Income Tax Planning | Lesson 3: Administrative Flashcards
Emily recently filed her tax return. She failed to file a proper extension and filed 70 days after the due date. Along with her return, she remitted a check for $5,000. What is Emily’s failure-to-file penalty?
a) $75
b) $450
c) $675
d) $750
Answer: C
The failure to file penalty is: (5% (further reduced by .5% failure-to-pay penalty) x 3 months x $5,000) - $75 = $675
The failure-to-pay penalty is: 0.5% x 3 months x $5,000 = $75
Total penalty = $750
Emma’s husband, Joshua, died last year. Before his death, Joshua exercised a substantial amount of ISOs. Before they could pay the tax, the stock tanked, leaving them no cash to pay the AMT that resulted from the exercise. Emma would like to challenge the amount due in court, as she has already exhausted the IRS process. Her lawyer believes that the US Court of Appeals has an unfavorable precedent for her transaction. The lawyer also believes that the facts of the case may help Emma if she has a sympathetic audience. However, she cannot pay the claim currently, and her top priority is to utilize a court that does not require her to pay up-front. She does want to be able to appeal if the lower court does not render in her favor. Which court is most appropriate for Emma?
a) US Tax Court
b) US District Court
c) US Court of Federal Claims
d) US Tax Court: Small Claims Division
Answer: A
Since Emma’s top priority is that she can’t pay, the Tax Court and Small Claims Division are the only options. We do not know if she would qualify for the Small Claims Division (claims less than $50,000), but since she wants to be able to appeal, this is not an option either. There is not a jury trial available here like there is in district court, but again, she states not paying is the top priority. The US Court of Appeals is the court that the US Court of Federal Claims appeals to.
