P-1: Preparing Returns (Preparer Penalties)

Question 1

What are 5 types of misconduct that cannot be avoided by filing form 8275 (Disclosure Statement)?

Answer 1

The 5 types of conduct that cannot be avoided by disclosure on Form 8275 is
1. Negligence
2. Disregard of regulations
3. Any substantial understatement of income tax on a tax shelter
4. Any substantial valuation misstatement under chapter one of the Internal Revenue Code
5. Any substantial estate or gift tax valuation understatements

Question 2

What is form 8275 (Disclosure Statement)?

Answer 2

Form 8275 (Disclosure Statement) is filed in order to avoid the portions of the accuracy-related penalty due to disregard of rules
or
to a substantial understatement of income tax for non-tax shelter items if the return position has a reasonable basis.

Question 3

Return preparers are responsible for taking a reasonable position on a tax return. To be reasonable, what must return preparer have for the postion?

Answer 3

The return preparer must have substantial authority for the position

Question 4

What type of basis does a frivolous position have?

Answer 4

A frivolous position has no basis for validity in existing law

Question 5

How much is the penalty for a tax preparer if they do not furnish their Ptin on a Tax return?

Answer 5

A tax preparer will pay $60 for each occurrence for failing to comply with section 6695.

Question 6

What section of the IRC imposes criminal penalties on any person engaged in the business of preparing or providing services in connection with the preparation of tax returns who knowingly or recklessly makes unauthorized disclosures or uses of information furnished to them in connection with the preparation of an income tax return? And how much is the fine and maximum prison sentence?

Answer 6

Section 7216 of the IRC, and the fine is up to $1,000 with a maximum of the 1 year of prison or both.

Question 7

What is the penalty for tax preparer that understated a taxpayer’s tax liability due to an unreasonable position that the preparer knew or should have known about?

Answer 7

The greater of $1,000 or one-half of the preparer fee.

Question 8

What is the penalty for willful or reckless misconduct for a preparer?

Answer 8

The penalty for willful or reckless misconduct is $5,000 or 75% of the preparer’s fee, whichever is greater.

Question 9

If a preparer penalty is assessed pursuant to 26 U.S.C. Sec. 6701 (Aiding or abetting an understatement of tax liability), how can the tax preparer can suspend collection?

Answer 9

the tax preparer can suspend collection by paying 15% of the penalty and filing a claim for refund within thirty days of his receipt of the notice and demand.

Question 10

If a return preparer penalty is proposed because of an understatement of tax liability and that understatement includes a change to earned income credit, which penalties might be imposed upon the preparer?

Answer 10

Both penalties may be imposed, one for understatement of tax liability and a second penalty for failure to be diligent in claiming earned income credit.

Question 11

How can a tax preparer contest the validity of a penalty imposed on her client due to the tax preparer causing and underpayment due to an unreasonable position?

Answer 11

The tax preparer can contest the validity of the penalty in district court but has to pay at least 15% of the penalty beforehand and claim a refund.

Question 12

Which form is required to be filed by a tax return preparer completing the earned income tax credit (EITC) claim?

Answer 12

Form 8867 Paid preparer due diligence checklist.

Question 13

What is form 8867?

Answer 13

Form 8867 is paid preparer due diligence checklist.

Question 14

When will the IRS not impose a penalty for a tax preparer who understates the client’s tax liability?

Answer 14

The IRS will not impose a penalty if the tax preparer acted in good faith and with a reasonable cause provided by the nature of the return.

Question 15

Any person who willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the Internal Revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document; shall be what

Answer 15

guilty of a felony and, upon conviction, thereof: Imprisoned not more than 3 years; fined not more than $250,000 for individuals ($500,000 for corporations): or both, together with the cost of prosecution.

Question 16

What is the maximum penalty for not filing a tax return according to section 6695?

Answer 16

The maximum penalty for not filing a tax return according to section 6695 is $30,000.

Question 17

T/F A tax preparer may not advise a taxpayer to take a position on a document that will be submitted to the IRS unless the position is not frivolous.

Answer 17

True, A tax preparer may not advise a taxpayer to take a position on a document that will be submitted to the IRS unless the position is not frivolous.

Question 18

Submission of return that contains a tax position that constitutes a frivolous argument could subject the preparer to a penalty pursuant to 26 U.S.C. Sec. 6702 in the amount of what?

Answer 18

The penalty imposed by that part is $5,000.

Question 19

Misused of a taxpayers tax information violates what section of IRC and what is the penalty?

Answer 19

The misuse of taxpayer information violates IRC section 7216, a taxpayer knowingly or recklessly disclosing or using taxpayer information is subject to a $1,000 fine, up to one year in prison or both.

Question 20

Can a position have substantial authority and be disclosed using form 8275 (disclosure statement) and still be in violation of a tax preparers responsibility?

Answer 20

Yes, in some cases even if a position has substantial authority, it can be considered unreasonable because it does not meet the standard of more likely than not.

Question 21

How much is the penalty for not providing a copy of the tax return to a client? And what section would be violated?

Answer 21

The penalty is $60 per occurrence under section 6695(a). The maximum penalty is $30,000.

Question 22

What is the penalty for unauthorized disclosure of or use of a taxpayer’s information?

Answer 22

$250, for each disclosure, up to an annual maximum of $10,000.

Question 23

What type of penalty is imposed on a tax preparer who fails to comply with due diligence requirements imposed to determine eligibility for, or the amount of a credit such as the child tax credit?

Answer 23

Any tax return preparer who fails to comply with due diligence requirements imposed to determine eligibility for, or the amount of, the credit allowable shall pay a monetary penalty for each failure.

Question 24

If a position taken on a tax return result in a substantial underpayment, and if the taxpayer had disclosed the position upon filing, can the taxpayer avoid penalties if there had been a reasonable basis for having taken that position?

Answer 24

Yes, If a position taken on a tax return results in a substantial underpayment, and if the taxpayer had disclosed the position upon filing, the taxpayer can avoid penalties if there had been a reasonable basis for having taken that position.

Question 25

If a position had not been disclosed upon filing tax return, can a taxpayer avoid penalties?

Answer 25

Yes, but a taxpayer can only avoid penalties only if there had been a substantial authority for having taken that position.

Question 26

Is substantial authority less stringent than the more likely than not standard?

Answer 26

Yes,
The substantial authority standard is less stringent than the more likely than not standard (the standard that is met when there is a greater than a 50-percent likelihood of the position being upheld)
but, more stringent than the reasonable basis standard.

Question 27

If a return preparer understates tax liability on a return, will the IRS impose a penalty if the preparer shows reasonable cause, and the tax preparer acted in good faith?

Answer 27

No,
The IRS will not impose a penalty if the preparer shows that there is reasonable cause and the tax return preparer acted in good faith.

Question 28

When filing a return with the earned income credit, what 3 three things must be retained to avoid penalty?

Answer 28

1. A copy of the completed eligibility checklist or Alternative eligibility record.
2. A copy of the computation worksheet or alternative computation record.
3. A record of how and when the information used to complete the Eligibility Checklist or Alternative Eligibility Record and the Computation Worksheet or Alternative Computation Record was obtained by the preparer, including the identity of any person furnishing the information.

Question 29

Tax preparers are responsible for the positions taken on the tax returns they prepare and the positions must be reasonable. In order to be reasonable, an undisclosed position must be at least?

Answer 29

In order for to be reasonable, an undisclosed position must be at least supported by substantial authority.

Question 30

A paid tax preparer had not been paid for his services by his client. In retribution, the TP posted the client’s confidential tax information on a public website without her consent. The tax preparer may be liable for what type of penalty?

Answer 30

The tax preparer may be liable for criminal penalties, including imprisonment.

Question 31

if a tax return preparer fails to retain a copy of the tax return or a list with the name and identification number of the taxpayer for whom the return was prepared, they can be penalized for how much?

Answer 31

if a tax return preparer fails to retain a copy of the tax return or a list with the name and identification number of the taxpayer for whom the return was prepared, they can be penalized for $60 per occurrence up to a maximum of $30,000 a year.

Question 32

For 2023 tax returns filed in 2024, what are the consequences if a tax preparer is required to sign a return, but refuses to do so?

Answer 32

The preparer could be subject to a $60 penalty for each failure.

Question 33

Willful, reckless, and/or intentional understatement of tax liability by a tax preparer results in how much of a penalty?

Answer 33

It results in a $5,000 penalty or 75% of the income derived (or to be derived) by the tax return preparer with respect to the return or claim, whichever is greater.

Question 34

What is the amount of the penalty imposed for aiding and abetting in the preparation of a return that results in an understatement of tax?

Answer 34

The penalty is $1,000 or($10,000 if the return is for a corporation)

Question 35

What is the criminal penalty a preparer may face if they do not obtain consent before using tax return information for any purpose other than to prepare or assist in preparing the tax return?

Answer 35

Not more than $1,000 or imprisoned not more than one year, or both, for each violation

Question 36

What is the annual maximum preparer penalty that can be imposed for preparing and submitting numerous returns claiming the Earned Income Credit (EIC) without completing the Paid Preparer’s Due Diligence Checklist, Form 8867, or equivalent?

Answer 36

There’s no limit.

Question 37

What is the penalty for filing a return with an unreasonable position?

Answer 37

The penalty for filing a return with an unreasonable position is $1,000 or 50% of the preparer’s fees, whichever is greater.

Question 38

What are three instances of when a tax practitioner may not sign a return or claim for refund?

Answer 38

A tax practitioner may not sign a return or claim for refund is
1. The return or claim lacks a reasonable basis.
2. The return or claim is in an unreasonable position according to the Internal Revenue Code.
3. The return or claim is a willful attempt to understate tax liability.

Question 39

If a taxpayer gives consent to a tax return preparer to use or disclose their information, but does give a specific timeframe what is the timeframe the preparer can use?

Answer 39

1 year following the consent signature

Question 40

What is an acceptable standard for providing advice on a position taken on a tax return?

Answer 40

That a position taken has a one in three or greater likelihood of being sustained on its merits.

Question 41

Failure to comply with due diligence for EIC results in how much of a penalty?

Answer 41

Failure to comply with due diligence for EIC results in a $600.00 penalty.

Question 42

Can a preparer disclose taxpayer information to another preparer for preparation assistance without the tp consent?

Answer 42

Yes, a preparer can disclose a taxpayer’s information to another preparer without the TP’s consent.

Question 43

Can a preparer disclose taxpayer information to another preparer that resides out of the country for preparation assistance without the tp consent?

Answer 43

No, a preparer must get the taxpayers consent if their colleague is works from outside the U.S.

Question 44

What are 5 failures under section 6695?

Answer 44

Five failures under section 6695 is
1. Failure to furnish a copy of return to taxpayer
2. Failure to sign return
3. Failure to furnish identifying number
4. Failure to retain a copy or list
5. Failure to file correct information

Question 45

If more than one preparer is involved in tax return that results in a section 6695 penalty, how is responsibility determined?

Answer 45

responsibility falls to the individual preparer who has the primary responsibility for the overall substantive accuracy of the preparation of the return.

Question 46

If a return preparer understates tax liability on a return, will the IRS impose a penalty if the preparer shows that there is reasonable cause?

Answer 46

If a return preparer understates tax liability on a return, the IRS will not impose a penalty if the preparer shows that there is reasonable cause and the tax return preparer acted in good faith.

Question 47

When a “return period” begin for tax record keeping purposes?

Answer 47

The return period begins on July 1st of the tax year and ends on June 30th on the third year.

Question 48

What is the penalty for preparer who endorses or negotiates a clients income tax return check?

Answer 48

$600 dollars per check under section 6695 with no limit to a maximum penalty.

Question 49

Under section 6695(b), what is the penalty for willful or reckless conduct?

Answer 49

Under section 6695(b) the penalty for willful or reckless conduct is the greater of $5,000 or 75% of the preparer’s fee.

Question 50

What is the relationship between penalties for filing returns with unreasonable positions and penalties for willful or reckless misconduct?

Answer 50

A penalty for an unreasonable position reduces a penalty for misconduct.

Question 51

If a preparer penalty is likely to be assessed pursuant to 26 U.S.C. Sec. 6694 (Understatement of taxpayer’s liability by tax return preparer), the tax preparer can?

Answer 51

If a preparer penalty is likely to be assessed pursuant to 26 U.S.C. Sec. 6694 (Understatement of taxpayer’s liability by tax return preparer), the tax preparer can appeal the penalty before it is imposed.

Question 52

What is substantial authority?

Answer 52

substantial authority is an objective standard involving an analysis of the law and application of the law to relevant facts. It is a more stringent standard than the reasonable basis standard.

Question 53

If a tax practitioner does not keep a full copy of a return, what 4 things must the preparer have?

Answer 53

If a tax practitioner does not keep a full copy of a return, the practitioner must keep the name, tax identification number, type of return and tax year of each client on a list. This list must remain accessible for 3 years following the close of the period during which the return was signed by the taxpayer.