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 will be 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 previously been disallowed by the Tax Court and did not make any special disclosure. The fact that there is a 15% chance of reversal on appeal does not justify taking an unreasonable position. Therefore, Latrelle will be assessed a preparer penalty.

Latrelle Prepares the Tax Return for Whitehall Corporation