Penalty Protection via Position Disclosure

§ 6694. Understatement of taxpayer’s liability by tax return preparer(a) Understatement due to unreasonable positions(1) In generalIf a tax return preparer—(A) prepares any return or claim of refund with respect to which any part of an understatement of liability is due to a position described in paragraph (2), and (B) knew (or reasonably should have known) of the position, such tax return preparer shall pay a penalty with respect to each such return or claim in an amount equal to the greater of $1,000 or 50 percent of the income derived (or to be derived) by the tax return preparer with respect to the return or claim. (2) Unreasonable position(A) In generalExcept as otherwise provided in this paragraph, a position is described in this paragraph unless there is or was substantial authority for the position. (B) Disclosed positionsIf the position was disclosed as provided in section 6662(d)(2)(B)(ii)(I) and is not a position to which subparagraph (C) applies, the position is described in this paragraph unless there is a reasonable basis for the position. (C) Tax shelters and reportable transactionsIf the position is with respect to a tax shelter (as defined in section 6662(d)(2)(C)(ii)) or a reportable transaction to which section 6662A applies, the position is described in this paragraph unless it is reasonable to believe that the position would more likely than not be sustained on its merits. (3) Reasonable cause exceptionNo penalty shall be imposed under this subsection if it is shown that there is reasonable cause for the understatement and the tax return preparer acted in good faith. (b) Understatement due to willful or reckless conduct(1) In generalAny tax return preparer who prepares any return or claim for refund with respect to which any part of an understatement of liability is due to a conduct described in paragraph (2) shall pay a penalty with respect to each such return or claim in an amount equal to the greater of—(A) $5,000, or (B) 75 percent of the income derived (or to be derived) by the tax return preparer with respect to the return or claim. (2) Willful or reckless conductConduct described in this paragraph is conduct by the tax return preparer which is—(A) a willful attempt in any manner to understate the liability for tax on the return or claim, or (B) a reckless or intentional disregard of rules or regulations. (3) Reduction in penaltyThe amount of any penalty payable by any person by reason of this subsection for any return or claim for refund shall be reduced by the amount of the penalty paid by such person by reason of subsection (a).