitations provided in §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.
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§ 6707A
Penalty for failure to include reportable transaction information with return.
(a) Imposition of penalty. Any person who fails to include on any return or statement any
information with respect to a reportable transaction which is required under section 6011 to be included
with such return or statement shall pay a penalty in the amount determined under subsection (b).
(b) Amount of penalty.
(1) In general. Except as otherwise provided in this subsection, the amount of the penalty under
subsection (a) as to any reportable transaction shall be 75% of the decrease in tax shown on the return
due to the transaction (or which would have resulted from the transaction if it was respected for Federal
tax purposes).
(2) Maximum penalty. The amount of the penalty under subsection (a) as to any reportable
transaction shall not exceed—
(A) in the case of a listed transaction, $200,000 ($100,000 in the case of a natural person), or
(B) in the case of any other reportable transaction, $50,000 ($10,000 in the case of a natural
person).
(3) Minimum penalty. The amount of the penalty under subsection (a) as to any transaction shall
not be less than $10,000 ($5,000 in the case of a natural person).
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§ 6707A [continued]
(c) Definitions. For purposes of this section —
(1) Reportable transaction. The term “reportable transaction” means any transaction as to which
information is required to be included with a return or statement because, as determined under
regulations prescribed under §6011, such transaction is of a type which the Secretary determines as
having a potential for tax avoidance or evasion.
(2) Listed transaction. The term “listed transaction” means a reportable transaction which is the
same as, or substantially similar to, a transaction specifically identified by the Secretary as a tax
avoidance transaction for purposes of §6011.
(d) Authority to rescind penalty.
(1) In general. The Commissioner…may rescind all or any portion of any penalty imposed by this
section as to any violation if—
(A) the violation is as to a reportable transaction other than a listed transaction, and
(B) rescinding the penalty would promote compliance with the requirements of this title and
effective tax administration.
(2) No judicial appeal. Despite any other provision of law, any determination under this subsection
may not be reviewed in any judicial proceeding.
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§ 6707A [continued]
(3) Records. If a penalty is rescinded under paragraph (1), the Commissioner shall place in the file
in the Office of the Commissioner the opinion of the Commissioner with respect to the determination,
including—
(A) a statement of the facts and circumstances relating to the violation,
(B) the reasons for the rescission, and
(C) the amount of the penalty rescinded.
(e) Penalty reported to SEC. In the case of a person—
…
(f) Coordination with other penalties. The penalty imposed by this section shall be in addition to any
other penalty imposed by this title.
[Final Regulations issued September 7, 2011, T.D. 9550.]
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A Professional Corporation
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77
Mcgehee Family Clinic, P.A., Et Al., (2010) TC Memo 2010-202.
§6662A penalties were upheld against family clinic and shareholder and spouse
in respect to understatements arising from their engagement in multiemployer welfare
benefit trust transaction that promised virtually unlimited deductions: IRS met its
burden of production on penalties' general applicability with proof that transaction was
factually similar to that identified in Notice 95-34, and thus listed transaction under
§6707A(c)(2), and that clinic and shareholder both claimed improper tax treatment of
items/deductions and income omissions attributable thereto; IRS further showed
applicability of enhanced 30% penalty as against clinic with proof that it didn't attach to
return disclosure statement described in Reg § 1.6011-4T(c); and taxpayers didn't
provide credible evidence to support their claims to contrary. Also, constitutional
arguments that penalties were effectively being imposed retroactively without fair warning
and in violation of taxpayers' due process rights were belied by facts that penalties were
imposed for tax years ending after §6662A’s effective date; and contrary to their claims,
IRS wasn't obligated to give taxpayers warning or “personalized notice” of same.
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A Professional Corporation
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§ 6713 Disclosure or use of information by preparers of returns.
(a) Imposition of penalty. If any person who is engaged in the business of preparing or providing
services in connection with the preparation of, returns of tax imposed by chapter 1, or any person who
for compensation prepares any such return for any other person, and who—
(1) discloses any information furnished to him for, or in connection with, the preparation of any
such return, or
(2) uses any such information for any purpose other than to prepare, or assist in preparing,
any such return,
shall pay a penalty of $250 for each such disclosure or use, but the total amount imposed under this
subsection on such a person for any calendar year shall not exceed $10,000.
(b) Exceptions. The rules of §7216(b) shall apply for purposes of this section.
(c) Deficiency procedures not to apply. Subchapter B of chapter 63 (relating to deficiency
procedures for income, estate, gift, and certain excise taxes) shall not apply in respect of the
assessment or collection of any penalty imposed by this section.
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Rev. Rul. 2010-4.
Use of return information by TRPs to contact taxpayers to inform them
of tax law change or issuance of new temporary regs that might affect liability on
previously filed returns or future reasonably anticipated accounting services
won't subject preparers to penalties under §6713 or 7216. Nor will penalties
apply to situations where preparer discloses return information (as limited to
information listed in Reg. §301.7216-2(n)) to 3rd party service provider who
provides educational information on general business and economic matters to
public for purposes of soliciting more work for tax preparers.
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§7201 Attempt to evade or defeat tax.
Any person who willfully attempts in any manner to evade or defeat any
tax imposed by this title or the payment thereof shall, in addition to other
penalties provided by law, be guilty of a felony and, upon conviction thereof,
shall be fined not more than $100,000 ($500,000 in the case of a corporation), or
imprisoned not more than 5 years, or both, together with the costs of
prosecution.
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A Professional Corporation
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81
U.S. v. Ganias, (2011, DC CT) 108 AFTR 2d 2011-5851.
Taxpayer-former IRS agent/return preparation business owner was
denied motion for judgment of acquittal on charges he willfully tried to evade his
personal income tax liabilities for certain years by filing false returns: conviction
was sufficiently supported by evidence that taxpayer's failure to report
significant income on subject returns wasn't simple mistake resulting from
innocent reliance on profit and loss statement that he didn't realize was incorrect,
but rather part of larger pattern of willful evasion. Evidence included facts that
taxpayer was experienced in tax matters and recordkeeping, yet underreported
his income both in stated years and before. There was also evidence that he had
previously used accounting records/accounting entries in manner that allowed
payments to not show up as income.
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§7206 Fraud and false statements.
Any person who—
(1) Declaration under penalties of perjury. Willfully makes and subscribes any return, statement, or
other document, which contains or is verified by a written declaration that it is made under the penalties
of perjury, and which he does not believe to be true and correct as to every material matter; or
(2) Aid or assistance. Willfully aids or assists in, or procures, counsels, or advises the preparation or
presentation under, or in connection with any matter arising under, the internal revenue laws, of a
return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter,
whether or not such falsity or fraud is with the knowledge or consent of the person authorized or
required to present such return, affidavit, claim, or document; or
(3) Fraudulent bonds, permits, and entries. Simulates or falsely or fraudulently executes or signs
any bond, permit, entry, or other document required by the provisions of the internal revenue laws,
or by any regulation made in pursuance thereof, or procures the same to be falsely or fraudulently
executed, or advises, aids in, or connives at such execution thereof; or
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§7206 Fraud and false statements [continued].
(4) Removal or concealment with intent to defraud. Removes, deposits, or conceals, or is
concerned in removing, depositing, or concealing, any goods or commodities for or in respect whereof
any tax is or shall be imposed, or any property upon which levy is authorized by §6331, with intent to
evade or defeat the assessment or collection of any tax imposed by this title; or
(5) Compromises and closing agreements. In connection with any compromise under §7122, or offer
of such compromise, or in connection with any closing agreement under §7121, or offer to enter into any
such agreement, willfully—
(A) Concealment of property. Conceals from any officer or employee of the United States any
property belonging to the estate of a taxpayer or other person liable in respect of the tax, or
(B) Withholding, falsifying, and destroying records. Receives, withholds, destroys, mutilates, or
falsifies any book, document, or record, or makes any false statement, relating to the estate or financial
condition of the taxpayer or other person liable in respect of the tax;
shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000
in the case of a corporation), or imprisoned not more than 3 years, or both, together with the costs of
prosecution.
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84
Hal D. Hicks, (2011) TC Memo 2011-180.
[In the criminal case On September 21, 2006, the District Court entered a judgment of conviction
(judgment) pursuant to which petitioner was sentenced to 18 months in prison and ordered to pay the
U.S. Postal Service $36.20 in restitution, the IRS $228,258 in restitution, and the District Court a $200
assessment and a $3,000 criminal fine.]
Fraud penalty was upheld against taxpayer/mail transport S corp. sole owner for year for
which he underreported income received through rebate checks issued to his corp. which he used for
personal purposes and claimed improper flowthrough loss relating to corp.'s depreciation deduction for
airplane: argument that he wasn't liable as to portion of underpayment relating to flowthough loss failed
where airplane wasn't delivered to taxpayer until year after year at issue and wasn't used for any
business purpose; his substantial understatement and concealment of income and filing of false
documents showed that he intended to evade tax. District court's judgment in his prior §7206(1) case
and 2 release certificates didn't collaterally estop IRS from assessing civil penalties where his tax
liability wasn't essential element of govt.'s case and wasn't actually litigated and where court made no
ultimate fact findings as to same; court didn't bar IRS from assessing civil tax liability amount exceeding
restitution payments; plea agreement explicitly provided that govt. wasn't barred from prosecuting any
civil proceedings involving taxpayer; and stipulation of facts didn't preclude finding that return was false
as to more than one item/rebate checks. Incredible testimony didn't support claim that he relied on
professional advice of his employees, accountant, and those who helped him form corp.
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§7212 Attempts to interfere with administration of Internal Revenue laws.
(a) Corrupt or forcible interference. Whoever corruptly or by force or threats of force (including any
threatening letter or communication) endeavors to intimidate or impede any officer or employee of
the United States acting in an official capacity under this title, or in any other way corruptly or by force
or threats of force (including any threatening letter or communication) obstructs or impedes, or
endeavors to obstruct or impede, the due administration of this title, shall, upon conviction thereof, be
fined not more than $5,000, or imprisoned not more than 3 years, or both, except that if the offense is
committed only by threats of force, the person convicted thereof shall be fined not more than $3,000,
or imprisoned not more than 1 year, or both. The term “threats of force”, as used in in this subsection,
means threats of bodily harm to the officer or employee of the United States or to a member of his
family.
(b) Forcible rescue of seized property. Any person who forcibly rescues or causes to be rescued
any property after it shall have been seized under this title, or shall attempt or endeavor so to do, shall,
excepting in cases otherwise provided for, for every such offense, be fined not more than $500, or not
more than double the value of the property so rescued, whichever is the greater, or be imprisoned not
more than 2 years.
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U.S. v. Mubayyid, (2011, CA1) 108 AFTR 2d 2011-6034.
District court judgment acquitting ostensible charitable org./suspected
terrorist vehicle's founder, pres. and treas. of charge that they conspired to defraud U.S.,
by trying to obstruct IRS in its determination of whether org. should be given exempt
status, was reversed and jury verdict was reinstated: although govt. didn't prove indictment
theory for conspiracy, narrower conspiracy that govt. presented at trial, that defendants
intentionally concealed via fraudulent Forms 990 filings that org. was advancing non-
charitable/terrorist-related purposes, resulted in no more than non-prejudicial variance and
was sufficiently proven with such evidence as that all defendants filed at least one such
form knowing it was materially false. Further, related false filings and §7212 convictions
against treas. were similarly supported by evidence that he knowingly gave false “no”
answer to form question of whether org. engaged in any activities not previously reported
to IRS, thus concealing such things as org.'s publication of jihad-themed newsletter
and that its ostensible orphan sponsorship program supported martyred terrorists' children.
Arguments that foregoing question was ambiguous or that it was only asking about
changed activities were meritless. So, convictions on those, plus additional/remaining
counts were affirmed and case was remanded for resentencing.
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U.S. v. Arceneaux, (2011, CA5) 108 AFTR 2d 2011-5191.
Taxpayer's §7203 and 7212 convictions for willfully failing to file
returns and corruptly interfering with tax law administration were affirmed:
convictions were sufficiently supported by evidence. Notably, evidence that
taxpayer had filed returns for decades, before deciding in instant years that taxes
were voluntary and that he wouldn't file, showed he acted willfully under §7203;
and evidence that he filed liens against IRS agent and otherwise continued to
prevent tax collection, even after being advised that his no-tax position was
frivolous, showed he acted corruptly under §7212. Also, claims that district court
should have given more specific jury instructions on good faith, reasonable doubt
definition, and guilt by association were belied by facts that those issues were
already adequately covered by instructions given.
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§7216 Disclosure or use of information by preparers of returns.
(a) General rule. Any person who is engaged in the business of preparing, or
providing services in connection with the preparation of, returns of the tax
imposed by chapter 1, or any person who for compensation prepares any such
return for any other person, and who knowingly or recklessly—
(1) discloses any information furnished to him for, or in connection with, the
preparation of any such return, or
(2) uses any such information for any purpose other than to prepare, or
assist in preparing, any such return,
shall be guilty of a misdemeanor, and, upon conviction thereof, shall be fined
not more than $1,000, or imprisoned not more than 1 year, or both together with
the costs of prosecution.
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§7216 Disclosure or use of information by preparers of returns [continued].
(b) Exceptions.
(1) Disclosure. Subsection (a) shall not apply to a disclosure of information if such
disclosure is made—
(A) pursuant to any other provision of this title, or
(B) pursuant to an order of a court.
(2) Use. Subsection (a) shall not apply to the use of information in the preparation
of, or in connection with the preparation of, State and local tax returns and declarations of
estimated tax of the person to whom the information relates.
(3) Regulations. Subsection (a) shall not apply to a disclosure or use of information
which is permitted by regulations prescribed by the Secretary under this section. Such
regulations shall permit (subject to such conditions as such regulations shall provide) the
disclosure or use of information for quality or peer reviews.
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Section 7407 Action To Enjoin Tax Return Preparers
(a) Authority to seek injunction. A civil action in the name of the U.S. to enjoin
any person who is a tax return preparer from further engaging in any conduct
described in subsection (b) or from further acting as a tax return preparer may be
commenced at the request of the Secretary. Any action under this section shall be
brought in the District Court…for the district in which the tax return preparer resides
or has his principal place of business or in which the taxpayer with respect to whose
tax return the action is brought resides. The court may exercise its jurisdiction over
such action (as provided in §7402(a)) separate and apart from any other action
brought by the U.S. against such tax return preparer or any taxpayer.
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Section 7407 Action To Enjoin Tax Return Preparers [continued]
(b) Adjudication and decrees. In any action under (a), if the court finds –
(1) that a TRP has (A) engaged in any conduct subject to penalty
under 6694 or 6695, or subject to any criminal penalty provided by the title, (B)
misrepresented his eligibility to practice before the IRS, or otherwise
misrepresented his experience or education as a TRP, (C) guaranteed the payment of
any tax refund or the allowance of any tax credit, or (D) engaged in any other
fraudulent or deceptive conduct which substantially interferes with the proper
administration of the Internal Revenue laws, and
(2) that injunctive relief is appropriate to prevent the recurrence of
such conduct,
the court may enjoin such person from further engaging in such conduct. If the
court finds that a TRP has continually or repeatedly engaged in any conduct
described in (A) – (D) and that an injunction prohibiting such conduct would not be
sufficient, the court may enjoin such person from acting as a TRP.
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U.S. v. Littrice, (2011, DC IL) 108 AFTR 2d 2011-5710.
Govt.'s complaint for broad injunction, permanently barring TRP and
her solely owned accounting business from preparing returns for others and
from violating tax laws, was granted on summary judgment: injunction was
warranted under §7407 when considering preparer's prior §7206(2) conviction
and other evidence that she had engaged in conduct subject to penalty under
§6694 and 6695, by recklessly or willfully understating client liabilities and by
using someone else's PTIN; that she kept doing so even after learning of IRS
investigation; and that she was likely to continue absent injunction. Alternately,
evidence supported injunction under either §7408 or 7402.
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§7408
Actions to enjoin specified conduct related to tax shelters and
reportable transactions.
(a) Authority to seek injunction. A civil action in the name of the United States to
enjoin any person from further engaging in specified conduct may be commenced at
the request of the Secretary. Any action under this section shall be brought in the
district court of the United States for the district in which such person resides, has his
principal place of business, or has engaged in specified conduct. The court may
exercise its jurisdiction over such action (as provided in §7402(a)) separate and apart
from any other action brought by the U.S. against such person.
(b) Adjudication and decree. In any action under subsection (a), if the court finds—
(1) that the person has engaged in any specified conduct, and
(2) that injunctive relief is appropriate to prevent recurrence of such conduct,
the court may enjoin such person from engaging in such conduct or in any other
activity subject to penalty under this title.
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§7408 [continued]
(c) Specified conduct. For purposes of this section, the term “specified
conduct” means any action, or failure to take action, which is—
(1) subject to penalty under §6700, 6701, 6707 or 6708, or
(2) in violation of any requirement under regulations issued under §330
of title 31, United States Code.
(d) Citizens and residents outside the U.S. If any citizen or resident of
the United States does not reside in, and does not have his principal place
of business in, any U.S. judicial district, such citizen or resident shall be
treated for purposes of this section as residing in the District of Columbia.
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95
U.S. v. Stover, Jr., (2011, CA8) 108 AFTR 2d 2011-5837.
District court decision granting govt. permanent injunction under §7408 against
lawyer/accountant/tax scheme promoter, barring him from promoting his “Parallel C,”
“ESOP/S,” or “Roth/S” fraudulent schemes, was affirmed: govt. showed that promoter
organized and knowingly made false statements in respect to subject schemes and that such
pertained to material matter and caused clients to buy same. Arguments that court didn't
properly track statutory language, that there was no evidence that promoter actually organized
subject schemes, or that supposedly false statements weren't shown to actually be false, were
meritless and belied by record, showing statutory language was followed and multiple
examples of false statements. Examples included that promoter advised clients to enter
arrangements to save taxes without also advising them of potential pitfalls and actions
needed to avoid obvious conclusion that transactions were shams. Also, facts that
schemes were costing govt. large amounts of revenue, that promoter continued to try to find
ways around relevant law, and that he refused to acknowledge culpability otherwise showed
injunction was necessary. And added provisions therein, requiring promoter to inform IRS in
advance of new arrangements and to provide clients with injunction copy, were within
scope of Section 7408 and didn't reflect any impermissible delegation of Article III authority or
unconstitutional prior restraint of protected speech.
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A Professional Corporation
Bruce@GivnerKaye.com 95
Preparer And Other Tax Penalties

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IRS Announcement 2011-61
on OPR Listing of Practitioners Subject to Recent Disciplinary Actions
Mark M. Matusz, C.P.A. (Livonia, Michigan) Suspended by consent for admitted violation
of §10.22 (failure to exercise due diligence in preparing own Federal individual income
tax returns for tax years 2003-2005); Indefinite from July 8, 2011, but at least 6 months.
Hemang Shah, C.P.A. (East Meadow, N.Y.) Suspended by decision in expedited
proceeding under §10.82 (conviction under 26 USC §7206, making a subscribing to a
false U.S. tax return); Indefinite from July 18, 2011.
Patrick Smith, C.P.A. (Columbus, Ohio). Suspended by default decision in expedited
proceeding under §10.82 (revocation of CPA license); Indefinite from July 6, 2011.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com 96
Preparer And Other Tax Penalties

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Questions and Answers
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Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com 97
Preparer And Other Tax Penalties