Question

Bob files an extension of his Year 1 income tax return on March 23, Year 2. His withholding for Year 1 is 3,200. He estimates that he will owe an additional1,000 and includes a check for 1,000 with the extension. Bob files his Year 1 income tax return on May 18, Year 2. The total tax indicated on the return is5,100. What amount of the tax is subject to the Failure-to-Pay Penalty?

Answer 1

The amount subject to the Failure-to-Pay Penalty in Bob's case is $900, which is the remaining unpaid tax ($5,100 total tax less $4,200 paid by the extension deadline).

Step-by-step explanation:

The question relates to calculating the Failure-to-Pay Penalty on Bob's income tax return. To determine the amount subject to the penalty, we should subtract the withholding and payments made by the extension deadline from the total tax indicated on the return. Bob's total tax liability was $5,100.

He had already paid $3,200 through withholding and made an additional $1,000 payment with his extension. As a result, he paid a total of $4,200 by the extension deadline.

The calculation for the penalty would be based on the unpaid tax as of the deadline. Therefore, the amount subject to the Failure-to-Pay Penalty is the total tax indicated on the return ($5,100) minus the amount paid by the extension deadline ($4,200), which equals $900. This is the amount on which Bob may owe the Failure-to-Pay Penalty.

It's important to note that to accurately assess the penalty, specific IRS rules and the exact dates of payment and filing would need to be taken into consideration, as the penalty can accrue from the original due date of the return until the tax is paid.