Preparer Penalties Flashcards
What must a tax preparer ensure when taking a position on a tax return?
The position must have substantial authority or, if disclosed, a reasonable basis.
What types of positions are not allowed on a tax return?
Frivolous positions, which have no basis in law or are deemed frivolous by the U.S. Tax Court or federal courts.
How long does the IRS have to assess penalties after a return is filed?
The IRS has three years, but there is no statute of limitations for fraudulent returns.
What is the “substantial authority” standard?
It is an objective standard where the weight of supporting authorities is substantial compared to opposing authorities.
How does “reasonable basis” compare to “substantial authority”?
Reasonable basis is a high standard but less stringent than substantial authority.
What standard must tax shelters meet?
A “more likely than not” confidence level (greater than 50%).
What forms can be used to disclose uncertain tax positions?
Form 8275 (Disclosure Statement) or Form 8275-R (Regulation Disclosure Statement).
Can disclosure on Form 8275 avoid all penalties?
No, it cannot avoid penalties for negligence, tax shelter misstatements, or fraudulent claims, among others.
What is tax avoidance?
Legal methods to reduce or minimize tax liability.
What is tax evasion?
Illegal acts to evade or defeat tax liability, such as fraud or concealment.
What are some signs of income fraud?
Omitting income, unexplained wealth, and concealing sources of income.
What are examples of deduction fraud?
Claiming fictitious deductions or using personal expenses as business deductions.
What is a “badge of fraud”?
Indicators like false statements, concealed records, or improper conduct during examinations.
What are the penalties under §7206 for fraud by a tax preparer?
A fine up to $250,000 ($500,000 for corporations), imprisonment up to three years, or both.
What are the penalties under §7207 for fraudulent statements?
A fine up to $10,000 ($50,000 for corporations), imprisonment up to one year, or both.
What is the penalty for an unreasonable position?
$1,000 or 50% of the preparer’s fee, whichever is greater.
What is the penalty for willful or reckless conduct?
$5,000 or 75% of the preparer’s fee, whichever is greater.
What is the penalty for aiding an understatement of tax liability (§6701)?
$1,000 per document or $10,000 for corporate-related documents.
Who can be penalized for aiding understatement of tax?
Anyone who knowingly assists or advises on a tax understatement, even without preparing the return.
What is the penalty for failing to sign a tax return?
$60 per return, up to $30,000 per year.
What is the penalty for failing to provide a copy of the return to the taxpayer?
$60 per occurrence, up to $30,000 per year.
What is the penalty for negotiating a taxpayer’s refund check?
$600 per check, with no maximum limit.
What must a preparer do to meet due diligence for credits like EIC or CTC?
Complete Form 8867, verify information, and maintain records for three years.
What is the penalty under §6713 for disclosing taxpayer information?
$250 per violation, up to $10,000 per year.
What is the penalty under §7216 for knowingly disclosing taxpayer information?
A fine of up to $1,000, imprisonment up to one year, or both.
How long does a preparer have to pay an IRS penalty?
30 days after receiving the demand for payment.
What can a preparer do if they disagree with a penalty?
Pay at least 15%, file a claim for refund, and potentially proceed to court.
