Betty hires Sam to prepare her federal income tax return.In preparing the return,Sam erroneously decided to exclude consulting fees because he estimated that Betty's expenses should have exceeded the income she received.If the IRS detects Betty's underpayment of tax,what is the likely result?
I.Betty is liable for payment of the tax due plus interest and a negligence penalty.
II.Sam is liable for payment of Betty's negligence penalty.Betty is liable for the payment of the tax due plus interest.

Question

Betty hires Sam to prepare her federal income tax return.In preparing the return,Sam erroneously decided to exclude consulting fees because he estimated that Betty's expenses should have exceeded the income she received.If the IRS detects Betty's underpayment of tax,what is the likely result?
I.Betty is liable for payment of the tax due plus interest and a negligence penalty.
II.Sam is liable for payment of Betty's negligence penalty.Betty is liable for the payment of the tax due plus interest.
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Quizplus · Accepted Answer

Sam's erroneous decision to exclude consulting fees constitutes negligence, which falls squarely within the ambit of the IRC § 6662(a) penalty. As the taxpayer, Betty is ultimately responsible for the income tax due plus interest and penalties unless she can successfully establish reliance on Sam's advice or show that she reasonably believed that she had taken adequate care in selecting her tax preparer.

Betty Hires Sam to Prepare Her Federal Income Tax Return