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Dakota received a letter from the IRS indicating that his federal income tax was understated by $2,000.

a. True
b. False

User Lemar
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1 Answer

2 votes

If Dakota cannot provide adequate disclosure and a reasonable basis for the understatement, he will have to pay a penalty of $400.

In this case, if Dakota cannot provide adequate disclosure and a reasonable basis for the understatement, the penalty amount would be calculated as:

Penalty Amount = 20 % of Understatement

Penalty Amount = 20 % of $2,000

Penalty Amount = 0.20 x $ 2, 000

Penalty Amount = $ 400

So, Dakota would have to pay a penalty amount of $400 if he cannot provide adequate disclosure and a reasonable basis for the $2,000 understatement in his federal income tax.

The full question is:

Dakota received a letter from the IRS indicating that his federal income tax was understated by $2,000. His corrected tax is $15,000. If Dakota cannot provide adequate disclosure and a reasonable basis for the understatement, what penalty amount will he have to pay?

$100

$400

$2,000

$3,000

User Mogu
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