Question

26.       Which of the following persons is subject to tax return preparer penalties for the return(s) mentioned?

a.         Meredith is the director of Federal taxes for a C corporation, and prepares her mother’s return for $50.

b.         Sammy is a volunteer who prepares returns at the retirement home under the IRS Tax Counseling for the Elderly program.

c.         Abbie prepares her mother’s tax returns for free. A CPA, Abbie would charge a client $750 for completing a similar return.

d.         Lizzie, a tax return preparer company’s administrative assistant, makes copies of returns and assembles the returns.

e.         John, the head of a corporation’s accounting department, prepares the corporation's return.

27. Mikel prepared for compensation a Federal income tax return for Mona. Mona’s return included an aggressive interpretation of the rules concerning the home office deduction. Mikel is not liable for a preparer penalty for taking an unreasonable tax return position if:

a.         The tax reduction attributable to the disputed deduction did not exceed $5,000.

b.         Mona is assessed her own penalty for an understatement of tax due to disregard of IRS rules.

c.         The IRS found that the disputed deduction was frivolous, but Mona disclosed the position in an attachment to the return.

d.         There was a reasonable basis for Mona’s interpretation of the home office deduction rules, and Mona disclosed the position in an attachment to the return.

e.         Mona pays the additional tax assessed by the IRS without protest.

28.       When the taxpayer has not paid a tax assessment to the Treasury, the IRS can do the following without needing court approval:

a.         Foreclose on the taxpayer’s house.

b.         Force the taxpayer to sign an Offer in Compromise.

c.         Garnish the taxpayer’s wages.

d.         The IRS can do all of the above without court approval.

e.         The IRS can do none of the above without court approval.

Answer 1

26) The correct option is (c).

An “income tax return preparer” is a person who prepares the income tax return for the exchange of the monetary value. The professionals such as accountants, CPA, and tax attorneys participate in the preparation of the income tax return. However, the “income tax return preparer” cannot participate in the preparation of his/her return or their family members’ return. The abolishment of this rule would result in the penalty. Thus, Abbie's preparation of her monther’s tax return for no compensation is an undesirable activity and liable for the penalty.

27) The correct option is (d).

The income tax return preparer can prevent the penalty for taking an unreasonable tax return position when there is a logical base for the deduction rule and the position is disclosed in the tax return is bonafide.

28) The correct option is (d).

The IRS has the right to get a lien on your house, garnish your wages for the payment of tax, and force a taxpayer to sign an Offer in Compromise without taking the permission from the court.