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Tax preparer penalty imposed

PURPOSE OF BULLETIN

To advise staff how to respond to inquiries regarding tax preparer penalty.

BACKGROUND

California Revenue and Taxation Code 19166 and Internal Revenue Code 6694, imposes a penalty on a tax preparer for the understatement of a taxpayer's liability.

PENALTY ASSESSMENT AND PENALTY PAYMENT

The Tax Gap Practitioner Unit will notify the tax preparer of the penalty using Notice of Tax Preparer Penalty Due.

The penalty is:

  • $250 per return if the tax liability understatement is due to a position that does not have a realistic possibility of being sustained on its merits; the preparer knew or should have known of the unrealistic position and the position was not adequately disclosed or was frivolous.
  • $5,000 per return if the tax liability understatement is due to willful or reckless conduct by the preparer.

Advise the tax preparer that payment is due upon Notice and Demand and can send payment to:

TAX GAP AUDIT SECTION MS F-340
FRANCHISE TAX BOARD
PO BOX 1998
RANCHO CORDOVA CA 95741-1998

CONTESTING THE PENALTY

If the tax preparer disagrees, advise the tax preparer that the law does not allow protest of the penalty. However, if the tax preparer makes a payment of a least 15% of the penalty within 30 days of the notice and demand and files a claim for refund, the preparer may file a court action within 30 days after the FTB denies the refund claim or the claim is deemed denied, whichever is earlier. Advise the preparer that interest will accrue on the penalty until it is paid in full or until the contest is approved.

 

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