Internal Revenue Code and Regulations related to tax return preparers

Question 1

What are the two exceptions (i.e. de minimus rule) when a nonsigning tax return preparer (TRP) will not be deemed as completing a substantial portion of a tax return and, therefore, not subject to any potential preparer penalties?

Answer 1

A portion of the tax return is not considered to be a substantial portion if it involves amounts of gross income or amounts of deductions:

1. Less than $10,000 or
2. Less than $400,000, which is also less than 20% of gross income indicated on the return

Question 2

Which standard is met when there is a greater than 50% likelihood of the position being upheld?

Answer 2

More likely than not standard

Question 3

Which standard is met when there is a 20% likelihood of the position being upheld?

Answer 3

Reasonable basis standard

Question 4

Which standard is met when there is a 40% likelihood of the position being upheld?

Answer 4

Substantial authority standard

Question 5

When does a position on a return have reasonable basis?

Answer 5

The position must be disclosed and must have a 20% chance of successfully being sustained if challenged by the IRS.

Question 6

When does a position on a return have substantial authority?

Answer 6

The position is undisclosed but has a 40% chance of being sustained if challenged by the IRS.

Question 7

When is a position on a return considered reasonable when it relates to tax shelters or reportable transactions?

Answer 7

The position is more like than not (>50% chance) to be sustained if challenged by the IRS.

Question 8

What is the penalty for a TRP when they should have known or reasonably should have known about a resulting understatement of tax resulting from a tax position (position is undisclosed and lacks substantial authority)?

Answer 8

The penalty per violation is the greater of $1,000 or 50% of the income derived by the TRP with respect to the return.

Question 9

What is the penalty for a TRP when their willful or reckless conduct resulted in an understatement (<20% chance of successfully being sustained)?

Answer 9

The penalty per violation is the greater of $5,000 or 75% of the income derived by the TRP with respect to the return.

Question 10

What is the penalty for TRP’s when they do not exercise due diligence (i.e. make inquiries, require documentation) as it relates to the following tax benefits:

• Earned income tax credit (EITC)
• Child tax credit (CTC), additional child tax credit (ACTC), credit for other dependents (ODC)
• American opportunity tax credit (AOTC)
• Head of household (HOH) filing status

Answer 10

$600 per failure, a maximum of $2,400 ($600 x 4).

Question 11

What is the penalty of aiding or abetting understatement of a tax liability (Section 6701)?

Answer 11

$1,000 for individuals or $10,000 for corporations

Question 12

What is the penalty for tax evasion, including but not limited to, failure to file a return, falsifying income, and falsifying amounts that reduce taxable income (Section 7201)?

Answer 12

A fine of not more than $100,000 ($500,000 in the case of a corporation), or imprisonment not more than 5 years, or both, together with the cost of prosecution.

Question 13

What is the penalty for TRP’s who commit fraud or falsify statements (Section 7206)?

Answer 13

$100,000 ($500,000 in the case of a corporation), or imprisonment not more than 3 years, or both, together with the cost of prosecution.

Question 14

What is the penalty for filing or disclosing a tax return, statement, or other document known to be fraudulent or to be false (Section 7607)?

Answer 14

Not more than $10,000 ($50,000 in the case of a corporation), or imprisonment not more than 1 year, or both.

Question 15

What is the TRP penalty for the following:

• Failure to furnish copy of return to taxpayer
• Failure to sign return
• Failure to furnish PTIN on return
• Failure to retain copy of return for 3 years or maintain list of names and ID numbers of taxpayers for whom returns were prepared
• Failure to retain and make available a list of TRP’s employed

Answer 15

$60 per return, up to $30,000 per year

Question 16

What is the penalty for endorsing or negotiating a taxpayer’s refund check?

Answer 16

$600 per check

Question 17

What is the penalty for improper use or disclosure of taxpayer return information?

Answer 17

• $250 for each instance, up to $10,000 per year
• If minor criminal offense, $1,000 max penalty or 1 year imprisonment, or both
• If identity theft related, $1,000 each instance, up to $50,000 per year

Question 18

This form is generally used to disclose positions that lack substantial authority.

Answer 18

Form 8275

Question 19

This form is used to disclose a tax position that is contrary to Treasury Regulations.

Answer 19

Form 8275-R