ExpertCPA · Question 02 · Area I: Ethics & Tax Procedures
A tax return preparer is engaged to prepare a tax return for a client who has a significant deduction that is not supported by substantial authority. The preparer determines there is a reasonable basis for the position. To avoid the penalty for an understatement of taxpayer liability due to an unreasonable position under IRC §6694, which of the following actions must the preparer take?
A tax return preparer is engaged to prepare a tax return for a client who has a significant deduction that is not supported by substantial authority. The preparer determines there is a reasonable basis for the position. To avoid the penalty for an understatement of taxpayer liability due to an unreasonable position under IRC §6694, which of the following actions must the preparer take?
Answer options:
The preparer must ensure the position is more likely than not to be sustained on its merits.
The preparer must document the reasonable basis in the workpapers; no specific disclosure on the return is required.
The preparer must disclose the position on Form 8275 or 8275-R.
The preparer cannot sign the return under any circumstances if the position lacks substantial authority.
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