Exam 18: The Tax Compliance Process

Mr. and Mrs. Chung filed their unextended 2015 Form 1040 on May 30, 2016, and had no reasonable cause for the delinquency. The return showed a $10,479 balance of tax due. Compute the Chungs' late-filing and late-payment penalty.

F&D Inc. ceased operations and dissolved under state law in 2015. Mrs. Herron, a 20% shareholder, received a $490,300 liquidating distribution from F&D. This year, the IRS determined that F&D underpaid its 2014 and 2015 income tax by $967,100. How much of this deficiency can the IRS assess against Mrs. Herron?

Linney Corporation, which uses a June 30 fiscal year end for tax purposes, requested an automatic six-month extension of time to file its return for FYE June 30, 2016. It filed the return on February 18, 2017. The revenue agent that examined the return suspects that Linney may have substantially underreported income for the year. Which of the following is false?

The harshest administrative penalty that the IRS can impose is the civil fraud penalty.

Which of the following statements about taxpayer negligence is false?

The revenue agent who audited Mr. and Mrs. Wilke's 2013 Form 1040 assessed a $40,200 deficiency and concluded that $13,900 of the deficiency resulted from Mr. Wilke'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.