What Is a Paid Preparer? Duties, Due Diligence, and Penalties

A paid tax preparer has real legal duties to you. Federal law requires anyone who prepares your return for compensation to register with the IRS, sign the return, meet specific accuracy standards, complete extra due diligence for certain credits, safeguard your personal information, keep records for three years, and hand you a complete copy of what they filed. Paid tax preparer responsibilities are enforced through per-return penalties, professional discipline, and in serious cases criminal prosecution. Knowing what your preparer owes you makes it easier to spot problems early and act on them.

Who Counts as a Paid Preparer

Under Internal Revenue Code Section 7701(a)(36), a tax return preparer is anyone who prepares a federal return or refund claim for compensation, or who employs others to do so. Preparing a “substantial portion” of a return counts the same as preparing the whole thing, judged by the size and complexity of the entry relative to the taxpayer’s overall liability.¹

Compensation is what triggers the rules. Volunteers, people offering free advice, someone doing only clerical work like typing or photocopying, employees preparing their own employer’s returns, and fiduciaries filing for those they serve are not covered.¹ If you are paying someone, though, every responsibility below applies, whether the preparer is a CPA, an enrolled agent, an attorney, or has no credential at all. You can verify anyone’s PTIN and credentials through the IRS’s online directory before hiring them.²

Registration, Signature, and Your Copy of the Return

Every paid preparer has to register with the IRS and obtain a Preparer Tax Identification Number, or PTIN. That PTIN must appear on every return they prepare, and they must sign each return, taking primary responsibility for its overall substantive accuracy.³

They also have to give you a copy of the completed return at the time you sign it. This is yours to keep. If a preparer rushes you through signing and never provides a printed or electronic copy of the full return, that alone is a compliance violation. On their side, the preparer must retain either a copy of the return or a record showing your name, identification number, taxable year, and the type of return filed, for three years from the later of the due date or the filing date.⁴

Accuracy Standards for the Positions on Your Return

A preparer cannot simply transcribe whatever you hand over. When numbers look incomplete, inconsistent, or too good to be true, the preparer is expected to ask follow-up questions and request documentation. Someone claiming $80,000 in business expenses against $90,000 of income should be pushed for receipts before those figures make it onto a return.

Section 6694 sets the standard for the legal positions taken on the return. If a position is not disclosed, the preparer needs “substantial authority” behind it. If the position is disclosed on Form 8275 (or Form 8275-R when the position is contrary to a Treasury regulation), the lower “reasonable basis” standard applies.⁵⁶ The bar rises for tax shelters and reportable transactions: the preparer must reasonably believe the position is “more likely than not” to be sustained on its merits, meaning a greater than 50% chance if challenged.⁷

Extra Due Diligence for Certain Credits and Head of Household

Congress singled out several high-error tax benefits for tougher scrutiny. Under Section 6695(g), the preparer must complete additional due diligence when the return claims any of the following:

Earned Income Tax Credit (EITC)
Child Tax Credit (CTC) and Additional Child Tax Credit (ACTC)
Credit for Other Dependents (ODC)
American Opportunity Tax Credit (AOTC)
Head of Household filing status

For each of these, the preparer has to complete Form 8867, a due diligence checklist, and file it with the return. They must run the computation worksheets, keep records of what information they relied on and how they reached the numbers, and make additional inquiries whenever something the client provides looks off. Their retained file has to include the Form 8867, the worksheets, documentation of when and how they received information from you, and any substantiating documents you handed over.⁸

Skipping these steps is expensive. For returns filed in calendar year 2025, the penalty is $635 per failure, and each credit or filing status on a single return counts as a separate failure. A preparer who claims EITC, CTC, and Head of Household on one return without completing the due diligence could be looking at nearly $1,900 in penalties on that return alone. The dollar figure is adjusted for inflation each year.⁹

Confidentiality and Data Security

Section 7216 makes it a crime for a preparer to knowingly or recklessly disclose or misuse the information you provide during the preparation process. The only automatic exceptions are disclosures required by law, such as a response to a court order or subpoena.¹⁰

Anything beyond preparing your return requires your specific written consent. Marketing financial products to you, sharing data with affiliates, or selling information to third parties all need a consent form that identifies exactly what will be disclosed and to whom. A general waiver buried in a stack of paperwork does not satisfy the rule, and the e-file signature authorization (Form 8879) does not double as consent to use your data for anything else.¹¹

Preparers also have to take affirmative steps to secure your data. Under the FTC Safeguards Rule, they must create and implement a written data security plan. IRS Publication 4557 lays out the expected safeguards: multi-factor authentication for anyone accessing client data, encryption of sensitive files and emails, anti-malware on all devices, and routine monitoring of e-file applications and PTIN accounts for unauthorized use. Preparers must also limit internal access to client data on a need-to-know basis, back up sensitive data securely, wipe or destroy old hard drives and printers that held client information, and verify direct deposit details before e-filing. Noncompliance can trigger an FTC investigation.¹²

What Happens When a Preparer Breaks the Rules

The penalty structure runs on several tracks. Which one applies depends on whether the failure was a bad tax position, an administrative lapse, an ethical breach, or outright fraud.

Understatement Penalties

When a preparer takes an unreasonable position that understates your tax, the Section 6694 penalty is the greater of $1,000 or 50% of the income the preparer earned from the return. If the understatement is due to willful conduct or reckless disregard of the rules, the penalty rises to the greater of $5,000 or 75% of that income.⁷

Administrative Penalties

Separate penalties apply for failing to sign a return, provide you a copy, include a PTIN, or retain records. The statutory base is $50 per failure, capped at $25,000 per category per calendar year, adjusted for inflation.¹³

Professional Discipline Under Circular 230

The IRS Office of Professional Responsibility can sanction any practitioner who is incompetent, disreputable, or violates conduct rules. Sanctions include public censure, suspension from practice before the IRS, permanent disbarment, and monetary penalties up to the gross income the practitioner derived from the misconduct. These can be combined.¹⁴

Criminal Exposure

Violating Section 7216’s confidentiality rule is a misdemeanor punishable by up to $1,000 in fines and up to one year in prison. If the improper disclosure involves identity theft, the maximum fine rises to $100,000.¹⁰ A parallel civil penalty under Section 6713 adds $250 per unauthorized disclosure, capped at $10,000 per calendar year, with the per-incident amount rising to $1,000 and the cap to $50,000 when the disclosure is tied to identity theft.¹⁵ The most serious exposure comes from Section 7206: a preparer who willfully helps prepare a fraudulent return, or aids in presenting a false document to the IRS, commits a felony punishable by up to $100,000 in fines and up to three years in prison.¹⁶

How to Report a Preparer

If your preparer filed an incorrect return, inflated your refund without telling you, or stole part of your refund, use Form 14157. You can submit it online, by fax at 855-889-7957, or by mail to the IRS Return Preparer Office in Atlanta.¹⁷

If the preparer filed or changed your return without your permission and you need the IRS to correct your account, you also need Form 14157-A, a fraud or misconduct affidavit signed under penalties of perjury. Expect to provide evidence that the person held themselves out as a preparer (a business card or advertisement works), documentation of your interaction with them for the tax year involved, and, if you are claiming refund theft, a police report describing the theft.¹⁸

You Are Still Responsible for Your Return

Hiring a paid preparer does not transfer your legal responsibility for the return. The IRS holds the preparer accountable for their professional obligations, but you are still personally liable for every figure filed under your name. If the preparer understates your tax, you owe the difference plus interest and penalties, even when the error was entirely theirs. You can pursue a malpractice claim against the preparer separately, but the IRS will come to you first for the tax.

Before you sign, read the return. Confirm the income figures match your records, that you recognize every deduction, and that the bank account listed for direct deposit is yours. Your preparer is legally required to be accurate, and your signature says you are vouching for the return too.³

1
Office of the Law Revision Counsel. 26 USC 7701 Definitions
2
Internal Revenue Service. Directory of Federal Tax Return Preparers With Credentials and Select Qualifications
3
Internal Revenue Service. Topic No. 254 How to Choose a Tax Return Preparer
4
eCFR. 26 CFR 1.6107-1 Tax Return Preparer Must Furnish Copy of Return or Claim for Refund to Taxpayer and Must Retain a Copy or Record
5
eCFR. 26 CFR 1.6694-2 Penalty for Understatement Due to an Unreasonable Position
6
Internal Revenue Service. Instructions for Form 8275 Disclosure Statement
7
eCFR. 26 CFR 1.6694-1 Section 6694 Penalties Applicable to Tax Return Preparers
8
Internal Revenue Service. Due Diligence Law, Regulations and Requirements
9
Internal Revenue Service. Tax Preparer Penalties
10
Office of the Law Revision Counsel. 26 USC 7216 Disclosure or Use of Information by Preparers of Returns
11
Internal Revenue Service. About Form 8879
12
Internal Revenue Service. Safeguarding Taxpayer Data
13
Office of the Law Revision Counsel. 26 USC 6695 Other Assessable Penalties With Respect to the Preparation of Tax Returns for Other Persons
14
Internal Revenue Service. Treasury Department Circular No. 230
15
Office of the Law Revision Counsel. 26 USC 6713 Disclosure or Use of Information by Preparers of Returns
16
Office of the Law Revision Counsel. 26 USC 7206 Fraud and False Statements
17
Internal Revenue Service. Make a Complaint About a Tax Return Preparer
18
Internal Revenue Service. Form 14157-A Tax Return Preparer Fraud or Misconduct Affidavit