Filing Penalties

Question 1

Late filing or Failure to File penalty is how much?

Answer 1

5% of the net tax due per month (capped at 25% of unpaid taxes)

Question 2

If a taxpayer fails to pay and is determined to be FRAUDULENT, what is the penalty amount?

Answer 2

15% per month (capped at a max of 75% of unpaid tax)

Question 3

Taxpayers who have requested an extension by the due date and paid at least ___% of taxes owed will not face a failure-to-pay penalty.

Answer 3

90%

Question 4

Late payment penalty for taxpayers that have filed but pay late.

Answer 4

0.5% of the tax due

Capped at 25% of tax owed

(However, if paid on time but filed late, 5% penalty)

Question 5

The failure to ______ penalty is 10x the size of the failure to _______ penalty.

Answer 5

The failure to FILE penalty is 10x the size of the failure to PAY penalty.

Failure to FILE > Failure to PAY

Question 6

Underpayments attributable to negligence or disregard of tax rules or regulations result in a ___% accuracy related penalty.

Answer 6

20%

Question 7

Negligence can include what in terms of failure to make reasonable attempt to comply with tax rules?

Answer 7

• failure to keep adequate books

- failure to substantiate items the gave rise to the understatement

Question 8

For individuals, a “substantial understatement” is one that exceeds the greater of: ____ or ____.

What is the % penalty that will apply?

Answer 8

10% of the tax or $5,000 of tax owed

20% penalty will apply

Question 9

For C-corporations, a “substantial understatement” is one that exceeds the lesser of: ____ or ____.

What is the % penalty that will apply?

Answer 9

The lesser of 10% of the tax OR $10 million

20% penalty applies

NOTE: for corporations, to be substantial, the understatement only has to exceed the lesser standard

Question 10

Individuals timing of Estimated Payments

Answer 10

4/15

6/15

9/15

1/15

Question 11

Estimated payments:

For individuals to avoid a penalty, the amount of tax is less than $_____ (after subtracting withholdings and credits), no penalty would be imposed.

Answer 11

$1000

Question 12

If you know you will own $1,000 or more on 4/15 (self-employed, capital gains) you have to pay an estimated tax equal to:

Answer 12

90% of the CURRENT year’s tax

100% of the PREVIOUS year’s tax

110% of the PREVIOUS year’s tax if AGI exceeds $150,000

Question 13

The underpayment penalty may also be eliminated by using the annualized income method. When may this method be used? Who can use it?

Answer 13

This method may be used if the taxpayer’s income varies, even modestly during the year.

Example: ski resort, seasonal business

Both individuals and corporations who operate a SEASONAL business may use this.

Question 14

When do CORPORATIONS pay estimated taxes?

Answer 14

4/15

6/15

9/15

12/15

Question 15

ESTIMATED PAYMENTS:

A Small C Corp may pay the lesser of:

Answer 15

100% of the tax shown on the return for the CURRENT YEAR

OR

100% of the tax shown on the return for the PRIOR YEAR

Question 16

ESTIMATED PAYMENTS:

A LARGE C Corp whose taxable income is $1,000,000 or more in any of its 3 preceding tax year bases estimated payments on what?

Answer 16

They can only use the preceding year exception for their first payment.

The remaining 3 must be based on CURRENT year’s tax.

The 4 payments must equal tax that is ultimately owed or interest and penalties.

Question 17

What is the REASONABLE CAUSE EXCEPTION in terms of estimated payments?

Answer 17

A cause outside the control of the taxpayer (COVID) is a reasonable cause exception and many were late with their 4/15/2020 estimated tax payment which should have been their first tax payment for calendar year 2020.

Question 18

Filing an extension will result in a penalty NOT being charged for late

I. Filing of a return

II. Payment of Tax

Answer 18

Only eliminates penalty for late filing but does NOT allow more time to pay the tax.