IRS Form 6118 Guide: Tax Preparer Penalty Refund Claims

Introduction: What Is IRS Form 6118?

IRS Form 6118, titled Claim for Refund of Income Tax Return Preparer and Promoter Penalties, is an official administrative claim form published by the Internal Revenue Service (IRS). It is governed under Section 6696(c) of the Internal Revenue Code (IRC) and Treasury Regulation Section 1.6696-1.

This form is used exclusively by paid tax return preparers, Certified Public Accountants (CPAs), Enrolled Agents (EAs), tax attorneys, and tax shelter promoters. It provides a formal legal mechanism to request a refund of civil penalties that were assessed against the preparer and paid, but which the practitioner believes were charged in error.

Unlike taxpayer relief forms that address personal tax liabilities, Form 6118 is a professional defense tool designed to protect the livelihoods, credentials, and finances of tax practitioners facing IRS preparer compliance sanctions.

Purpose of the Form

Under the Internal Revenue Code, paid tax preparers are held to strict standards of professional competence, ethical conduct, and due diligence. When the IRS audits a client’s tax return and discovers an understatement of tax, missing signatures, or inadequate credit documentation, the agency can assess personal financial fines directly against the tax preparer.

These assessable fines include penalties under IRC Section 6694 for taking unreasonable positions, Section 6695 for failing to exercise due diligence or failing to sign returns, and Sections 6700 and 6701 for promoting abusive tax shelters or aiding and abetting understatements.

Form 6118 provides the formal administrative channel to contest these penalties after payment. It requires the practitioner to itemize each penalty, identify the specific client tax returns involved, and submit a detailed legal and factual explanation demonstrating reasonable cause, adequate disclosure, or compliance with due diligence rules.

Who Needs to File This Form

Form 6118 is filed by paid tax professionals and promoters who have paid an assessable preparer penalty and wish to claim a refund from the IRS. You should file Form 6118 if you meet the following conditions:

• Paid Preparer Penalties: You paid a penalty assessed against you under IRC Section 6694 (understatement of liability due to unreasonable positions or willful conduct) or Section 6695 (preparer procedural and due diligence failures).
• Paid Promoter Penalties: You paid penalties assessed under Section 6700 (promoting abusive tax shelters) or Section 6701 (aiding and abetting understatements of tax liability).
• Stay of Collection via 15% Deposit: Under IRC Section 6694(c) or Section 6703(c), you paid 15% of the assessed penalty within 30 days of the IRS notice and are filing Form 6118 to stay IRS collection actions while your administrative claim is evaluated.
• Evidence of Error or Reasonable Cause: You have factual proof that you exercised reasonable cause, relied on good-faith taxpayer representations, properly disclosed positions on Form 8275, or that the IRS penalty notice was issued in error.

Who Is Exempt / Not Required to File

Many taxpayers and professionals do not use Form 6118. You are exempt or ineligible to use this form under the following circumstances:

• Individual and Business Taxpayers: Taxpayers seeking a refund or abatement of penalties assessed on their own personal or corporate tax returns (such as late-filing or estimated tax penalties) must file Form 843, not Form 6118.
• Unpaid Penalties: You cannot use Form 6118 if you have not yet paid the assessed penalty (or the mandatory 15% statutory deposit). Form 6118 is strictly a claim for a refund of paid amounts.
• Trust Fund Recovery Penalties: Fiduciaries contesting payroll trust fund penalties under IRC Section 6672 must follow standard collection appeal and refund suit procedures.
• Taxpayers Seeking First-Time Abatement (FTA): Standard administrative penalty waivers for individual taxpayers do not apply to professional preparer penalties on Form 6118.

When to File

Form 6118 must be submitted within specific statutory limitation periods established by federal tax law:

• Sections 6694 & 6695 Penalties: Your claim for refund must be filed within 3 years from the date you paid the penalty pursuant to IRC Section 6696(d)(2).
• Sections 6700 & 6701 Promoter Penalties: Claims for refund of promoter and aiding-and-abetting penalties must generally be filed within 6 years from the date of payment.
• The 30-Day Rule for 15% Deposits: To halt IRS collection enforcement under Section 6694(c), you must pay at least 15% of the penalty and submit Form 6118 within 30 calendar days of the date printed on the initial IRS notice and demand.

Where and How to File

Form 6118 is a paper return submitted directly to the specific IRS office that issued the penalty assessment:

• Mailing Address: Send the completed Form 6118 and all supporting documentation directly to the IRS Service Center or local IRS office address that issued your penalty notice as specified in the official Form 6118 instructions.
• Certified Mail Recommendation: It is strongly recommended to mail Form 6118 via Certified Mail with Return Receipt Requested to establish irrefutable proof of timely delivery within the statutory refund window.
• Lawsuit Prerequisite: Filing Form 6118 with the IRS and receiving a formal denial (or waiting 6 months without an IRS response) is a mandatory jurisdictional prerequisite before you can file a refund lawsuit in U.S. District Court.

Step-by-Step Instructions to Fill Form 6118

Form 6118 consists of practitioner identifying fields, a multi-column penalty identification table, and an explanation of legal grounds.

Section / Column	Key Focus Areas	What to Enter / Disclose
Header Section	Preparer Identity	Enter your full legal name, professional mailing address, Social Security Number (SSN) or federal Employer Identification Number (EIN), and Preparer Tax Identification Number (PTIN).
Columns (a) – (b)	Notice Identification	Enter the Document Locator Number (DLN) or notice number from the IRS billing statement and the exact date printed on the statement.
Column (c)	Penalty Type Code	Enter the specific single-letter penalty code (e.g., A for Section 6694(a) unreasonable positions, B for Section 6694(b) willful conduct, D for failure to sign, or J for Section 6695(g) due diligence failures).
Columns (d) – (f)	Payment Amounts & Dates	Enter the total penalty amount assessed, the exact amount you paid, and the date you made the payment.
Columns (g) – (j)	Client Return Information	List the client taxpayer’s name, taxpayer identification number (SSN or EIN), tax form involved (e.g., Form 1040), and the tax year of the return.
Part III	Explanation of Grounds	Provide a comprehensive legal and factual statement detailing why the penalty was assessed in error and why you are entitled to a full refund.
Signature Block	Legal Certification	The tax return preparer or authorized representative signs and dates the claim under penalties of perjury.

Understanding Penalty Type Codes (Column c)

Form 6118 covers 13 specific penalty classifications designated by letters A through M. Common codes include:

• Code A: IRC § 6694(a) – Understatement of liability due to unreasonable positions.
• Code B: IRC § 6694(b) – Understatement due to willful, reckless, or intentional conduct.
• Code D: IRC § 6695(b) – Failure of paid preparer to sign the return.
• Code E: IRC § 6695(c) – Failure to furnish PTIN.
• Code J: IRC § 6695(g) – Failure to exercise due diligence for refundable credits (EITC, CTC, AOTC) or Head of Household status.
• Code K & L: IRC §§ 6700 & 6701 – Promoting abusive tax shelters and aiding/abetting tax understatements.

Drafting the Explanation of Grounds (Part III)

Your written statement in Part III is the core of your claim. You must present clear facts showing that you acted in good faith, that there was substantial authority for the tax position, that you relied on reasonable documentation provided by the client, or that you completed all required due diligence steps on Form 8867.

Required Documents and Information Needed Before Filling

Before submitting Form 6118, assemble the following professional and client tax records:

• IRS Penalty Notices: Copies of the initial IRS assessment notices, billing statements, or letters showing the Document Locator Number (DLN) and assessed penalty amounts.
• Proof of Payment: Bank statements, cancelled checks, or EFTPS payment receipts confirming the exact date and amount paid.
• Client Tax Returns & Workpapers: Copies of the client returns involved, signed engagement letters, intake questionnaires, and Form 8867 due diligence checklists.
• Disclosure Records: Copies of Form 8275 or Form 8275-R if the tax position was formally disclosed on the return.
• Legal Power of Attorney: Form 2848 if an attorney or representative is submitting the claim on your behalf.

Common Mistakes to Avoid

• Filing Without Paying First: Submitting Form 6118 before paying the penalty or the 15% statutory deposit. The IRS will reject the claim without consideration.
• Missing the 3-Year Payment Deadline: Failing to file within 3 years of paying the penalty, which permanently bars your refund under IRC Section 6696.
• Combining Incompatible Penalties: Attempting to combine penalties from different IRS service centers or combining Section 6694 penalties with unrelated administrative fees on a single form.
• Vague Explanations in Part III: Writing generic statements like “I disagree with the fine.” You must cite specific Treasury regulations, reasonable cause facts, or documentation proving compliance.
• Omitting Client Identification Numbers: Leaving the client’s SSN or EIN blank in Column (h), which prevents the IRS from matching the claim to the underlying tax return.

Penalties and Compliance Risks

Contesting preparer penalties requires diligence, as unresolved violations carry severe professional and financial consequences:

• Permanent Loss of Refund: Missing the statutory 3-year filing window permanently forfeits your right to recover wrongfully paid penalty funds.
• Disciplinary Action Under Circular 230: Sustained Section 6694(b) or Section 6701 penalties are automatically referred to the IRS Office of Professional Responsibility (OPR), which can suspend or disbar CPAs, Enrolled Agents, and attorneys from practicing before the IRS.
• Loss of EFIN / PTIN Suspension: Repeated, uncorrected preparer penalties can lead to the revocation of your Electronic Filing Identification Number (EFIN) and expulsion from the IRS e-file program.
• False Claims Penalties: Submitting fraudulent refund claims or fabricating due diligence records on Form 6118 is a federal crime punishable under 18 U.S.C. Section 1001.

Related Forms and Schedules

When defending against preparer penalties and filing Form 6118, tax professionals work with these related documents:

• Form 843: Claim for Refund and Request for Abatement (used for taxpayer penalty refunds, not preparer fines).
• Form 8867: Paid Preparer’s Due Diligence Checklist (critical evidence in Section 6695(g) defense).
• Form 8275 / Form 8275-R: Disclosure Statements (used to disclose non-frivolous positions under Section 6694).
• Form 2848: Power of Attorney and Declaration of Representative.
• Treasury Circular 230: Regulations Governing Practice Before the Internal Revenue Service.

Frequently Asked Questions (FAQs)

1. Can a regular taxpayer file Form 6118 to get a penalty refunded?

No. Form 6118 is strictly for paid tax return preparers and promoters contesting professional sanctions. Individual and corporate taxpayers contesting penalties on their own tax returns must use Form 843.

2. Do I have to pay the entire penalty before filing Form 6118?

For most procedural penalties under Section 6695, you must pay the full penalty before requesting a refund. However, for Section 6694 understatement penalties or Section 6700/6701 promoter penalties, you can pay 15% of the penalty within 30 days and file Form 6118 to stay IRS collection enforcement.

3. What constitutes “Reasonable Cause” on Form 6118?

Reasonable cause means the preparer exercised normal professional care and diligence, relied in good faith on information provided by the taxpayer, or took a position supported by substantial legal authority under Treasury regulations.

4. How long does the IRS take to process Form 6118?

IRS processing times vary, but most claims take between 3 to 6 months. If the IRS does not act on your claim within 6 months, you have the legal right to file a refund suit in federal court.

5. Can I combine penalties for multiple clients on one Form 6118?

Yes. You can report multiple penalty assessments on a single Form 6118, provided all the penalties were assessed by the same IRS Service Center or office and appear on the same billing statement (or group of statements).

6. What happens if the IRS denies my Form 6118 claim?

If the IRS issues a formal statutory notice of claim disallowance, you can file an administrative appeal with the IRS Independent Office of Appeals or file a civil refund lawsuit in U.S. District Court or the U.S. Court of Federal Claims.

Conclusion

IRS Form 6118 is the primary legal remedy for tax return preparers and promoters seeking to recover wrongfully assessed civil penalties. By providing a structured, formal process to challenge penalties under Sections 6694, 6695, and 6700, Form 6118 protects practitioners from unwarranted financial losses and professional disciplinary actions.

To give your refund claim the greatest chance of success, pay the penalty or mandatory 15% deposit within statutory timeframes, attach complete client workpapers and Form 8867 due diligence records, provide a detailed legal justification in Part III, and mail Form 6118 via Certified Mail to the IRS office that issued the penalty notice.