Question

Which statement is correct regarding IRC Section 6694 preparer penalty provisions?

O A penalty would never lead to an investigation by the IRS Office of Professional Responsibility (OPR).
O Penalties can be assessed on a practitioner when a disclosed tax position does not have a reasonable basis.
O Penalties apply to the practitioner and the taxpayer that underpaid the income taxes.
O A penalty can range from $50 to $200 if misconduct is found

Answer 1

Penalties under IRC Section 6694 apply to tax preparers if a disclosed tax position does not have a reasonable basis and can lead to significant monetary fines, distinct from those imposed on the taxpayer.

Step-by-step explanation:

The correct statement regarding IRC Section 6694 preparer penalty provisions is that penalties can be assessed on a practitioner when a disclosed tax position does not have a reasonable basis. This section addresses the penalties that can be imposed on tax preparers who engage in conduct that leads to an understatement of tax liability. Contrary to one of the options provided, the penalties do not apply to the taxpayer that underpaid the income taxes, but rather to the preparer responsible for the understatement.

Regarding the potential for an investigation by the IRS Office of Professional Responsibility (OPR), it is indeed possible that a penalty under Section 6694 could lead to further scrutiny by the OPR. Finally, the penalty amounts under Section 6694 are not as low as $50 to $200. They are typically more substantial and are calculated based on the conduct and the amount of tax involved.

Answer 2

Penalties can be assessed on a practitioner when a disclosed tax position does not have a reasonable basis.