Freddie has been assessed a preparer penalty for willful and reckless conduct.When he completed Peggy's Federal income tax return (who is in the 35% 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

Freddie's preparer penalty is equal to the greater of $5,000 or 50% of the fee he charged Peggy for preparing the return - in this case, $2,000. The fact that Peggy incurred her own understatement penalty does not negate Freddie's penalty for willful and reckless conduct.

Freddie Has Been Assessed a Preparer Penalty for Willful and Reckless