For enrolled agents and preparers taking positions on client returns — the standards each position must clear, when disclosure on Form 8275 or 8275-R is required, and how §6694 preparer penalties attach when a position falls short.
Every position on a return has a standard it must meet, and the standard depends on what kind of position it is. The realistic possibility of success standard, the substantial authority standard, and the reasonable basis standard each attach to different circumstances under Circular 230 §10.34 and IRC §6662. When a position falls below the applicable standard, disclosure on Form 8275 or Form 8275-R is what closes the exposure — or fails to. When disclosure is not made and the position does not hold, IRC §6694 applies to the preparer regardless of what the client agreed to sign.
This course covers the three position standards, the mechanics of Form 8275 and Form 8275-R disclosure, and the reasonable-cause exceptions the preparer can raise under §6694. Coverage includes the two-tier §6694 penalty structure applicable to understatements from unreasonable positions and to willful or reckless conduct, how §6694 interacts with the client-facing accuracy penalties under §6662, and where the practitioner's exposure sits when a return position is challenged years after filing.
The course closes with the documentation elements a practitioner maintains to substantiate a position or demonstrate reasonable cause if the position is later questioned. Two hours of Ethics credit under Circular 230.
By the end of this course, participants will be able to:
Realistic possibility of success, substantial authority, and reasonable basis: what each requires, and when each applies under §10.34 and §6662.
How Form 8275 and Form 8275-R work, what adequate disclosure accomplishes, and when a position that would otherwise trigger preparer penalty exposure is closed by disclosure.
The unreasonable-position tier and the willful/reckless tier, the conduct triggering each, and the penalty amounts under current law.
The elements a preparer must show to establish reasonable cause and good faith, and what the file needs to demonstrate.
How preparer penalties assessed under §6694 relate to accuracy penalties assessed against the taxpayer under §6662, and what happens when both apply.
The workpapers, research notes, and authority citations a practitioner maintains to substantiate a position or support a reasonable-cause defense.
Jennifer Harris Smith, JD, CPA. Attorney (Texas). CPA (Texas). Member of Texas Bar College. Full bio →