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Tax Paper

In: Business and Management

Submitted By rdesai16
Words 355
Pages 2
Part 1
William as a tax preparer may do a couple different moves with this sort of situation. When preparing a tax return, it is really important for the preparer to evaluate whether or not the authority or authorities are favorable or unfavorable in every situation. In this case, William is aloud to recommend a position on this tax research question for his client and try to avoid penalties if the most substantial authority supports the position. According to Tax Codes, Substantial authority suggests that the probability that the taxpayer’s position is sustained upon audit or litigation is in the 40-plus percent ranges or above.
According to IRC SECTION 6694, the preparer who prepares any return or claims a refund with any understatement with knowledge will be penalized with respect to each return or claim. To be careful when dealing with what is substantial authority, the standard is used to determine whether a tax practitioner may take a tax return position without being subject to the penalty. Since William estimates that there is 48 percent chance that the position will be sustained, William can make this return without worrying about a penalty. The tax preparer does not have to disclose this information because it does have the necessary backing from the substantial authority.
According to the same section, a taxpayer will not be subject to the underpayment penalty because there is a substantial authority that supports the tax return. Due to the stated facts, William and the client should not be penalized even if there ends up being an understatement. The client also does not to disclose this information similar to William.
Part 2 Moving the substantial authority level from 48 percent to 25 percent’s creates a major difference when creating these tax returns. This obviously is not above the 40 percent Substantial authority rule and that means that they will definitely be eligible to be penalized if they create this tax return with an underpayment. So if I were William, I would try to avoid this situation because of the penalties. If William does take the chance, he should disclose this information.

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