Practices and Procedures · Rules and penalties
Assessment and appeal procedures for preparer penalties
tax year · reviewed 2026-08-18 · I. Ohu
A preparer penalty does not travel the road a deficiency travels. There is no notice of deficiency, no ninety-day letter, and no prepayment forum in the Tax Court. What replaces them is a distinct administrative sequence with its own letter, its own consent form, and a statutory device that lets a preparer stop collection by paying fifteen percent. Knowing the sequence is worth more than knowing the amounts, because almost every practical mistake in this area is a missed deadline rather than a lost argument.
The rule
Deficiency procedures do not apply. Subchapter B of chapter 63 — the deficiency machinery — is switched off for penalties under §§ 6694, 6695, 6695A and 6695B (IRC § 6696(b)). No notice of deficiency issues, and no Tax Court petition is available. The forum for contesting the penalty on the merits is a refund suit in a United States district court.
Supervisory approval before assessment. No penalty may be assessed unless the initial determination was personally approved in writing by the immediate supervisor of the person making it, or a higher official the Secretary designates (IRC § 6751(b)(1)). The exceptions in § 6751(b)(2) — certain additions to tax, and anything automatically calculated by electronic means — do not cover preparer penalties, so the approval requirement is live in every one of these cases.
The report and the 30-day letter. The IRS investigates the preparation and sends the preparer a report of examination before assessing either § 6694 penalty (Reg. § 1.6694-4(a)(1)). Unless the limitation period may expire without adequate opportunity to assess, it also sends a 30-day letter offering further administrative consideration and a final administrative determination; on a timely request, assessment may not be made until that determination goes against the preparer (Reg. § 1.6694-4(a)(2)). In practice the report is Form 5816, the 30-day letter is Letter 1125, and Publication 5 goes with it; the IRS extends the same pre-assessment appeal treatment to §§ 6695 and 6713 even though the regulation names only § 6694 (IRM 20.1.6.16.1).
No pre-assessment appeal for §§ 6700 and 6701. Promoter and aiding-and-abetting penalties are outside this route; the preparer’s remedy there is post-assessment (IRM 20.1.6.16).
Assessment periods. Penalties under § 6694(a) and § 6695 must be assessed within 3 years from the filing of the return or claimTY2026 (IRC § 6696(d)(1)). A § 6694(b) penalty carries no limitation period — assessable at any timeTY2026, and § 6713 likewise has no limitation period — § 6696(d) does not reach § 6713TY2026. Section 6695B, added in July 2025, carries {fig:preparer.6695B.assessment_period}.
The partial-payment stay. Within 30 days of notice and demand, a preparer who pays 15% of the penalty, paid within 30 days of notice and demand, with a refund claimTY2026 stops levy and collection proceedings on the remainder (IRC § 6694(c)(1)). The stay is conditional: the preparer must then sue in district court within 30 days after the earlier of denial of the refund claim or the expiration of 6 months from filing itTY2026, or the stay lapses the day after that period closes (IRC § 6694(c)(2); Reg. § 1.6694-4(b)). The § 6502 collection period is suspended while the IRS is barred from collecting (IRC § 6694(c)(3)).
Refund claims and abatement. A claim for refund of a penalty assessed under §§ 6694, 6695 or 6695A must be filed within 3 years from the date the penalty was paidTY2026 (IRC § 6696(d)(2)), on Form 6118. Separately, if there is ever a final administrative determination or final judicial decision that there was no understatement on the underlying return, a § 6694 assessment is abated and anything paid is refunded without regard to any period of limitations (IRC § 6694(d); IRM 20.1.6.20.2).
Current figures
| Item | Period or amount |
|---|---|
| § 6694(a) and § 6695 assessment | 3 years from the filing of the return or claimTY2026 |
| § 6694(b) assessment | no limitation period — assessable at any timeTY2026 |
| § 6713 assessment | no limitation period — § 6696(d) does not reach § 6713TY2026 |
| § 6695B assessment | {fig:preparer.6695B.assessment_period} |
| Payment that stays collection | 15% of the penalty, paid within 30 days of notice and demand, with a refund claimTY2026 |
| Deadline to file the district court suit | 30 days after the earlier of denial of the refund claim or the expiration of 6 months from filing itTY2026 |
| Claim for refund of a paid penalty | 3 years from the date the penalty was paidTY2026 |
| Consent to extend the assessment period | a consent is sought when under 180 days remain, and must be obtained if the case goes to Appeals with under 365 days remainingTY2026 |
How it works in practice
The sequence runs: investigation, Form 5816 report, Letter 1125 with Publication 5, optional pre-assessment Appeals, assessment, notice and demand, then either full payment or the § 6694(c) route. Each step has a deadline attached to it and none of them is generous.
The pre-assessment Appeals request is the cheapest point of resistance and the one most often skipped. It costs a protest and nothing else, it suspends assessment while Appeals considers the case, and — unusually — taking it does not use up the preparer’s later rights. A preparer who loses in pre-assessment Appeals, is assessed, pays, and files a claim may still request Appeals on the proposed denial of that claim (IRM 20.1.6.16.4). The one thing a post-assessment appeal does not do is extend the § 6694(c) period, and the IRM directs examiners to say so expressly (IRM 20.1.6.16.2).
The § 6694(c) device is not a settlement and not a payment plan. It buys quiet while a district court decides, and it is forfeited by inaction: if the preparer does not file suit within the window, collection resumes on the whole balance. Note the asymmetry — the government may counterclaim in that suit for the unpaid remainder (IRC § 6694(c)(1)), so the forum the preparer chooses is the forum in which the full penalty is decided.
Consents are a separate trap. Extending the statute on the taxpayer’s return using Form 872 does nothing for the preparer penalty; the preparer penalty needs its own Form 872-D. The IRM directs examiners to seek a consent when the assessment period will expire within 180 days, and requires one where the case is going to Appeals with under a year left, because Appeals needs time and deficiency procedures cannot be used to buy any (IRM 20.1.6.18).
The stay that lapsed
A preparer receives notice and demand for a § 6694(a) penalty, pays 15 percent within 30 days, and files a claim for refund. The IRS neither allows nor denies the claim. Seven months later the preparer, waiting to hear, receives a notice of intent to levy.
Analysis. The stay ended. Under § 6694(c)(2) the clock ran from the expiration of six months after the claim was filed, because that came earlier than any denial. The preparer had 30 days from that six-month mark to begin a district court proceeding, and did not. Silence from the IRS is not an extension — it is the event that starts the suit deadline.
The consent that covered the wrong return
An examiner is looking at both a client's return and the preparer's conduct on it. The client signs a Form 872 extending the assessment period on their own return. Fourteen months later the examiner proposes a § 6695 penalty against the preparer for the same return, more than three years after it was filed.
Analysis. The penalty is time-barred. Section 6696(d)(1) runs three years from the filing of the return the penalty relates to, and the client's Form 872 extends only the client's assessment period. Only a Form 872-D signed by the preparer would have extended this one (IRM 20.1.6.18). The preparer should raise the period rather than argue the merits.
The client who won, three years on
A preparer pays a § 6694(a) penalty in full and does not contest it. Four years later the client's own case reaches a final judicial decision holding there was no understatement of liability on the return.
Analysis. The assessment is abated and the payment refunded under § 6694(d), notwithstanding that the ordinary three-year refund-claim period of § 6696(d)(2) has long since closed — the subsection says "without regard to any period of limitations," and the IRM confirms there is no statute on such claims (IRM 20.1.6.20.2). The claim goes on Form 6118. This is the one route back after the deadlines have run, and it depends entirely on the client's outcome, not the preparer's diligence.
Traps
There is no Tax Court route. Section 6696(b) turns off deficiency procedures; the merits forum is a district court refund suit.
The suit deadline runs from the earlier of two dates. Denial of the claim, or six months after filing it — whichever comes first.
A post-assessment appeal does not extend the § 6694(c) period. Appeals proceeding is not a reason to let the suit deadline pass.
Form 872 is not Form 872-D. A consent on the taxpayer's return leaves the preparer penalty period untouched.
Sections 6700 and 6701 have no pre-assessment appeal. The pre-assessment route covers §§ 6694, 6695 and 6713 only.
Section 6694(b) never goes stale. Willful or reckless conduct can be assessed at any time, so an old file is not a safe file.
How this has changed
The current shape of the pre-assessment route dates from the 2008 regulations, which apply to returns and claims filed after 31 December 2008 (Reg. § 1.6694-4(d)). Two more recent changes matter. Public Law 119-21, enacted 4 July 2025, added § 6695B to § 6696 and gave that penalty a six-year assessment period — the first time § 6696(d)(1) has carried anything other than three years or none. And IRM 20.1.6 was revised on 10 August 2026, restating the § 6751 supervisory approval requirements and updating the § 6695 inflation table to Rev. Proc. 2025-32; the appeal-rights sections themselves were last revised 22 May 2024 and were not disturbed.
Exam focus
The examinable core is the sequence and the deadlines, not the dollar amounts. Know that deficiency procedures do not apply and why that closes the Tax Court; that the pre-assessment 30-day letter suspends assessment on a timely request; that the partial payment § 6694(c) prescribes, made within 30 days of notice and demand, stays collection; and that the stay depends on filing suit within 30 days of the earlier of denial or the six-month mark. Know the three-year assessment period for § 6694(a) and § 6695 and its absence for § 6694(b). Expect § 6694(d) to be tested as the exception that survives every other deadline.
Check yourself
1. A preparer disagrees with a proposed § 6694(a) penalty. Which forum hears the merits if the dispute is not resolved administratively? (A) The United States Tax Court (B) A United States district court, on a refund suit (C) The Office of Professional Responsibility (D) The Court of Federal Claims only Answer: B. Section 6696(b) switches off deficiency procedures, so there is no Tax Court petition.
2. To stop collection while contesting an assessed § 6694 penalty, the preparer must pay: (A) The full amount (B) 15 percent, within 30 days of notice and demand, with a claim for refund (C) 20 percent, within 60 days (D) Nothing, if an appeal is pending Answer: B. IRC § 6694(c)(1).
3. A preparer files a claim for refund on 1 March and hears nothing. The deadline to begin the district court proceeding is: (A) 30 days after the claim is eventually denied, whenever that is (B) 30 days after 1 September (C) Two years after 1 March (D) There is no deadline while the claim is open Answer: B. The period runs from the earlier of denial or six months after filing.
4. A § 6695 penalty relates to a return filed on 15 April 2023. The client signed a Form 872 extending their own assessment period. On 1 September 2026 the IRS proposes the penalty. It is: (A) Timely, because the Form 872 extended both periods (B) Timely, because § 6695 has no limitation period (C) Time-barred, because the three-year period ran and only a Form 872-D would extend it (D) Timely, because the penalty period runs from assessment Answer: C.
5. A final judicial decision establishes there was no understatement on the return underlying a § 6694 penalty the preparer paid five years ago. The preparer: (A) Has no remedy, the refund period having closed (B) May claim abatement and refund on Form 6118 without regard to any limitation period (C) Must first obtain the client’s consent (D) May recover only if a pre-assessment appeal was taken Answer: B. IRC § 6694(d).
Change log
- Initial publication from IRC §§ 6694(c), 6694(d), 6696, 6751, Reg. § 1.6694-4 and IRM 20.1.6 as revised 10 August 2026.