The IRS has issued a memorandum on procedures for employment tax examiners for opening preparer penalty cases and assessing preparer penalties under IRC §§ 6694 and 6695. See full memorandum at:
Prior to May 25, 2007, preparer penalties under IRC §§ 6694 and 6695 were not applicable to employment tax returns. IRC §§ 6694 and 6695 were applicable only to preparers of income tax returns. The Small Business and Work Opportunity Tax Act (SBWOTA) of 2007 amended IRC §§ 6694 and 6695 to include any tax return preparer. Preparer penalties became applicable to employment tax returns filed on or after May 25, 2007.
The memorandum provides in part as follows:
During all field and office examinations, a determination will be made as to whether the facts and circumstances of the examination give rise to the development of a penalty issue. This determination will be made based on oral testimony and/or written evidence obtained during the examination process. Examiners are required to comment on preparer penalties on all cases examined.