Betty Hires Sam to Prepare Her Federal Income Tax Return

question 96

Multiple Choice

Betty hires Sam to prepare her federal income tax return.In preparing the return,Sam erroneously decided to exclude consulting fees because he estimated that Betty's expenses should have exceeded the income she received.If the IRS detects Betty's underpayment of tax,what is the likely result?
I.Betty is not subject to the negligence penalty since she relied on a professional tax preparer and reported her income in good faith.
II.Sam is liable for payment of Betty's tax due plus interest and negligence penalty.
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• A)Only statement I is correct.
• B)Only statement II is correct.
• C)Both statements are correct
• D)Neither statement is correct

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Definitions:

Tax Exemptions

Deductions allowed by law to reduce taxable income, often for specific categories of expenses or investments.

Progressive

Pertaining to a type of tax system where the tax rate increases as the taxable amount or income increases, often aimed at reducing income inequality.

Incidence of Taxation

Refers to who ultimately bears the financial burden of a tax, which can differ from who initially pays the tax.

Society

A community of individuals living in a structured and organized way, sharing customs, laws, and organizations.