Question

Albert files his income tax return (showing a total tax of $23,000) 5½ months after the due date of the return without obtaining an extension from the IRS. Along with the return, he remits a check for $6,600, which is the balance of the tax he owes. Note: Assume 30 days in a month. Disregarding the interest element, enter Albert's penalty amount for each, failure to file and failure to pay.

Answer 1

Solution:

Penalty for failure to pay:

According to the IRS guidelines, the penalty for failure to pay is usually half of 1% of the unpaid taxes for each month. Since Albert pays her tax 5½ months after the due date, it implies she would be penalised for 6 month late period as 5½ months fall in 6 month late period

The penalty for Failure to pay is calculated as follows:

Penalty for Failure to Pay = Tax amount x Penalty rate x No. of months late

=$6,600 *(1/2 of 1%)*6 months

=$6,600*0.005*6

=$198

Penalty for Failure to file:

According to the IRS guidelines, the penalty for filing late is usually 5% of the unpaid taxes for each month. Since Albert files his return 5½ months after the due date, it implies he would be penalised for 6 month late period as 5½ months fall in 6 month late period.

The penalty for Failure to file is calculated as:

Penalty for Failure to File = (Tax amount x Penalty rate x No. of months late)- Penalty for failure to pay

=($6,600 * 5%* 6 months) - $198

=$1980 - $198

=$1,782