A federal income tax paid preparer who is a CPA prepared a return for an individual client who wanted to minimize taxable income. The preparer took undisclosed tax return positions that effectively reduced income by $80,000 and for which the preparer did not perform research to determine whether there was a reasonable position. The preparer charged a fee of $1,250 and filed the return after obtaining the appropriate signature.

The return was selected for audit by the Internal Revenue Service. At the conclusion of the audit, the IRS disallowed the tax return position that effectively reduced income by $80,000. The IRS determined that the amount of underpayment related to the income was $26,000. Because the preparer was unable to find support for the positions taken on the return, the IRS prevailed in court actions against the preparer for fraud.

Consult the authoritative literature regarding this situation (Authoritative Literature tab). For the violations listed in the table below, enter the penalties that apply to the preparer. In column B, enter the maximum applicable penalty amount in dollars; in column C, enter the maximum applicable term of imprisonment in years. Independently evaluate each violation and determine each penalty. If no penalty amount or prison term applies, enter a zero (0) in the appropriate cell.

A	B	C
Violation	Maximum Penalty Amount	Maximum Term of Imprisonment
1. Understatement of tax liability due to an unreasonable position
2. Willful attempt to understate tax liability
3. Aiding and abetting an understatement of tax liability
4. Willfully delivers false or fraudulent returns
5. Willfully subscribes a return under penalties of perjury
6. Accuracy-related penalty on underpayments

Answer rating: 100% (QA)

The violations and penalties for the federal income tax paid prepare... View the full answer