Penalties — Instruction 709 — Instructions for Form 709

Late filing and late payment. Section 6651 imposes penalties for both late filing and late payment, unless there is reasonable cause for the delay.

Reasonable-cause determinations. If you receive a notice about penalties after you file Form 709, send an explanation and we will determine if you meet reasonable-cause criteria. Do not attach an explanation when you file Form 709.

There are also penalties for willful failure to file a return on time, willful attempt to evade or defeat payment of tax, and valuation understatements that cause an underpayment of the tax. A substantial valuation understatement occurs when the reported value of property entered on Form 709 is 65% or less of the actual value of the property. A gross valuation understatement occurs when the reported value listed on the Form 709 is 40% or less of the actual value of the property.

Return preparer. Penalties may also be applied to tax return preparers, including gift tax return preparers.

Gift tax return preparers who prepare any return or claim for refund that reflects an understatement of tax liability due to an unreasonable position are subject to a penalty equal to the greater of $1,000 or 50% of the income earned (or to be earned) for the preparation of each such return.

Gift tax return preparers who prepare any return or claim for refund with an understatement of tax liability due to willful or reckless conduct can be penalized $5,000 or 75% of the income derived (or to be derived) for the preparation of the return.

Gift tax return preparers who prepare any return or claim for refund are required to furnish a copy to the taxpayer, sign the return, and provide their preparer tax identification number (PTIN). Those who fail to do so are subject to a penalty of $50 for such failure, unless it is shown that such failure is due to reasonable cause and not due to willful neglect.

See section 6694 and the related regulations and Ann. 2009-15, 2009-11 I.R.B. 687, available at IRS.gov/pub/irs-irbs/ irb09-11.pdf , for more information.