A taxpayer can avoid a substantial understatement of tax penalty: if the position is frivolous and...

A taxpayer can avoid a substantial understatement of tax penalty:

if the position is frivolous and disclosed on the tax return.
if the position has a realistic possibility of being sustained by the IRS or courts.
if there is substantial authority to support the position.
if the position has a reasonable basis and is not disclosed on the tax return.
None of the choices are correct.

Lebron received $76,300 of compensation from his employer and he received $545 of interest from a municipal bond. What is the amount of Lebron's gross income from these items?

$0.
$545.
$76,300.
$76,845.

$76,300 compensation. The interest income is excluded from gross income because it is interest from a municipal (tax-exempt) bond.

Expert Solution

A taxpayer can avoid a substantial understatement of tax penalty:
if the position is frivolous and disclosed on the tax return.
if the position has a realistic possibility of being sustained by the IRS or courts.
if there is substantial authority to support the position.	Correct
if the position has a reasonable basis and is not disclosed on the tax return.
None of the choices are correct.
A taxpayer can avoid a substantial understatement of tax penalty if the taxpayer can show substantial authority for the position causing the understatement or has a reasonable basis for the tax treatment of an item and is disclosed on the tax return.

Lebron received $76,300 of compensation from his employer and he received $545 of interest from a municipal bond. What is the amount of Lebron's gross income from these items?

$0.00
$545.00
$76,300.00	Correct
$76,845.00
$76,300 compensation. The interest income is excluded from gross income because it is interest from a municipal (tax-exempt) bond.

ekkarill92 answered 2 years ago

the penalty for a substantial understatement is triggered when

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