ExpertHard1 markMultiple Choice
CPA · Question 10 · Area I: Ethics & Tax Procedures
A taxpayer failed to file their tax return by the due date (including extensions). The tax due was $10,000. The return was filed 40 days late. The taxpayer had no reasonable cause. What is the total failure-to-file and failure-to-pay penalty assessed?
A taxpayer failed to file their tax return by the due date (including extensions). The tax due was $10,000. The return was filed 40 days late. The taxpayer had no reasonable cause. What is the total failure-to-file and failure-to-pay penalty assessed?
Answer options:
A.
$500
B.
$1,000
C.
$900
D.
$1,100
How to approach this question
1. Determine months late (40 days = 2 months). 2. FTF penalty = 5% per month. 3. FTP penalty = 0.5% per month. 4. IMPORTANT: Reduce FTF by FTP amount. Net total is 5% per month.
Full Answer
B.$1,000✓ Correct
B
The return is 2 months late (any part of a month counts as a full month). <br/>Failure to File (FTF): 5% x 2 = 10%. <br/>Failure to Pay (FTP): 0.5% x 2 = 1%. <br/>Adjustment: FTF is reduced by FTP (10% - 1% = 9%). <br/>Total Penalty = 9% (Net FTF) + 1% (FTP) = 10%. <br/>$10,000 x 10% = $1,000.
Common mistakes
Forgetting that a partial month counts as a full month. Forgetting to reduce the FTF penalty by the FTP penalty.
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