Taxpayer Penalties Flashcards
What is the failure to file penalty?
5% per month (or part of the month) that the return is late, up to a total of 25% of the unpaid tax.
What is the minimum penalty for failure to file a return within 60 days of the due date (including extensions)?
Lesser of $485 or 100% of the unpaid income taxes
What is the failure to file penalty when fraudulent?
15% per month, up to a maximum of 75% of the tax due with the return
What is the failure to pay penalty?
1/2 of 1% (0.5%) for each month (or part of the month) after the due date (always April 15th), up to a total of 25% of the unpaid tax. This may reduce the failure to file penalty, if applicable.
When is an individual subject to an underpayment penalty?
When their balance due on their tax return is greater than $1,000
What is the “prior year tax liability” exception to underpayment penalties for individuals?
Withholdings and estimated payments totaled at least 100% of the prior year’s tax liability, unless the taxpayer had more than $150,000 of AGI in the previous year.
If the taxpayer had more than $150,000 of AGI in the previous year, payments must exceed 110% of the previous year’s tax liability to utilize this exception in the current year.
What is the “annualized income method” exception to underpayment penalties for both individuals and corporations?
The cumulative payments for each quarter cover the tax on the income to date.
What is the “current tax liability” exception to underpayment penalties for individuals?
The payments cover at least 90% of the current tax liability.
When is a corporation subject to an underpayment penalty?
When their balance due on their tax return is greater than $500
What is the “seasonal method” exception to underpayment penalties for corporations?
The installments each quarter cover the tax on the income to date, assuming that total income for the full 12 months will bear the same relationship to income to date as it has, on average, the last three fiscal years.
What is the common tax liability exception to underpayment penalties for corporations?
Estimated payments equal the lesser of 100% of previous year’s tax liability or 100% of current year’s tax liability.
The previous year tax liability will not suffice if there was no tax liability in the prior year or they had taxable income exceeding $1 million in any of the preceding three tax years.
What is the penalty for underpayment of tax for a corporation or an individual when the underpayment is due to fraud?
Interest on the unpaid balance + additional penalty equal to 75% of the portion of underpayment attributable to fraud
What could subject a taxpayer to a 20% accuracy-related penalty on the underpayment of tax?
Negligence or disregard for tax rules or regulations
Any substantial understatement of income tax
Any substantial valuation misstatement for computing taxes (eg, inflating an asset’s basis to reduce the gain on sale) (200%)
Any substantial overstatement of pension liabilities (200%)
Any substantial estate or gift tax valuation understatement (65%)
Any disallowance of claimed tax benefits for transactions lacking economic substance
Any foreign financial asset understatement
What could subject a taxpayer to a 40% accuracy-related penalty of the underpayment of tax?
A gross valuation misstatement (400% or more)
An understatement attributable to undisclosed transactions lacking economic substance
An understatement involving an undisclosed foreign financial asset
What is a substantial understatement of income tax for individuals?
Understatement of tax is more than the greater of 10% of the tax hat should have been shown on the return or $5,000
