Sheila Shady is a self- employed CPA who has been practicing for ten years and is a licensed CPA in her state. Sheila prepares approximately 300 individual tax returns during tax season and is under tremendous time constraints to finish all her clients’ tax returns on a timely basis. Sheila has prepared Bubba Baker’s individual tax return for several years. Her fee for preparing the return was \($2,250.\) Bubba’s 2021 tax return is being audited by the IRS, and the agent has disallowed an \($18,000\) business deduction on Bubba’s Schedule C resulting in an increase in Bubba’s tax liability of \($8,300.\) The IRS agent concluded that Sheila had no reasonable basis for claiming the deduction and had not satisfied the due diligence requirement under Statement on Standards for Tax Services No. 3, Certain Procedural Aspects of Preparing Returns, Part 1. This statement sets forth the applicable standards for members concerning the obligation to examine or verify certain supporting data or to consider information related to another taxpayer when preparing a taxpayer’s tax return. What penalties could be assessed against Sheila Shady?
In addition to the chapter content, see Statements on Standards for Tax Services at https://future.aicpa.org/resources/toolkit/statements-on-standards-for-tax-services and Circular 230 at www.irs.gov/tax-professionals/circular-230-tax-professionals.