A Taxpayer Can Avoid a Substantial Understatement of Tax Penalty

question 9

Multiple Choice

A taxpayer can avoid a substantial understatement of tax penalty:

• A) if the position is frivolous and disclosed on the tax return.
• B) if the position has a realistic possibility of being sustained by the IRS or courts.
• C) if there is substantial authority to support the position.
• D) if the position has a reasonable basis and is not disclosed on the tax return.
• E) None of these.

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Definitions:

Mistake as to Existence

A legal misunderstanding or error regarding the actual existence of a subject matter or condition of a contract.

Fraudulent Misrepresentation

A false statement made knowingly without belief in its truth or recklessly and without concern for its truth, which induces another party to enter into a contract.

Rescission

The act of cancelling a contract and returning all parties involved to their positions prior to the agreement, effectively nullifying the contract's obligations.

Demonstrator

A person who participates in a public protest or demonstration.