Freddie has been assessed a preparer penalty for willful and reckless conduct. When he completed Peggy's Federal income tax return, 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 50% of the fee charged for the preparation of the return, which is $4,000. Therefore, Freddie's preparer penalty is $2,000. However, the penalty cannot be less than $5,000 or more than $100,000 for each return, considering that the penalty here is for willful and reckless conduct. Therefore, the applicable penalty amount is $5,000.

Freddie Has Been Assessed a Preparer Penalty for Willful and Reckless