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The possibility that a position will not be
challenged by the Service (e.g., because the
taxpayer’s return may not be audited or
because the issue may not be raised on audit)
may not be taken into account.
In other words, in considering the “hazards of litigation”
or the reasonableness of a particular tax return position, tax
return preparers are now to assume that tax returns will be
audited by respondent and that questionable items reported and
claimed on the returns will be disallowed by respondent.
Accordingly, with regard to questionable items knowingly
reported on estate tax returns, taxpayers and tax return
preparers generally are to anticipate that an audit will occur
and that questionable items will be disallowed by respondent, and
they are to anticipate that the estate will incur additional
legal expenses associated with that disallowance. Thus, under
section 20.2053-1(b)(3), Estate Tax Regs., it appears that legal
expenses likely to be associated with a disallowance by
respondent of questionable items reflected on estate tax returns
could be claimed on the returns when filed, based on reasonable
estimates therefor.
I have two further points.
If a taxpayer and a tax return preparer jointly and
knowingly participate in the preparation and filing of a grossly
fraudulent tax return to such an extent that the fraud -- when
first raised by respondent on audit -- should have been
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