Question

What is the penalty a paid tax return preparer would face who failed to report all their client's income by taking an unreasonable position on the tax return? (The preparer charged $500 for the tax preparation.)
$250
$500
$1,000
$5,000

Answer 1

$1,000.

Under IRC §6694(a) the penalty for an understatement due to an unreasonable position is the greater of $1,000 or 50% of the preparer's income from the return. 50% of $500 = $250, so the greater amount ($1,000) applies.