Latrelle prepares the tax return for Whitehall Corporation. Latrelle 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 is assessed a preparer penalty of $4,000 for taking an unreasonable position on the Whitehall return.

Question

Quizplus · Accepted Answer

Latrelle took an unreasonable position by claiming a deduction that has been previously disallowed by the Tax Court and did not disclose it as a special circumstance. Therefore, he is subject to a preparer penalty of $4,000. Even if there is a 15% chance that the holding will be reversed on appeal, it does not change the fact that it is currently disallowed. The fee paid by Whitehall to Latrelle is irrelevant to this issue.

Latrelle Prepares the Tax Return for Whitehall Corporation