Question

a. Wilson filed his individual tax return on the original due date, but failed to pay $18,720 in taxes that were due with the return.

If Wilson pays the taxes exactly 7 months late, calculate the amount of his failure-to-pay penalty.

b. Joan filed her individual income tax return 4 months after it was due. She did not request an extension of time for filing. Along with her return, Joan remitted a check for $9,710, which was the balance of the taxes she owed with her return.

Disregarding interest, calculate the total penalties that Joan will be required to pay, assuming the failure to file was not fraudulent.

Answer 1

a, Following IRS rule is applicable for failure to pay penalty - "Penalty for late payment. The penalty is generally 0.5 percent of taxpayers’ unpaid taxes per month. It can build up to as much as 25 percent of their unpaid taxes."

Per month penalty = 0.5%

No of months due = 7

Total penalty = 0.5% * 7 = 3.5%

Total tax amount due = $18,720.00

Total penalty = $18,720 *3.5/100 = $655.20

b, Following IRS rules are applicable for failure to file returns - "If taxpayers file their tax return more than 60 days after the due date or extended due date, the minimum penalty is $205 or, if they owe less than $205, 100 percent of the unpaid tax. Otherwise, the penalty can be as much as 5 percent of their unpaid taxes each month up to a maximum of 25 percent."

Penalty for 60 days = zero

Penalty after 60 days = 5% per month

Tax amount due = $9,710.00

No of months over due = 4 Months

Penalty for four months = 5% *4 = 20%

Total penalty = $9710.00 *20/100 = 1942.00