Key Changes from the IRS Revenue Procedure
The IRS recently published Revenue Procedure 2026-12, updating when information shown on a return qualifies as “adequate disclosure.” The update affects understatement of income tax penalties (section 6662(d)) and preparer penalties under section 6694(a). These rules apply primarily to returns filed using 2025 tax forms. (eitc.irs.gov)
What This Means for Tax Return Preparers and Taxpayers
- For preparers: You’ll need to carefully evaluate what constitutes complete and proper disclosure on applicable returns to avoid penalties. Minor omissions or informal references may no longer suffice.
- For taxpayers: If you're reviewing or approving your tax return, ensure your preparer includes written disclosure or statements to support specific positions taken (e.g. tax credits, complex deductions).
How to Implement Best Practices
1. Adopt stricter documentation standards Include explanations in schedules/statements where ambiguity exists. For example, if claiming a deduction or credit with less conventional eligibility, attach a written disclosure that clearly states legal basis.
2. Train your team Staff and preparers should be briefed on what qualifies as “adequate disclosure.” Update templates and checklists for all returns that may fall under sections 6662 and 6694.
3. Review and confirm for each client With clients who have unique tax situations—foreign income, trusts, or significant credits—double-check that disclosures are customized, not generic.
Example Situations
A preparer helps small business clients claim clean energy credits under recent laws. Under the updated procedure, if the credit is new or forms are unclear, the preparer must include a detailed supporting statement—simply citing “clean energy credit per code” may not be enough.
A taxpayer uses Schedule A medical expense deductions and is unsure about threshold applicability. Without clear disclosure as to why certain amounts are included, the IRS may assess a penalty for understatement if not properly backed up.
What to Do Now
- Review your past returns filed on 2025 forms, especially if corrective actions or audits are possible.
- Update internal process documents and disclosure checklists to align with Revenue Procedure 2026-12.
- If you're a taxpayer: ask your preparer whether disclosures are being made explicitly and carefully—your filings are your protection.
Bottom line: Starting now, robust disclosure on tax returns is essential. Whether you're a preparer or taxpayer, transparent explanations and solid documentation make the difference between compliance and costly penalty exposure.