Part 3 Return Preparer Rules and Penalties question: 6694(a) penalty for a preparer's understatement due to an unreasonable

Part 3Return Preparer Rules and Penalties

The section 6694(a) penalty for a preparer's understatement due to an unreasonable position is the greater of $1,000 or:

A 75% of the income the preparer derived from the return
B 100% of the income the preparer derived from the return
C 20% of the understatement of tax on the return
D 50% of the income the preparer derived from the return

Show the answer and explanation

Answer: D. 50% of the income the preparer derived from the return

Section 6694(a) imposes a penalty equal to the greater of $1,000 or 50% of the income derived (or to be derived) by the preparer for the return, when the understatement is due to a position the preparer knew or should have known was unreasonable. Willful or reckless conduct under section 6694(b) raises it to the greater of $5,000 or 75%. Source: IRC 6694(a)(1); Treas. Reg. 1.6694-2. Tax year: 2025 (law as of 31 Dec 2025).

Common mistake

Mixing up the 6694(a) and 6694(b) percentages.

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Part 3 Return Preparer Rules and Penalties question: 6694(a) penalty for a preparer's understatement due to an unreasonable

Answer: D. 50% of the income the preparer derived from the return

Common mistake

Related Part 3 practice questions

Part 3 Return Preparer Rules and Penalties question: 6694(a) penalty for a preparer's understatement due to an unreasonable

Answer: D. 50% of the income the preparer derived from the return

Common mistake

Related Part 3 practice questions