The IRS Code section 6694(a) and (b) and 7701(a)(36)
These codes sections have been expanded to now impose the penalties on tax return preparers not just income tax preparers. This new provision expands the penalties to prepares of all types of tax returns. This include Estate, Employment, Excise Tax, Gift tax returns, and returns of Tax exempt organizations.

The IRS has expanded the penalties for both the 1st & 2nd tier penalties.
1. In the case of the first tier penalty, this has been increased from $250 to the greater of $1,000 or 50% of the income earned by the tax preparer on the tax return.

2. In the case of the second tier penalty, a more serious penalty involving willful or reckless conduct, this has been increased from $1,000 to the greater of $5,000 or 50% of the income earned by the tax preparer on the tax return.

The consequences of these severe potential penalties is encourage more compliances from tax return preparers. This in turn will mean taxpayers will no longer get away without providing actual expense verification, and proof's will be demanded by tax return preparers, prior to accepting clients word for certain deductions.

The day where CPA's or tax return preparers blindly accepting clients word for expenses without verification and validity are over! The days of taking aggressive deductions are over!

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Ask TaxGuru Please refer to the legal disclaimer.

Now, I understand why my Tax accountant was very nervous when I met her last week. I told her that I didnt have receipts for certain items and I asked if she could use an estimate.

She replied "I am sorry, I am not going to allow any items without proper documentation, and when signing the tax return in April, I will only allow deductions that Ordinary and Necessary and Verifiable". I guess Uncle Sam has worked wonders on the CPA's! They now truly appear very conservative to me!