Mr Bennett Is a Professional Tax Return Preparer

question 43

Essay

Mr Bennett is a professional tax return preparer. Three years ago, he prepared the Form 1120 for Philly Inc. His fee for the preparation was $15,000. Upon audit of the return, the IRS disallowed a $100,000 deduction, which increased the corporation's tax by $35,000. Compute Mr Bennett's preparer penalty if the IRS concludes that:
a. Mr Bennett had no reasonable legal basis for claiming the deduction and was not acting in good faith by doing so.
b. Mr Bennett intentionally disregarded the tax law by claiming the deduction in a willful attempt to understate Philly's tax.
c. How would your answers to a. and b. change if Mr Bennett's preparation fee was only $6,000?

---

Definitions:

Lease Accounting

The process of recording and reporting financial transactions related to leases in the company's financial statements, following specific accounting standards.

U.S. GAAP

United States Generally Accepted Accounting Principles, a set of accounting rules and standards used in the United States for preparing financial statements.

Operating Leases

An agreement that allows for the use of an asset but does not grant ownership rights of the asset to the lessee.