Compliance
Staying Compliant: IRS’s New Disclosure & Penalty Rule for US Tax Return Preparers
IRS has issued updated rules on adequate disclosure and penalties for tax return preparers — here’s what to know before filing under 2025 forms.
By NomadicTax Research Team • 5-8 min read • March 14, 2026
## 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](https://www.eitc.irs.gov/pub/irs-irbs/irb26-07.pdf?utm_source=openai))
## 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.