Registered Tax Return Preparer RTRP Practice Exam

The penalty for an incorrect tax return due to negligence is indeed 20% of the underpayment. This penalty is applied when there is a failure to make a reasonable attempt to comply with tax laws or when the taxpayer does not exercise due diligence in preparing their return.

Negligence can occur in various forms, including when a taxpayer makes careless mistakes or fails to adequately research the tax implications of their actions. The IRS imposes this 20% penalty as a way to encourage taxpayers to take responsibility for their tax return preparation and to ensure that they are adhering to tax regulations.

By imposing a 20% penalty on the underpayment, the IRS aims to deter future occurrences of negligence and motivate taxpayers to be more careful and thorough in their reporting. Understanding this penalty helps taxpayers recognize the importance of accurate record-keeping and the potential financial consequences of negligence when filing their tax returns.