Latrelle, who prepares the tax return for Whitehall Corporation includes a $5,000 deduction on the return. This type of deduction previously has been disallowed by the Tax Court, although there is a 15% chance that the holding will be reversed on an appeal by Whitehall. The return does not make any special disclosure that the deduction is being claimed. Whitehall paid Latrelle a fee of $8,000 for preparing the Form 1120. Latrelle will be assessed a preparer penalty of $4,000 for taking an unreasonable position on the Whitehall return.

Question

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Latrelle can be penalized for taking an unreasonable position on a tax return without proper disclosure, especially when the deduction has been previously disallowed by the Tax Court.

Latrelle, Who Prepares the Tax Return for Whitehall Corporation Includes