Freddie has been assessed a preparer penalty for willful and reckless conduct.When he completed Peggy's Federal income tax return (she is in the 33% tax bracket),Freddie purposely omitted $100,000 of cash receipts that should have been reported as gross income.Freddie charged Peggy $4,000 to prepare the return.What is Freddie's preparer penalty?

Question

Quizplus · Accepted Answer

The penalty for willful or reckless conduct by a preparer is the greater of $5,000 or 50% of the fee received for preparing the return (up to a maximum of $100,000). In this case, Freddie received a fee of $4,000 to prepare the return, so the penalty would be the greater of $5,000 or $2,000 (50% of $4,000). Therefore, the preparer penalty for Freddie would be $5,000. Option A is incorrect as the penalty is imposed on the preparer, not the taxpayer. Peggy might also receive an understatement penalty for the underreported income. Option B is incorrect as the penalty amount is greater than $2,000. Option C is incorrect as the penalty amount is greater than $4,000.

Freddie Has Been Assessed a Preparer Penalty for Willful and Reckless