Limits Of Code Sections 6694 And 6695 Will Cover The Understatement Of Taxpayer's Liability By Tax Return
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Coverage of Code sections 6694 and 6695 will cover the understatement of taxpayer’s liability by tax return preparer and other assessable penalties with respect to the preparation of tax returns for other persons. Furthermore, this paper will define what is “practice before the IRS”, who may practice and what are the rules on return of client records. Section 6694(a) will cover Understatement Due to Unreasonable Positions, which contains two parts. As such, Section 6694(a)(1) indicates that any tax preparer, which prepares any return or claim that incurs an understatement of liability due to a position and that Tax preparer should have known the position in order to avoid an understatement will incur a penalty for incorrectly preparing the return or claim.
Section 6694(a)(2) A position is covered in this paragraph unless there was an extensive authority that describes the position such as those described in a disclosed position. Thus, the position contains facts that affect the tax treatment and are disclosed prior to submitting the return than section 6662(d)(2)(B)(ii)(I) applies. Also, if the position is disclosed as a tax shelter and meets the requirements set forth in section 6662(d)(2)(C)(ii) and does not violate the regulation for tax avoidance. Which the tax preparer can show he/she acted in good faith and did not intentionally cause an understatement of liability but was incurred due to a legitimate reason then the tax preparer will not incur a penalty.