United States: Penalties | Research Credit Integrity Alliance

This page summarizes the main federal civil penalties and sanctions that can apply when a research credit claim is overstated. It covers the business that makes the claim and the people who prepare it or advise on it. Whether any penalty applies depends on the facts and on defenses set out in the statute. Criminal provisions are not covered.

Penalties on the business that claims the credit

If a return understates tax, a penalty of 20 percent applies to the portion of the underpayment attributable to, among other things, negligence or disregard of rules or regulations, or a substantial understatement of income tax.1 Negligence includes any failure to make a reasonable attempt to comply with the Code, and disregard includes careless, reckless or intentional disregard.1

For a corporation other than an S corporation or personal holding company, an understatement is substantial if it exceeds the lesser of 10 percent of the tax required to be shown (or, if greater, $10,000) and $10,000,000. For other taxpayers the threshold is the greater of 10 percent of the tax required to be shown and $5,000.1

No accuracy-related penalty is imposed on any portion of an underpayment if the taxpayer shows there was reasonable cause for it and that the taxpayer acted in good faith, subject to exceptions, for example for transactions lacking economic substance.2

Erroneous refund claim penalty

If a claim for refund or credit of income tax is made for an excessive amount, the person making the claim is liable for a penalty equal to 20 percent of the excessive amount, unless the claim for that amount is due to reasonable cause.3 The excessive amount is the amount by which the claim exceeds the amount allowable for the year.3 This penalty does not apply to any portion of the excess that is subject to an accuracy-related penalty.3

Interest

Tax that is not paid by the last date prescribed for payment carries interest at the underpayment rate from that date until it is paid. That date is determined without regard to any extension of time for payment.4

Penalties on preparers and advisers

Understatement by a tax return preparer

A tax return preparer who prepares a return or refund claim with an understatement due to a position the preparer knew, or reasonably should have known, lacked substantial authority is liable for a penalty of the greater of $1,000 or 50 percent of the income the preparer derived, or will derive, from the return or claim. For a position that was adequately disclosed, the test is whether there was a reasonable basis. No penalty applies if there was reasonable cause and the preparer acted in good faith.5

Where the understatement is due to a willful attempt to understate the liability, or to reckless or intentional disregard of rules or regulations, the penalty is the greater of $5,000 or 75 percent of the income derived.5

The penalty is abated if a final administrative determination or judicial decision finds there was no understatement.5

Failures by preparers to sign or identify

A tax return preparer who fails to sign a return or refund claim when required, or fails to include the required identifying number, is liable for a penalty for each failure unless it was due to reasonable cause and not willful neglect. The statute sets $50 per failure and a $25,000 annual maximum, adjusted for inflation for documents filed after 2014.6

Aiding and abetting an understatement

Any person who aids, assists, procures or advises on the preparation or presentation of any portion of a return or claim, knowing (or having reason to believe) it will be used in a material tax matter and knowing it would result in an understatement of another person's tax, is liable for a penalty of $1,000 for each document, or $10,000 if the document relates to the tax liability of a corporation. Only one such penalty applies to a person for each taxpayer and period.7 A person penalized under this provision is not also penalized under section 6694 for the same document.7

Injunctions

A court may enjoin a tax return preparer who has engaged in conduct subject to the preparer penalties, misrepresented eligibility to practice, guaranteed the payment of any tax refund or the allowance of any tax credit, or engaged in other fraudulent or deceptive conduct that substantially interferes with tax administration. If the conduct is continual or repeated, and a narrower order would not be enough, the court may bar the person from acting as a tax return preparer.8

Circular 230 sanctions for practitioners

Treasury may censure, suspend or disbar a practitioner from practice before the IRS, after notice and an opportunity for a proceeding, if the practitioner is shown to be incompetent or disreputable or fails to comply with Circular 230.9 It may also impose a monetary penalty of up to the gross income derived from the conduct, including on the practitioner's employer or firm if it knew, or reasonably should have known, of the conduct.9 Sanctions apply to willful violations of the rules, and to reckless or grossly incompetent violations of certain standards, including the standards for positions on tax returns.10

Summary

Who	Provision	Amount set in the statute or rule
Business claiming the credit	Accuracy-related penalty, 26 U.S.C. 6662	20 percent of the relevant underpayment1
Business making a refund claim	Erroneous refund claim, 26 U.S.C. 6676	20 percent of the excessive amount3
Business owing additional tax	Interest, 26 U.S.C. 6601	Underpayment rate from the payment due date4
Tax return preparer	Unreasonable position, 26 U.S.C. 6694(a)	Greater of $1,000 or 50 percent of income derived5
Tax return preparer	Willful or reckless conduct, 26 U.S.C. 6694(b)	Greater of $5,000 or 75 percent of income derived5
Tax return preparer	Failure to sign or to give identifying number, 26 U.S.C. 6695	$50 per failure, $25,000 annual cap, inflation adjusted6
Any person who aids or advises	Aiding and abetting, 26 U.S.C. 6701	$1,000, or $10,000 for a corporation's tax7
Practitioner	Circular 230, 31 CFR 10.50	Censure, suspension, disbarment; monetary penalty up to gross income derived9

The penalties on the business are imposed on the taxpayer or the person making the claim.1 3 The penalties on preparers and advisers are separate liabilities of those persons.5 7

Sources

Office of the Law Revision Counsel, 26 U.S.C. 6662, Imposition of accuracy-related penalty on underpayments, subsections (a), (b), (c) and (d)(1), United States Code 2024 edition published by the Government Publishing Office. https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap68-subchapA-partII-sec6662.htm (accessed 11 October 2026). Back
Office of the Law Revision Counsel, 26 U.S.C. 6664, Definitions and special rules, subsection (c), United States Code 2024 edition published by the Government Publishing Office. https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap68-subchapA-partII-sec6664.htm (accessed 11 October 2026). Back
Office of the Law Revision Counsel, 26 U.S.C. 6676, Erroneous claim for refund or credit, subsections (a), (b) and (d), United States Code 2024 edition published by the Government Publishing Office. https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap68-subchapB-partI-sec6676.htm (accessed 11 October 2026). Back
Office of the Law Revision Counsel, 26 U.S.C. 6601, Interest on underpayment, nonpayment, or extensions of time for payment, of tax, subsections (a) and (b)(1), United States Code 2024 edition published by the Government Publishing Office. https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap67-subchapA-sec6601.htm (accessed 11 October 2026). Back
Office of the Law Revision Counsel, 26 U.S.C. 6694, Understatement of taxpayer's liability by tax return preparer, subsections (a), (b) and (d), United States Code 2024 edition published by the Government Publishing Office. https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap68-subchapB-partI-sec6694.htm (accessed 11 October 2026). Back
Office of the Law Revision Counsel, 26 U.S.C. 6695, Other assessable penalties with respect to the preparation of tax returns for other persons, subsections (b), (c) and (h), United States Code 2024 edition published by the Government Publishing Office. https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap68-subchapB-partI-sec6695.htm (accessed 11 October 2026). Back
Office of the Law Revision Counsel, 26 U.S.C. 6701, Penalties for aiding and abetting understatement of tax liability, subsections (a), (b) and (f)(2), United States Code 2024 edition published by the Government Publishing Office. https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap68-subchapB-partI-sec6701.htm (accessed 11 October 2026). Back
Office of the Law Revision Counsel, 26 U.S.C. 7407, Action to enjoin tax return preparers, subsection (b), United States Code 2024 edition published by the Government Publishing Office. https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleF-chap76-subchapA-sec7407.htm (accessed 11 October 2026). Back
Treasury Department, Circular No. 230, 31 CFR 10.50, Sanctions, paragraphs (a) and (c)(1) to (c)(2). https://www.ecfr.gov/current/title-31/subtitle-A/part-10/subpart-C/section-10.50 (accessed 11 October 2026). Back
Treasury Department, Circular No. 230, 31 CFR 10.52, Violations subject to sanction, paragraph (a). https://www.ecfr.gov/current/title-31/subtitle-A/part-10/subpart-C/section-10.52 (accessed 11 October 2026). Back