R4 M2 - Professional Responsibilities and Tax Return Preparer Penalties

Question 1

A CPA prepared a tax return that involved a tax shelter transaction that was disclosed on the return. In which of the following situations would a tax return preparer penalty not be applicable?

A.	There was a reasonable possibility of success for the position.

B.	There was a reasonable basis for the position.

C.	There was substantial authority for the position.

D.	It is reasonable to believe that the position would more likely than not be upheld.

Answer 1

Choice “D” is correct. With regards to a tax shelter, a penalty for understatement of taxpayer liability could apply to a CPA unless it is reasonable to believe that the position would more likely than not be upheld on its merits. This is more stringent than a reasonable basis for the position, a reasonable possibility of success for the position, and substantial authority for the position.

Choices “C”, “A”, and “B” are incorrect per the above explanation.

Question 2

Tax return penalties please list them:

Answer 2

1. Not signing tax return
2. Negotiating check refund with client
3. Not keeping record of the tax return filed for at least 3 years.
4. Not giving a copy of the tax return to your client
5. Filing fraudulent information in your tax return
6. Not providing your PTIN # or identification number

Question 3

Tax return preparers can be subject to penalties under the Internal Revenue Code for failure to do any of the following, except:

A.	Keep a record of returns prepared.

B.	Disclose a conflict of interest.

C.	Sign a tax return as a preparer.

D.	Provide a client with a copy of the tax return.

Answer 3

Choice “B” is correct. With respect to a tax return preparer’s failure to disclose a conflict of interest, the Internal Revenue Code does not set forth any penalty.

Choice “A” is incorrect. With respect to a tax return preparer’s failure to keep a record of returns prepared, the Internal Revenue Code sets forth a penalty of $60 for each failure [maximum $31,500 per calendar year (2024)].

Choice “C” is incorrect. With respect to a tax return preparer’s failure to sign a tax return as a preparer, the Internal Revenue Code sets forth a penalty of $60 for each failure [maximum $31,500 per calendar year (2024)].

Choice “D” is incorrect. With respect to a tax return preparer’s failure to provide a client with a copy of the tax return, the Internal Revenue Code sets forth a penalty of $60 for each failure [maximum $31,500 per calendar year (2024)].