108 Taxpayer Penalties TBS 1

Question 1

IRC 6722(a)

Answer 1

Question 2

IRC 6710(a)

Answer 2

Question 3

IRC 6702(a)

Answer 3

Question 4

IRC 6689(a)

Answer 4

Question 5

IRC 6682(a)

Answer 5

Question 6

IRC 6676(a)

Answer 6

Question 7

IRC 6674

Answer 7

Question 8

IRC 6663(a)

Answer 8

Question 9

IRC 6662(c)-(d)

Answer 9

Question 10

IRC 6662(a)

Answer 10

Question 11

IRC 6656(a)-(b)

Answer 11

Question 12

IRC 6651(a)

Answer 12

Question 13

An employer fails to credit amounts withheld from employee wages for income taxes.

Answer 13

Failure to deposit tax penalty
IRC 6656(a)–(b)

An employer’s (taxpayer’s) failure to deposit or credit the amounts withdrawn from employees’ wages for income tax is a failure to deposit tax penalty. The penalty can range from 2% to 15%, depending on the number of days the deposit is late. (IRC Section 6656(a)–(b))

Question 14

An employee gave the employer someone else’s Social Security number. The employee is trying to avoid all taxes.

Answer 14

False information penalty
IRC 6682(a)

The employer is relying on the employee (taxpayer) to provide the correct information. If the employee gives the employer someone else’s Social Security number, the employee has provided false information. This results in a $500 penalty, and there may also be criminal charges. (IRC Section 6682(a))

Question 15

A woman completing her own taxes has decided she cannot pay the taxes due this year. She decides to not file her taxes at all for the current year.

Answer 15

Failure to file penalty
IRC 6651(a)
When a taxpayer decides not to pay their taxes or file their income tax return, it is a failure to file tax return penalty or a failure to pay tax penalty. The penalty is 5% if the tax is not more than 1 month late, and 5% for each additional month. There are many special rules for these penalties. (IRC Section 6651(a))

Question 16

A man paid $1,500 for taxes in Year 1, paid $1,000 for taxes in Year 2, and only made two payments on time. His total taxes due for Year 2 are $2,500 and his AGI is $54,000.

Answer 16

Accuracy-related penalty
IRC 6662(a)

A penalty can be imposed by the IRS on a taxpayer who fails to pay a sufficient amount of estimated income taxes. For example, quarterly estimated tax payments are required to be made for the current calendar year if both of the following apply:

• The taxpayer expects to owe at least $1,000 in federal tax, after subtracting federal tax withholding and refundable credits, and
• The taxpayer expects federal withholding and refundable credits to be less than the smaller of:
  o 90% of the tax to be shown on the current year’s federal tax return, or
  o 100% of the tax shown on the prior year’s federal tax return.

For an individual, the underpayment of estimated tax is the difference between the estimated tax paid and the lowest of:
* 90% of the current year’s tax,
* 100% of the prior year’s tax, or
* 90% of the tax that would be due on an annualized income computation for the period that runs through the end of the quarter.

If the prior-year AGI of the taxpayer exceeds $150,000 ($75,000 if married filing separate), the 100% above becomes 110%.

Question 17

King Corp. filed its taxes with an amount due of $24,500. The IRS reviewed the tax return and came to the conclusion that King Corp. substantially understated its tax liability.

Answer 17

Accuracy-related penalty
IRC 6662(c)–(d)

King Corp. has created an accuracy-related penalty for the company. An accuracy-related penalty is attributed to negligence or disregard, substantial understatement of the tax liability, substantial overstatement of valuation, or understatement of valuation. The understatement for a corporation is substantial if it is the lesser of 10% or $10 million. (IRC Section 6662(c)–(d))

Question 18

Kristin Grease turned in her tax return with a refund of $3,400. In the last 3 years, Kristin has received refunds averaging $1,500 each year. The IRS reviewed Kristin’s tax return and found that her refund should be $1,300. Kristin does not have any supporting documents for the overage of $2,100.

Answer 18

Erroneous refund penalty
IRC 6676(a)

Kristin Grease will be fined an erroneous refund penalty. She asked for a refund of $3,400, but is only allowed $1,300 from her documentation and her income tax return. The penalty will amount to 20% of the $2,100 overage. (IRC Section 6676(a))