Final answer:
A tax preparer can avoid a penalty if the tax position has at least a reasonable basis. This means the position is supported by credible legal precedents or rulings and meets general tax principles of equity, simplicity, and efficiency.
Step-by-step explanation:
The tax preparer can avoid a penalty if the tax position has at least a reasonable basis. This is part of a tiered standard of tax conduct in the United States for determining the appropriateness of a position on a tax return. To satisfy the 'reasonable basis' standard, the tax position must have a reasonable legal and factual basis that is more than a mere possibility; it should be backed by relevant case law, IRS rulings, or other legal authority.
Tax requirements and principles dictate that taxes should be equitable, simple, and efficient to enhance the public's receptivity to taxation. However, the decline in IRS audit rates, especially among high-income individuals, may undermine the perceived equity of the tax system.
Understanding the rational basis test is also crucial, as it relates to how courts evaluate discrimination in understanding the law's application to various groups. This ensures fair application of legal standards and avoiding arbitrary differentiations.