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Special Enrollment Examination

Part 1SEE Part 1: Individuals✓Part 2SEE Part 2: Businesses Part 3SEE Part 3: Representation, Practices and Procedures

Part 3 Return Preparer Rules and Penalties question: relied in good faith

Part 3Return Preparer Rules and Penalties

A taxpayer gave her CPA all relevant information, the CPA was competent, and she relied in good faith on his advice about a deduction later disallowed. The 20% accuracy-related penalty:

A Applies regardless of the taxpayer's reliance on professional advice
B Applies but is reduced to 10%
C May be avoided under the reasonable cause exception
D May be avoided only if the deduction was disclosed on Form 8275

Show the answer and explanation

Answer: C. May be avoided under the reasonable cause exception

No accuracy-related penalty applies to any portion of an underpayment if the taxpayer shows reasonable cause and good faith under section 6664(c). Reasonable reliance on professional advice qualifies when the adviser was competent, the taxpayer gave complete and accurate information, and the taxpayer actually relied on the advice in good faith. Source: IRC 6664(c)(1); Treas. Reg. 1.6664-4(b)-(c). Tax year: 2025 (law as of 31 Dec 2025).

Common mistake

Thinking only Form 8275 disclosure avoids the penalty.

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Related Part 3 practice questions

The section 6694(a) penalty for a preparer's understatement due to an unreasonable position is the greater of $1,000 or Without the client's written consent, a preparer gives a mortgage broker a list of clients' incomes to market loans. The preparer has violated Under Circular 230, practice before the IRS includes all of the following EXCEPT

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Original study material mapped to the public IRS SEE content outlines; not a real exam question.Not affiliated with or endorsed by the IRS or PSI. Verify figures and rules against current guidance before relying on them.