Preparer penalties for willful or reckless understatement of a tax liability may be assessed where a return was signed but never filed, or if it was filed but the IRS disallowed the refund claimed, the IRS Office of Chief Counsel said in a chief counsel advice memorandum, CCA 201519029, released on May 8.
 
Tax code Section 6694(b)'s penalty may be assessed where a return preparer signed a return and his or her conduct was willful or reckless, the office said, and there is no requirement that the IRS allow the amounts claimed on the return before it is assessed, according to the CCA.
 
The CCA considered various scenarios where a return preparer created amended returns understating liability due to willful or reckless conduct; some weren't filed with the IRS, and the Service denied the refunds claimed for those that were filed.
 
"The language of I.R.C. §6694(b) does not require that a return be filed for the penalty to apply, only that a return is prepared," the CCA said. "And Treas. Reg. §1.6694-1(a)(2) provides that a return is prepared when it is signed."  If a preparer fails to sign a return, it is deemed prepared on the date it is filed under the Treasury Regulations, the CCA said.
 
However, those penalties don't apply where a practitioner merely files a claim for refund after the period of limitations has expired, the Internal Revenue Service office said in CCA 201519029 released May 8.  An "understatement of liability" doesn't include claims barred by the limitations period, it said.
 
A copy of CCA 201519029 is available here.