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Substantial Authority The New Section 6694 Return Preparer Standard

October 16, 2008

By Mark S. Lange and Crissy Wolfe

Since May 25, 2007, the standard of conduct that tax return preparers must meet in order to avoid the imposition of penalties under Section 6694 of the Internal Revenue Code of 1986, as amended (the Code), which governs the penalty provisions applicable to tax return preparers where a preparers advice results in a substantial understatement of tax on a clients return, has been in flux. However, the standard is now firmly set at substantial authority, pursuant to the passage of the Emergency Economic Stabilization Act of 2008, Pub. L. No. 110-343 (the 2008 Act), which is best known for its financial crisis bailout provisions, and was signed into law by President Bush on October 3, 2008.

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