ExpertHard1 markMultiple Choice
CPA · Question 06 · Area I: Ethics & Tax Procedures
A taxpayer owes $50,000 in taxes for Year 1. The return was filed on time, but the tax was not paid until 3 months after the due date. No extension was filed. Assuming no fraud and no reasonable cause, what is the total failure-to-pay penalty?
A taxpayer owes $50,000 in taxes for Year 1. The return was filed on time, but the tax was not paid until 3 months after the due date. No extension was filed. Assuming no fraud and no reasonable cause, what is the total failure-to-pay penalty?
Answer options:
A.
$750
B.
$2,500
C.
$7,500
D.
$1,500
How to approach this question
Differentiate between Failure to File (5%/mo) and Failure to Pay (0.5%/mo).
Full Answer
A.$750✓ Correct
A
The failure-to-pay penalty is 0.5% of the unpaid tax for each month or fraction of a month the tax remains unpaid, up to 25%. Here, the delay is 3 months. Penalty = $50,000 x 0.5% x 3 = $750.
Common mistakes
Applying the failure-to-file rate (5%) instead of failure-to-pay (0.5%).
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