Mr. Braco is an enrolled agent who prepares tax returns for a living. In preparing Mr. and Mrs. Colter's Form 1040, Mr. Braco claimed a deduction based on an unreasonable legal position. Mr. Braco's compensation for the return was $3,800. What is the consequence to Mr. Braco if the IRS disallows the deduction?

Question

Quizplus · Accepted Answer

The IRS can impose a penalty on tax preparers who claim deductions or credits on a tax return that have no reasonable basis. The penalty is typically 50% of the income derived (or to be derived) by the tax preparer from the preparation of the return. In this case, since Mr. Braco's compensation was $3,800, half of that amount is $1,900, which aligns with option B.

Mr Braco Is an Enrolled Agent Who Prepares Tax Returns