Tax Return Preparer Defense Attorney in Bakersfield, California

An IRS audit of your tax preparation work can put your income and professional reputation at risk. The IRS may be reviewing how you handled earned income tax credit or child tax credit claims, whether you asked enough questions, and whether your client files support the answers on Form 8867.

These examinations can lead to penalties across multiple returns. More serious allegations can bring scrutiny from IRS Criminal Investigation, a referral to the Department of Justice, or a court order restricting your ability to prepare returns for others. Those consequences involve different legal standards. A documentation problem does not automatically establish criminal conduct.

For return preparers in Bakersfield and throughout California, the first step is understanding exactly what the IRS is examining. A tax return preparer defense attorney can evaluate the allegations, organize a response, and address the legal risks before you make statements or agreements that affect your position.

What an IRS Due Diligence Audit Examines

A preparer due diligence examination focuses on your compliance with the rules for preparing certain client returns. It is different from an audit of your own income tax return or an examination of whether a particular client owes additional tax.

IRC § 6695(g) and Treas. Reg. § 1.6695-2 cover the earned income tax credit, commonly called EITC or EIC; the child tax credit and related additional child tax credit and credit for other dependents; the American opportunity tax credit; and head of household filing status.

The rules require you to complete and submit Form 8867 as required, calculate the credits using the required worksheets or equivalent records, satisfy the knowledge requirement, and retain the required records. Completing a checklist alone does not establish that the underlying work was done. Due diligence duties can also apply to a nonsigning preparer who determines eligibility for a covered benefit.

The IRS's audit guidance describes interviews about business practices and an initial review of at least 25 client returns and files. The examination may expand if the examiner identifies failures. It can also include checks of your Preparer Tax Identification Number, or PTIN, compliance and your own personal and business return filing obligations.

Why EITC and Child Tax Credit Returns Receive Scrutiny

Refundable credits can generate substantial refunds, so an incorrect claim can have consequences for both the client and the preparer. Common problems involve a child’s residency or relationship to the taxpayer, competing claims by family members, filing status, and reported earned income.

The benefits have different eligibility rules. For example, a qualifying release on Form 8332 may allow a noncustodial parent to claim certain child related tax benefits, but it does not transfer eligibility for EITC or head of household filing status. A divorce agreement saying the parents alternate years does not settle every federal tax issue.

Schedule C income creates another area of concern. The IRS identifies inflated or fabricated business income, omitted expenses, and overstated expenses as potential EITC problems. A client reporting cash business income with no ordinary operating costs may require follow up questions. The objective is an accurate return based on the client's actual activity.

Always apply the rules for the year under examination, including the applicable age, residency, income, and Social Security number requirements. Prior year eligibility does not establish that every requirement was met again.

Documentation and Mistakes That Can Become Penalty Issues

The knowledge requirement is central to these audits. You cannot use information you know, or have reason to know, is wrong. If information appears incorrect, inconsistent, or incomplete, you must make reasonable inquiries and record the questions and responses when they occur. A client signature does not replace that obligation.

That does not mean every client must bring the same packet of school records, medical records, and receipts. The IRS generally does not prescribe a mandatory set of client documents for every due diligence file. The information needed depends on the facts and any inconsistencies that need to be resolved. If you rely on a document supplied by the client, keep the required copy.

A useful file explains what you knew when preparing the return. For a residency question, dated notes identifying where the child lived and how an inconsistent address was explained are more helpful than a generic statement that the client qualified. School or childcare records may support the explanation when appropriate. Business income questions may call for invoices, payment records, or a credible reconstruction tied to the client's actual work.

Under the Form 8867 instructions, required records include the form, credit computations, documents relied upon, and records identifying how, when, and from whom the relevant information was obtained. Retention generally runs for three years from the latest applicable date, which can include the return's original due date or its filing date. Signing and non signing preparers have different applicable date rules.

Common weaknesses include missing interview notes, unsupported software entries, unanswered contradictions, and failure to retain documents that were reviewed. If you discover a mistake, preserve the original file. Any later explanation should be accurately dated and identified as a later explanation. It should never be presented as a note made during the original interview.

The Financial Penalties a Return Preparer May Face

Due diligence penalties under IRC § 6695(g) can multiply quickly. For returns or refund claims filed in 2026, the inflation adjusted amount is $650 per covered tax benefit failure. EITC and the CTC/ACTC/ODC group are separate categories; the child credit group is not three separate penalties. With AOTC and head of household, failures involving all four categories can total $2,600 on one return.

For illustration, if the IRS establishes an EITC failure and a child credit failure on each of 40 returns filed in 2026, the proposed due diligence penalties would total $52,000. That is a hypothetical calculation, not a prediction about any preparer's case. The published amounts for returns filed in 2027 increase to $665 per covered failure, or $2,660 if all four categories are involved. The filing year rate matters.

Other penalties address different conduct. Under IRC § 6694(a), an understatement attributable to an unreasonable position can expose the preparer to the greater of $1,000 or 50 percent of the income derived or expected from the return or refund claim. Section 6694(b), involving willful or reckless conduct, carries the greater of $5,000 or 75 percent of that income.

Additional penalties can involve missing signatures or identifying numbers, failure to provide a return copy, or improper handling of refund checks. Each provision has its own requirements.

The IRS must establish the applicable requirements for each penalty. Restrictions on overlapping penalties also need to be considered.

Civil Aiding and Abetting Penalties and Criminal Allegations

The phrase "aiding and abetting" needs careful attention. IRC § 6701 imposes a civil penalty for knowingly helping prepare or present a document that would understate another person’s tax. For documents concerning an individual taxpayer’s liability, the penalty generally is $1,000, subject to statutory limits on repeated penalties for the same taxpayer and period. Section 6701 also restricts imposing § 6694 penalties on the same person for the same document.

A criminal allegation is different. IRC § 7206(2) addresses willfully aiding or assisting in preparing or presenting a return or other tax document that is materially false or fraudulent. A conviction can carry up to three years in prison per count, along with fines and other consequences. The client’s knowledge or consent is not required under that provision.

An inaccurate return or missing document does not, by itself, establish the willfulness required for that crime. The issue becomes more serious when the evidence concerns deliberate fabrication, invented dependents, knowingly false income, or assistance in claiming benefits the preparer knew were unavailable. Those allegations must be evaluated against the evidence and the elements of the offense.

Information developed in a civil examination can lead to IRS Criminal Investigation review. CI investigates and may recommend prosecution to DOJ, and DOJ determines whether to pursue charges through the applicable process. An audit, investigation, referral, and prosecution are separate stages.

If a special agent contacts you or questions focus on intentional falsification, obtain legal advice before a voluntary interview. Continue to comply with lawful requirements through a properly evaluated response.

How to Respond When an IRS Preparer Audit Begins

Have the actual letter reviewed promptly. An educational warning, a due diligence examination, and a proposed penalty require different responses. The IRS states that Letters 6199 and 6222 generally request a response within 14 days to arrange an examination or provide information. Use the date and instructions in your notice.

Preserve the relevant client files, emails, portal messages, software records, worksheets, and office procedures. Organize them by client, return year, and disputed benefit. A defense should connect the examiner’s specific allegation with the records that existed when the return was prepared.

Counsel can review the information request, prepare you for an interview, and identify whether the matter raises civil penalties, professional discipline, or possible criminal issues. Responses should be accurate and complete within the lawful scope of the request. Guessing about what happened in dozens of files can create an unreliable record that is difficult to correct later.

Review current office practices as well. Improving training or documentation can address ongoing problems, but it does not prove that an earlier return met the rules. An amended client return likewise does not, by itself, establish that the original preparer due diligence duties were satisfied.

Common Defenses to Preparer Penalties

One defense is that the required work was performed and the IRS overlooked or misunderstood the records. Dated interview notes, client communications, retained documents, and credit calculations can show what information was obtained and how an apparent inconsistency was resolved. A penalty response should identify that evidence for each disputed return and benefit.

Another issue is whether the preparer had reason to question the client’s information. Plausible, complete information and documented follow up can support a defense. A signed client statement carries less weight when the file contains contradictory facts that were left unanswered. The applicable standard matters more than a general assertion that the client supplied the numbers.

Treas. Reg. § 1.6695-2(d) provides a specific exception for an isolated, inadvertent failure when normal office procedures were reasonably designed and routinely followed to ensure compliance. It requires evidence of actual practices. The regulation expressly excludes firms penalized under its special employer rule from this exception. Section 6695(g) has no general reasonable cause exception, so a generic request for forgiveness is not the same defense.

For § 6694(a), reasonable cause and good faith are expressly relevant. An alleged § 6694(b) violation requires analysis of the asserted willful or reckless conduct. Section 6701 requires the specified knowledge, while criminal § 7206(2) requires willfulness. These standards should not be treated as interchangeable.

The penalty calculation also deserves review. Check the filing year rate, the benefits actually involved, the conduct attributed to each preparer, and any improper duplication. A client’s eligibility and the preparer’s compliance are separate questions. A client may qualify for a credit even though the preparer failed to meet a due diligence requirement. Conversely, a later credit disallowance does not automatically prove every allegation against the preparer.

Firm Owners and Employees Can Face Different Exposure

A preparer cannot assume that working for a firm eliminates individual exposure. A firm may also be penalized under the special employer rule, including when principal management participated in or knew of the failure, the firm lacked reasonable compliance procedures, or it disregarded those procedures at the specified level of culpability.

Training records, supervision, and the allocation of responsibility can therefore matter. When an owner, employee, and firm have different accounts of what happened, their interests should be assessed before they adopt a joint response.

Can the IRS Stop You From Preparing Tax Returns?

A preparer penalty does not automatically amount to a nationwide prohibition on preparing returns. However, separate enforcement processes can threaten the business’s ability to operate.

The IRS can suspend or expel an authorized provider from the e-file program when the applicable standards are met. Losing electronic filing privileges can seriously disrupt a practice. IRS e-file procedures provide administrative review and appeal processes for sanctions. Those proceedings have their own deadlines.

DOJ can also ask a federal court for an injunction. IRC § 7407 permits orders prohibiting specified misconduct. A broader order barring someone from acting as a return preparer requires additional findings, including repeated or continual misconduct and the inadequacy of a narrower order. A criminal conviction is not a prerequisite to this civil remedy.

Practitioners subject to Circular 230, including CPAs and enrolled agents, may separately face Office of Professional Responsibility proceedings. Possible sanctions include censure, monetary penalties, and suspension or disbarment from practice before the IRS. Practice rights before the IRS, e-file participation, and a court ordered preparation ban are distinct issues.

Appeal Rights and Strict Deadlines Require Immediate Attention

Review a proposed penalty report and its response instructions before signing an agreement. Where administrative appeal rights are available, a timely, supported protest can present the factual and legal disagreements to the IRS Independent Office of Appeals. The proper procedure depends on the penalty and the stage of the case.

Do not assume you will receive the same 90 day Tax Court opportunity that can accompany a client’s income tax deficiency. IRC § 6696 excludes sections 6694 and 6695 penalties from ordinary deficiency procedures. It also generally gives the IRS three years after the relevant return is filed to assess §§ 6695 and 6694(a) penalties. Section 6694(b) permits assessment at any time. Extensions can affect otherwise applicable assessment periods.

Section 6694(c) provides a specific partial payment refund procedure. Within 30 days after notice and demand, a preparer can pay at least 15 percent of the applicable § 6694 penalty and file a refund claim. Further litigation deadlines and requirements apply to preserving the statutory collection protection. This procedure does not generally apply to a stand alone § 6695(g) penalty.

These deadlines are strict. Missing one can affect available remedies or collection protection. Have the precise notice and penalty provision reviewed immediately.

Client Audits Can Create Conflicts of Interest

Your client’s credit disallowance may produce repayment obligations, interest, and other consequences. Reckless or intentional disregard of the rules can result in a two year prohibition on claiming certain credits and fraud can produce a ten year prohibition. Those client restrictions are different from a prohibition on the preparer's business.

If the client’s position is that you supplied incorrect advice, defending yourself while representing that client can create a conflict. Circular 230 § 10.29 addresses personal interest conflicts in IRS representation. Separate representation may be necessary. The response should account for both the client’s tax dispute and your own exposure.

Legal Representation for Tax Return Preparers in Bakersfield

For Bakersfield and Kern County preparers, an IRS due diligence examination deserves attention before it becomes a disputed penalty assessment or a threat to continued operations. The useful questions are specific in which returns are involved, which requirement allegedly failed, what records existed, and what legal standard applies.

Attorney Jorge Alesna, Jr. provides legal representation for tax return preparers and preparation businesses facing IRS audits, preparer penalties, and related enforcement matters. Mr. Alesna evaluates the evidence, prepares responses to the allegations, and assess available administrative appeals and litigation options. When a matter raises possible criminal exposure or restrictions on continued practice, those issues require attention alongside the civil penalty dispute.

To discuss tax return preparer defense in Bakersfield, contact the Law Office of Jorge Alesna, Jr. at (661) 933-0043. Bring the IRS notice, proposed penalty report, and available client records so the applicable deadlines and defense issues can be evaluated.