Final answer:
Tax preparers facing penalties for disallowed refundable credits under the IRC may incur fines or imprisonment, with increased penalties set by the TCJA for failure to meet due diligence requirements for certain tax credits.
Step-by-step explanation:
When a tax preparer is responsible for a refund being disallowed due to inaccurate or fraudulent claims for refundable credits, they could face significant preparer penalties. The Internal Revenue Service (IRS) imposes these penalties under various sections of the Internal Revenue Code (IRC). For example, under section 6694, a preparer may be subject to a penalty if the refund claim results from an 'unrealistic position' or if the preparer willfully or recklessly disregards tax rules. In the case of fraudulent activities, the preparer might face even steeper penalties under sections 6663 and 6676, which may include a fine or imprisonment.
Moreover, the Tax Cuts and Jobs Act (TCJA) increased the due diligence requirements for tax preparers with respect to certain tax credits, including the Earned Income Tax Credit (EITC), the Child Tax Credit (CTC), and the American Opportunity Tax Credit (AOTC). This increased the penalties for noncompliance as well.