A taxpayer owes ,000 in taxes on a return filed 2 months late. They also paid the tax 2 months late. Assuming no extension was filed and no reasonable cause exists, what is the total failure-to-file and failure-to-pay penalty?

Answer options:

How to approach this question

Calculate FTF (5%/mo) and FTP (0.5%/mo). Remember: If both apply in the same month, reduce FTF by the FTP amount. Max FTF is 25%.

Full Answer

B.0✓ Correct

Penalty is 5% per month for failure to file, reduced by the 0.5% failure to pay penalty for any month both apply. Net FTF = 4.5%, FTP = 0.5%. Total 5% per month x 2 months = 10%. 10% of ,000 = ,000.

Common mistakes

Forgetting to reduce the Failure to File penalty by the Failure to Pay penalty.

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