FEDERAL TAX RESEARCH
COMPREHENSIVE TEST BANK VERIFIED
QUESTIONS AND DETAILED SOLUTIONS
GRADED A+
●● Failure to File
Answer: 5% (15% if fraudulent return) of the amount of tax, less prior
payments and credits, for each month the return is not filed (maximum
of 25%; 75% if fraudulent return)
●● Failure to Pay
Answer: assessed if taxpayer does not pay taxes or assessed deficiency
within 10 days of IRS notice (21 days if tax due is less than $100K);
penalty = 0.5% of required liability each month (maximum penalty of
25%)
●● Civil Fraud Penalty
Answer: may be liable for criminal penalties as well; penalty = 75% of
underpayment that is attributed to fraud; burden of proof on IRS; All-or-
Nothing rule: any portion of the underpayment attributable to fraud, the
entire underpayment is attributed to fraud, and the penalty applies to the
entire amount due
●● Failure to Make Estimated Payments
,Answer: Tax penalty is 0.5% of the tax you owe per month, but it also
caps at 25% of the tax due. If you set up an IRS installment agreement,
the IRS will reduce your failure to pay penalty to 0.25% of the tax you
owe while the installment agreement is in effect. 5% of the amount due:
From the original due date of your tax return. After applying any
payments and credits made, on or before the original due date of your
tax return, for each month or part of a month unpaid.
Penalty 5% of the unpaid tax (underpayment), and
0.5% of the unpaid tax for each month or part of the month it's unpaid
not to exceed 40 months (monthly).
●● Failure to Make Deposits of Taxes
Answer: varies from 2 - 15%; not an important section
●● Giving False Info
Answer: $500 penalty on taxpayer; employers must submit copy of W-4
to IRS if employee that claims 10 or more exemptions
●● Filing a Frivolous Return
Answer: $5,000 penalty; don't take stupid positions
●● Reliance on Written Advice
, Answer: written advice is only applicable to the specific taxpayer and
any taxes assessed may be abated (fancy for reduced)
●● Criminal Penalties
Nature
Defenses
Answer: taxpayer may be acquitted criminally yet liable for civil
penalties; beyond a reasonable doubt burden of proof; defenses: see
below
●● Return Preparer
Answer: A preparer is a person who prepares a tax return for
compensation, or employs one or more persons to prepare for
compensation.
●● Preparer Disclosure Penalties
Answer: really small $50 penalties for not giving taxpayer copy of
return, preparer forgets to sign the return, failing to put preparer ID on
return, etc. (maximum of $25,000 in calendar year)
●● Preparer Conduct Penalties
Answer: Understatement due to Unreasonable Position: position is
unreasonable unless there is substantial authority; substantial authority =
weight of the authorities in favor of the taxpayer > authoritites against;
reasonable bass is necessary whe position is disclosed
COMPREHENSIVE TEST BANK VERIFIED
QUESTIONS AND DETAILED SOLUTIONS
GRADED A+
●● Failure to File
Answer: 5% (15% if fraudulent return) of the amount of tax, less prior
payments and credits, for each month the return is not filed (maximum
of 25%; 75% if fraudulent return)
●● Failure to Pay
Answer: assessed if taxpayer does not pay taxes or assessed deficiency
within 10 days of IRS notice (21 days if tax due is less than $100K);
penalty = 0.5% of required liability each month (maximum penalty of
25%)
●● Civil Fraud Penalty
Answer: may be liable for criminal penalties as well; penalty = 75% of
underpayment that is attributed to fraud; burden of proof on IRS; All-or-
Nothing rule: any portion of the underpayment attributable to fraud, the
entire underpayment is attributed to fraud, and the penalty applies to the
entire amount due
●● Failure to Make Estimated Payments
,Answer: Tax penalty is 0.5% of the tax you owe per month, but it also
caps at 25% of the tax due. If you set up an IRS installment agreement,
the IRS will reduce your failure to pay penalty to 0.25% of the tax you
owe while the installment agreement is in effect. 5% of the amount due:
From the original due date of your tax return. After applying any
payments and credits made, on or before the original due date of your
tax return, for each month or part of a month unpaid.
Penalty 5% of the unpaid tax (underpayment), and
0.5% of the unpaid tax for each month or part of the month it's unpaid
not to exceed 40 months (monthly).
●● Failure to Make Deposits of Taxes
Answer: varies from 2 - 15%; not an important section
●● Giving False Info
Answer: $500 penalty on taxpayer; employers must submit copy of W-4
to IRS if employee that claims 10 or more exemptions
●● Filing a Frivolous Return
Answer: $5,000 penalty; don't take stupid positions
●● Reliance on Written Advice
, Answer: written advice is only applicable to the specific taxpayer and
any taxes assessed may be abated (fancy for reduced)
●● Criminal Penalties
Nature
Defenses
Answer: taxpayer may be acquitted criminally yet liable for civil
penalties; beyond a reasonable doubt burden of proof; defenses: see
below
●● Return Preparer
Answer: A preparer is a person who prepares a tax return for
compensation, or employs one or more persons to prepare for
compensation.
●● Preparer Disclosure Penalties
Answer: really small $50 penalties for not giving taxpayer copy of
return, preparer forgets to sign the return, failing to put preparer ID on
return, etc. (maximum of $25,000 in calendar year)
●● Preparer Conduct Penalties
Answer: Understatement due to Unreasonable Position: position is
unreasonable unless there is substantial authority; substantial authority =
weight of the authorities in favor of the taxpayer > authoritites against;
reasonable bass is necessary whe position is disclosed
