3.3 TAXPAYER PENALTIES Flashcards
WHAT ARE THE DELINQUENCY-RELATED PENALTIES?
TRUNK
A) FAILURE TO FILE A TAX RETURN
B) FAILURE TO PAY TAX OWED
C) FAILURE TO MAKE ESTIMATED TAX PAYMENTS
WHAT IS THE FAILURE TO FILE PENALTY?
ANY BALANCE DUE MUST BE PAID BY APRIL 15TH, AN INDIVIDUAL CAN OBTAIN AN AUTOMATIC EXTENSION OF THE DUE DATE UNTIL OCTOBER 15TH. BUT THE EXTENSION IS ONLY FOR THE FILING NOT THE PAYMENT OF THE TAX LIABILITY.
THE FAILURE TO FILE PENALTY IS BASED ON HOW LATE A TAX RETURN IS FILED AND THE AMOUNT OF UNPAID TAX BY THE DUE DATE (I.E., 4/15)
-5% PER MONTH UP TO 25% OF TAX DUE [UNPAID TAX LIABILITY X 5% X # OF MONTHS LATE]
-IF THE TAX RETURN IS MORE THAN 60 DAYS LATE AT A MINIMUM THE PENALTY WITH BE THE LESSER OF $485 OR 100% OF THE TAXES OWED
IF FRAUDULENT THE PENALTY IS INCREASED TO 15% UP TO 75% OF TAX DUE
IF BOTH FAILURE TO FILE AND PAY PENALTIES APPLY,
[FAILURE TO FILE - FAILURE TO PAY]
YOU MUST PAY YOUR TAX LIABILITY AND IN ADDITION THE PENALTY APPLIED
WHAT IS THE FAILURE TO PAY TAXES OWED PENALTY?
(I.E., LATE PAYMENT)
0.5% PER MONTH UP TO 25% OF TAX DUE
IF BOTH FAILURE TO FILE AND PAY PENALTIES APPLY,
[FAILURE TO FILE - FAILURE TO PAY]
AN EXTENSION TO FILE A T/R DOES NOT EXTEND THE TIME TO PAY THE TAXES,
THERE IS A LATE PAYMENT PENALTY IF ANY PORTION OF THE TOTAL TAXES DUE IS NOT PAID BY THE ORIGINAL DUE DATE.
WHEN ARE ESTIMATED TAX PAYMENTS REQUIRED FOR INDIVIDUALS?
THEY ARE DUE BY THE 15TH DAY OF THE 4TH, 6TH, AND 9TH MONTHS OF THE TAXABLE YEAR AND BY THE 15TH OF JANUARY.
AN INDIVIDUAL IS ONLY SUBJECT TO AN UNDERPAYMENT PENALTY IF THE BALANCE DUE ON THE T/R IS > THAN 1K.
IN ORDER TO AVOID A PENALTY FOR UNDERPAYMENT OF ESTIMATED TAX, WHAT IS THE MINIMUM AMOUNT OF ESTIMATED TAX PAYMENTS THAT THE INDIVIDUAL TAXPAYER NEEDS TO MAKE?
NOT SUBJECT TO PENALTY IF LESS THAN 1K
INDIVIDUALS MUST PAY THEIR INCOME THROUGHOUT THE YEAR ON A PAY-AS-YOU-GO BASIS. THIS IS GENERALLY DONE THROUGH WITHHOLDING OR ESTIMATED TAX PAYMENTS. THIS SYSTEM IMPROVES COMPLIANCE VERSUS PAYING THE ENTIRE TAX LIABILITY AT YEAR END.
TO AVOID UNDERPAYMENT, A TAXPAYER MUST PAY A SAFE HARBOR AMOUNT. THE GENERAL SAFE HARBOR AMOUNT IS THE LESSER OF 100% OF THE PRIOR YEAR’S TAX LIABILITY (110% IF THE PRIOR YEAR’S AGI IS OVER 150K) OR 90% OF THE CURRENT YEAR TAX LIABILITY. THERE IS NO PENALTY IF THE BALANCE DUE ON THE RETURN IS LESS THAN 1K.
FYI - THE ANNUALIZED INCOME METHOD MAY BE USED TO AVOID PENALTY AS WELL.
WHEN ARE ESTIMATED TAX PAYMENTS REQUIRED FOR CORPORATIONS?
THEY ARE DUE BY THE 15TH DAY OF THE 4TH, 6TH, AND 9TH AND 12TH OF THE TAXABLE YEAR
IN ORDER TO AVOID A PENALTY FOR UNDERPAYMENT WHAT IS THE MINIMUM AMOUNT OF ESTIMATED TAX PAYMENTS THAT A CORPORATION NEEDS TO MAKE?
CORPORATIONS ARE REQUIRED TO MAKE QUARTERLY ESTIMATED TAX PAYMENTS DURING THE TAX YEAR AND ARE SUBJECT TO A PENALTY FOR UNDERPAYMENT OF TAXES IF 100% OF THE CURRENT YEAR’S TAX LIABILITY HAS NOT BEEN PAID IN 4 EQUAL INSTALLMENTS OVER THE COURSE OF THE TAX YEAR. EXCEPTIONS ARE,
A) TOTAL UNDERPAYMENT IS LESS THAN $500
B) ANNUALIZED INCOME METHOD
C) SEASONAL METHOD
D) PREVIOUS YEAR: THE PAYMENTS EQUAL AT LEAST 100% OF THE PRIOR YEAR TAX LIABILITY.
IN ORDER TO AVOID AN UNDERPAYMENT PENALTY, A C-CORP MUST GENERALLY PAY ESTIMATED TAXES EQUAL TO THE LESSER OF 100% OF ITS PRIOR YEAR TAX LIABILITY OR 100% OF ITS CURRENT YEAR TAX LIABILITY.
PY LIABILITY WOULD NOT SUFFICE TO ELIMINATE AN UNDERPAYMENT PENALTY IF THE CORPORATION HAD NO TAX LIABILITY IN THE PRIOR YEAR, OR HAD TAXABLE INCOME EXCEEDING 1 MIL IN ANY OF THE PRECEDING TAX YEARS.
WHAT IS AN ACCURACY-RELATED PENALTY?
TRUNK
THE IRC IMPOSES AN ACCURACY-RELATED PENALTY FOR MISSTATEMENTS IN A TAX RETURN THAT CREATE A TAX UNDERPAYMENT DUE TO NEGLIGIENT MISTAKES. THE PENALTY IS WAIVED IF THERE WAS SUBSTANTIAL AUTHORITY FOR THE POSITION TAKEN OR THE TAXPAYER HAD A REASONABLE BASIS FOR THE POSITION TAKEN AND THE POSITION WAS DISCLOSED ON THE RETURN. THE PENALTY IS EQUAL TO 20% OF THE UNDERPAYMENT AND IS IN ADDITION TO THE TAX.
WHAT IS CONSIDERED A SUBSTANTIAL UNDERSTATEMENT OF INCOME TAX SUBJECT TO THE ACCURACY RELATED PENALTY FOR INDIVIDUALS?
A TAX UNDERSTATEMENT IS SUBSTANTIAL IF THE UNDERPAYMENT EXCEEDS THE GREATER OF EITHER 10% OF THE TAX THAT SHOULD HAVE BEEN SHOWN ON THE RETURN, OR 5K FOR INDIVIDUALS.
WHAT IS CONSIDERED A SUBSTANTIAL UNDERSTATEMENT OF INCOME TAX SUBJECT TO THE ACCURACY RELATED PENALTY FOR CORPORATION?
FOR CORPORATIONS, UNDERSTATEMENT IS SUBSTANTIAL IF THE UNDERSTATEMENT OF TAX IS MORE THAN THE LESSER OF 10% OF THE TAX THAT SHOULD HAVE BEEN SHOWN ON THE RETURN OR 10 MILLION
