Roger prepared for compensation a Federal income tax return for Joan.Joan's return included an aggressive interpretation of the rules concerning overnight business travel.Roger is not liable for a preparer penalty for taking an unreasonable tax return position if:

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The best choice is B because if there was a reasonable basis for Joan's interpretation of the travel deduction rules and she disclosed the position in an attachment to the return, then Roger would not be liable for a preparer penalty. This is because the preparer penalty only applies if the position on the return lacked a reasonable basis or was not disclosed. If Joan is assessed her own penalty or if the tax reduction was under $5,000, it may provide some relief for Roger, but it does not completely eliminate his liability for a preparer penalty. If the IRS found the travel deduction to be frivolous, then disclosing the position in an attachment would not necessarily eliminate Roger's liability for a preparer penalty.

Roger Prepared for Compensation a Federal Income Tax Return for Joan.Joan's