Enrolled Agent Exam [Part 3] 34, Other Return Preparer Penalties Under Section 6695

0:00We are covering the various tax-prepare penalties under internal revenue codes section 6695, a critical topic for the enrolled agent Putt 3 exam. These penalties focus on a preparer's procedural duties and due diligence. The exam loves to test these because they are strict liability penalties, meaning intent often doesn't matter. Let's start with the group of penalties that are $60 for 2025 for each failure, with a maximum penalty of $31,500 per year. These include the failure to furnish a copy of the return to the taxpayer, failure to sign the return as the preparer, failure to include your preparer tax identification number or P10, and failure to retain a copy of the return or a list of prepared returns for three years. An exam question might list several of these small failures together, asking you to calculate the total penalty. So know that $60 figure. A common exam trap is forgetting that these penalties

1:00can be waived if the failure is due to reasonable cause and not willful neglect. For example, if your office's server where you store digital copies of returns was destroyed in a fire, that would likely be considered reasonable cause for failing to retain a copy. Now, let's focus on two heavily tested penalties with much higher stakes. First is the penalty for negotiating a taxpayer's refund check. For 2025, this penalty is $635 per check, and importantly, there is no annual maximum. The exam will test this with scenarios where a preparer, perhaps for a client without a bank account, deposits the client's refund into their own business account to then pay the client in cash minus the prep fee. This is a direct violation and triggers the penalty. The only exception is for a bank that is also a preparer, which can deposit the full amount into the taxpayer's account at that bank. The second major penalty is for failure to exercise due diligence in determining eligibility for certain tax benefits.

2:03For returns filed in 2026, this penalty is $650 for each failure. These benefits include the earned income tax credit, the child tax credit, the American Opportunity Tax Credit, and head of household filing status. If you prepare a return claiming all four of these but fail in your due diligence for each, the penalty could be $2,600 on that single return. A classic exam question involves a preparer who doesn't ask follow-up questions or document their inquiries when a client's eligibility for the EITC seems questionable. You must complete and retain form 8867, the paid preparers due diligence checklist to prove you met the requirements. A great mnemonic to remember the basic duties is copy, sign, peatin, retain for the client's gain. Missing any of these basic administrative steps is an easy penalty for the IRS and should be an easy point for you on the exam. Remember the

3:04difference between the lower tier, capped penalties, and the higher uncapped penalties for due diligence and negotiating refund checks. As the exam will absolutely test your knowledge of these specifics, for free practice questions, AI-powered explanations, and more exam prep tools, visit OpenExamprep.com. That's OpenExamprep, all one word, dot com.