- Preparers face criminal charges and fines for willfully submitting false returns or assisting in tax fraud.
- Civil penalties apply to unreasonable or reckless positions, reaching up to seventy-five percent of the preparer’s income.
- Taxpayers remain liable for underlying taxes even if a preparer’s error or misconduct caused the filing issue.
Paid tax preparers who knowingly submit false returns can face civil penalties, criminal charges, IRS discipline and injunctions. Taxpayers may still owe the underlying tax, interest and taxpayer-side penalties even when a preparer caused the error.
The most serious cases involve IRC section 7206, which covers willfully making false declarations and assisting with false tax documents. IRS criminal guidance says violations can bring a fine of up to $100,000 for individuals, $500,000 for corporations, imprisonment of up to three years, or both, plus prosecution costs.
Title 18 can raise the maximum fine. Under 18 USC section 3571, the permissible maximum can reach $250,000 for individuals and $500,000 for corporations.
Free toolSubstantial Presence Test CalculatorThe signer is not always the only person at risk. IRS guidance says the rule may reach preparers, corporate officers, tax shelter promoters and advisers who participate in fraud, even when they did not personally complete the return.
A separate criminal provision, IRC section 7207, can apply when someone knowingly delivers or discloses a fraudulent return, statement, account or other document involving a material matter. The IRS describes that offense as a misdemeanor punishable by a fine of up to $10,000, or $50,000 for a corporation, and imprisonment of up to one year.
False expenses and hidden foreign income can create criminal exposure
Conduct that may create section 7206 risk includes fabricating business expenses, creating false Schedule C losses, inflating charitable deductions and claiming dependents who do not qualify. False withholding claims, backdated documents and fabricated education-credit records can also create exposure.
The same concern applies to cross-border conduct. Examples include advising a client to omit foreign income, concealing U.S. rental income for an NRI or nonresident landlord, submitting false ITIN information, hiding crypto or brokerage gains, misrepresenting residency status and assisting with false refund claims.
Willfulness is central. A genuine mistake differs from knowingly helping prepare a false return. Once a preparer knowingly assists a false claim, the matter can move beyond ordinary tax preparation.
Civil penalties can apply without criminal charges. Under IRC section 6694, an unreasonable position carries the greater of $1,000 or 50% of the preparer’s income from preparing the return or refund claim. Willful or reckless conduct carries the greater of $5,000 or 75% of that income.
IRS guidance allows a limited defense under section 6694(a) when the understatement resulted from reasonable cause and the preparer acted in good faith. That protection does not cover blindly accepting impossible facts, ignoring obvious inconsistencies or relying on outdated practices after the law changes.
Advisers and firm owners can face penalties without signing
IRC section 6701 can apply to anyone who aids, assists, procures or advises on part of a return, affidavit, claim or other document. The person must know, or have reason to believe, that the document will be used in a material tax matter and that it would understate another person’s tax liability.
The penalty generally reaches $1,000 for most documents and $10,000 when the document relates to a corporation’s tax liability. It can apply whether or not the taxpayer knew about or consented to the understatement.
The rule also reaches conduct through subordinates. “Procures” includes ordering or causing a subordinate to act, or knowing about a subordinate’s participation and failing to prevent it.
That provision can affect tax-office owners, supervisors, offshore return-preparation teams, consultants, promoters and other advisers. A firm that rewards false credits, fabricated deductions or rushed volume filing may expose more than the employee who signs the return.
2026 penalties attach to basic preparer failures
For returns or refund claims filed in 2026, several section 6695 penalties reach $65 per return or claim, with a $32,500 maximum. The categories include failures to furnish the taxpayer a copy, sign the return, furnish an identifying number, retain a copy or list, and file correct information returns.
Other amounts apply separately:
| Preparer conduct | Penalty for returns or claims filed in 2026 |
|---|---|
| Negotiating a taxpayer’s refund check | $650 per check, no maximum |
| Failing due diligence requirements | $650 per failure |
| Failing across all four covered tax benefit areas on one return | Up to $2,600 |
These requirements create a record trail. A signed return, a copy for the taxpayer, a PTIN, retained records and direct control of the refund help identify who prepared and handled the filing.
A preparer should not route a taxpayer’s refund through the preparer’s personal or business account. Negotiating the check can trigger the $650 penalty for each check, without a maximum, and creates risks involving refund theft, identity misuse and later disputes.
Form 8867 requires questions, records and follow-up
Paid preparers must complete Form 8867 for every return or refund claim involving the Earned Income Tax Credit, Child Tax Credit, Additional Child Tax Credit, Credit for Other Dependents, American Opportunity Tax Credit or head of household filing status. The form must be submitted with the return, and the preparer must retain a copy.
For returns and refund claims filed in 2026, the due diligence penalty is $650 for each failure. It can reach $2,600 on one return when the preparer fails the requirements across all four covered tax benefit areas.
The preparer must interview the taxpayer, ask adequate questions, document the questions and answers at the time, review supporting information, complete Form 8867 truthfully and accurately, submit it as required and retain the required records.
Follow-up questions become necessary when information appears incorrect, incomplete or inconsistent. Examples include a head-of-household claim while the taxpayer lives with a spouse, a child who lived abroad, education credits without proof of qualified expenses, unsupported self-employment income or a child-credit claim missing required Social Security number information.
Records generally must be kept for three years from the latest applicable date. The retained material includes Form 8867, worksheets, documents relied upon, records showing how and from whom information was obtained, and notes about additional questions and taxpayer answers.
A statement that the preparer “asked the client” may not be enough during an audit if the office has no notes, worksheets or supporting records.
Cross-border returns create extra points of failure
Immigrants, NRIs, F-1 students, H-1B workers, green card holders, U.S. citizens abroad, landlords and small-business owners often bring facts that require more than routine domestic preparation.
A preparer may need to assess Form 1040 versus Form 1040-NR, substantial presence test calculations, treaty claims, F-1, J-1, H-1B or L-1 status, green card tax status, ITIN applications and dependent claims. Other issues include children living outside the United States, foreign earned income, foreign bank accounts and FBAR reporting.
The return may also involve Form 8938, foreign pensions, U.S. rental property owned by an NRI, FIRPTA withholding, crypto or foreign brokerage accounts, foreign business interests or education credits for international students.
A technical mistake does not automatically establish fraud. Knowingly hiding facts, fabricating documents or claiming benefits without eligibility presents a different risk.
These warning signs should stop a taxpayer before signing
Taxpayers should treat several behaviors as red flags:
- Promising a refund before reviewing documents.
- Asking the taxpayer to sign a blank return.
- Refusing to sign as the paid preparer or include a PTIN.
- Requesting that the refund go to the preparer’s account.
- Claiming credits without asking eligibility questions.
- Inventing Schedule C income or expenses.
- Adding false dependents.
- Ignoring foreign income or foreign accounts.
- Refusing to provide a complete copy of the filed return.
- Changing bank details without clear consent.
- Charging a fee based on the refund size.
- Asking the taxpayer to approve false forms.
- Saying, “the IRS will not check.”
Before signing or e-signing, taxpayers should review income, deductions, credits, dependents, filing status and bank details. They should also check foreign reporting answers, rental schedules, business schedules and the preparer section.
The final copy should match the return actually filed. A refund sent to an unfamiliar bank account requires immediate action.
Firms need controls beyond the individual preparer
A responsible preparer reviews records, asks targeted questions, explains uncertain positions, documents assumptions, signs when required, includes the PTIN, provides a copy and declines unsupported claims.
Tax firms should use training, written procedures, return checklists, Form 8867 controls, refund-routing controls, quality review and escalation procedures for unusual issues. IRS due diligence guidance says employers may face penalties when employees fail due diligence and owners or managers knew of the failure, lacked procedures, ignored them or acted negligently.
Form 8867 does not authorize an ineligible credit. It documents the due diligence process and requires truthful, supportable claims.
The taxpayer remains responsible for reviewing the filing. A preparer’s penalty does not erase tax, interest or other amounts that may remain due.
A compliant filing begins with records that support the claim. It ends with a signed return, a PTIN, a taxpayer-held copy and a refund sent to the taxpayer’s own account.
This article is for informational purposes only and does not constitute tax advice. Consult a qualified tax professional or CPA about your specific situation.
