Mr. Daly, a commercial artist, engaged Mr. Ramirez, a local attorney, to prepare his income tax return. Mr. Daly provided the attorney with his check register, deposit slips, receipts, and pertinent financial documents and read through the completed return before signing it. This year, the return was selected for audit. The IRS agent discovered that Mr. Ramirez incorrectly deducted certain of Mr. Dalys personal living expenses. Consequently, Mr. Dalys tax was understated by $ 8,900. The agent decided that the deduction was based on an unreasonable legal position.

1. Is Mr. Daly liable for payment of the $ 8,900 tax deficiency plus interest?
2. Could the IRS impose a negligence penalty on Mr. Daly?
3. Could Mr. Ramirez be penalized because of the error made in preparing Mr. Dalys income tax return?
4. Would your answer to the preceding questions change if Mr. Ramirez were Mr. Dalys brother-in-law, who prepared the return as a favor rather than for compensation?