Which of the following acts by a CPA would most likely result in the assessment of a penalty for 'willful or reckless conduct' under IRC §6694(b)?

Answer options:

Taking a position that has a reasonable basis but is not disclosed.

Intentionally disregarding a Treasury Regulation without a reasonable basis for challenging it.

Making a mathematical error that results in an understatement.

Relying on client information that appears reasonable on its face.

How to approach this question

Distinguish between negligence/unreasonable position (lower penalty) and willful/reckless conduct (higher penalty).

Full Answer

B.Intentionally disregarding a Treasury Regulation without a reasonable basis for challenging it.✓ Correct

IRC §6694(b) imposes a higher penalty for understatements due to willful or reckless conduct. This includes a willful attempt to understate liability or a reckless or intentional disregard of rules or regulations. Taking a position with a reasonable basis (but failing to disclose) is a §6694(a) violation, not necessarily willful/reckless.

Common mistakes

Confusing the two tiers of preparer penalties.

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