Maureen, a calendar year individual taxpayer, files her 2018 return on November 4, 2020. She did not obtain an extension for filing her return, and the return reflects additional income tax due of $15,000. a. What are Maureen's penalties for failure to file and to pay?

Solution:

Failure to pay penalty (0.5% * 15000) * 19 months = > $1425

(+) Failure to file penalty (5% * 15000) * 5 months = > 3750

Less: Failure to pay penalty for the same period (375)

Net penalty to failure to file $3375

Total penalties $4800

The failure to file penalty cannot exceed a total of 25%

Consequently, this penalty is capped after 5 months (i. e. 5% * 5 = 25%)

The failure to pay penalty also is limited to a total of 25%

At the rate of 0.5% per month, such penalty can continue to sum for as long as 50 months.

Maureen's penalties for failure to file and to pay is $1425