Question

Preparers, Proof, and Privilege (LO 12.5)

For each of the following situations, indicate the amount of the penalty that could be imposed on the tax return preparer:

a. A tax return preparer understates the taxpayer's tax liability with a frivolous position and does not disclose the position.
The greater of $ or percent of the income derived by the tax preparer for an undisclosed unrealistic position.

b. A tax return preparer fails to furnish his identifying number.
$

c. A tax return preparer aids a taxpayer in understating a tax liability.
$

d. A tax return preparer endorses and cashes a client's tax refund check.
$

Answer 1

1) The greater of $1000 or 50 percent of the income derived by the tax preparer for an undisclosed unrealistic position.

Explation: When there is an understatement due to unreasonable positions then the penalty amount is the

greater of $1,000 or 50% of the income derived by the tax return preparer in regard to the return or claim

for refund.

2) A tax return perparer fails to furnish is identifying number

Solution: $50

Explanation: The penalty amount of $50 for each failure to comply with IRC 6109(a)(4) in furnishing an

identifying number on a return or claim.

3) A tax return perparer aids a taxpayer in understanding a tax liability.

Solution: $1000

Explanation: The penalty for promoting an abusive tax shelter and is generally equal to $1,000

4) A tax return preparer endorses and cashes a client's tax refund check.

Solution: $500

Explanation: The penalty amount of $500 for each failure in compliance with EIC due diligence requirements imposed in rules.