Question

The revenue agent who audited Mr. and Mrs. Camden's 2016 Form 1040 assessed a $55,200 deficiency and concluded that $23,900 of the deficiency resulted from Mr. Camden's deliberate disregard of the tax rules concerning business entertainment expense. The remaining deficiency resulted from various errors caused by confusing instructions on the tax forms.

Compute the negligence penalty that the agent can impose.

		$4,780
		$11,040
		$6,260
		Only a federal court can impose a negligence penalty.

Answer 1

Solution - In This case amount of penalty is $11040.

Reason of penalty=According to the I.R.S., our country(U S) is based on a voluntary system of compliance. This means that each citizen (taxpayer) reports their income freely and voluntarily. The tax liability is calculated, and the tax return is hopefully filed on a timely basis. The system is voluntary. Taxpayers are free to arrange their financial affairs in a manner that allows them to best take advantage of tax incentives made available through legislation. Voluntary does not mean that citizens are voluntarily paying tax, nor does it mean that the tax laws don’t apply. Voluntary means you can minimize your taxes by taking advantage of various exemptions, deductions and tax credits. Voluntary also means that you must tell the IRS what your tax liability is. And the only way to do that is to file a tax return.

It is widely known that the tax system in the U.S. is highly complex. Nonetheless, not knowing the law is not an excuse for not complying with the law. The government has several tools at its disposal to help encourage voluntary compliance. One of the most frequently used tools is the Accuracy Related Penalty. Here is the bottom line: If the I.R.S. learns that you:

• have understated income
• took improper tax deductions or credits
• had an inaccurate tax return

You will get a TAX BILL.

This tax bill will contain tax penalties and interest. If these mistakes were not deliberate or fraudulent, you will be served with an accuracy related penalty.

The two most common accuracy related penalties are: the “substantial understatement” penalty and the “negligence or disregard of the rules or regulations” penalty. These penalties are calculated as a flat 20 percent of the net understatement of tax.