Tax Penalties

Question 1

No reasonable basis (willful and reckless)

Answer 1

Less than 20% changes of being sustained. Penalty of greater of $5,000 or 75% of the income derived by the TRP applies (eg, frivolous tax positions)

Question 2

Reasonable basis

Answer 2

> 20% chance of being sustained. Positions meeting this threshold must be disclosed to avoid penalty

Question 3

Substantial authority

Answer 3

About 40% chance of being sustained. Applies for undisclosed tax positions that do not meet this threshold. Penalty of greater of $1,000 or 50% of the income derived by the TRP

Question 4

More likely than not

Answer 4

Greater than 50% chance of being sustained. Penalty applies for reportable transactions and tax shelters that do not meet this threshold

Question 5

Understatement of tax caused by undisclosed position lacking substantial authority (unreasonable tax position)

Answer 5

> of $1,000 or 50% of return preparation fee

Question 6

Understatement of tax caused by preparer’s reckless or intentional disregard of rules or regulations

Answer 6

> of $5,000 or 75% of tax preparation fee (reduced by unreasonable tax position penalty if both apply)

Question 7

Failure to furnish copy of return to taxpayer

Answer 7

$60 per return/up to $30,000 per year (2023)

Question 8

Failure to sign return

Answer 8

$60 per return/up to $30,000 per year (2023)

Question 9

Failure to furnish identifying preparer number on return

Answer 9

$60 per return/up to $30,000 per year (2023)

Question 10

Failure to retain a copy of return for 3 years or maintain a list of names and ID numbers of the taxpayers for whom the returns were prepared

Answer 10

$60 per return/up to $30,000 per year (2023)

Question 11

Failure to retain and make available a list of the tax return preparers employed

Answer 11

$60 per return/up to $30,000 per year (2023)

Question 12

Endorsing or negotiating taxpayer’s refund check

Answer 12

$600 per check (2023) - unlimited

Question 13

Improper use or disclosure of taxpayer return information

Answer 13

• $250 for each instance, up to $10,000 year *not adjusted for inflation
• If minor criminal offense, $1,000 max penalty or 1 year in prison, or both *not adjusted for inflation
• If identity theft related, $1,000 each instance, up to $50,000 per year *not adjusted for inflation

Question 14

Failure to be diligent in determining eligibility for certain tax benefits

Answer 14

$600 (for 2023 returns) per failure penalty; maximum of $2,400

Question 15

Aiding and abetting understatement of tax liability

Answer 15

$1,000 ($10,000 for a corporate tax return)

Question 16

Willfully prepares a fraudulent return

Answer 16

• Fined up to $10,000 ($50,000 for corporations
• Imprisoned up to 1 year

Question 17

Commit fraud or make false statements on tax returns to evade tax

Answer 17

• Fined up to $100,000 ($500,000 for corporations
• Imprisoned up to 3 years
• Required to pay for the costs of prosecution

Question 18

Fraudulent or deceptive conduct, including misrepresentation of eligibility to practice before IRS

Answer 18

The courts may enjoin such person from further engaging in such conduct

Question 19

Non-signing TRP two exceptions not subject to penalties

Answer 19

• Gross Income less than $10,000
• Deductions less than $400,000, which is also less than 20% of the gross income indicated on the return.