Question

For each of the following situations, select the nature of the penalty and amount of the penalty that could be imposed. Description of the PenaltyPenalty Amour a. Larry is a tax protester and files his tax return in the name of "Mickey Mouse. b. Anne writes a check for $900 in payment of her taxes that she knows will not clear the bank due to insufficient funds in her account . Gerald understated his tax liability by $10,000. The total amount of tax that should have been shown on his return was $70,000

Answer 1

Explanation:

a. Larry is a tax protester and files his tax return in the name of "Mickey Mouse."

Nature of the Penalty: Fraudulent Return

Amount of the Penalty: The penalty for filing a fraudulent return can be up to 75% of the underpayment due to fraud.

b. Anne writes a check for $900 in payment of her taxes that she knows will not clear the bank due to insufficient funds in her account.

Nature of the Penalty: Bad Check Penalty

Amount of the Penalty: The penalty for writing a bad check can include both a penalty fee and interest on the unpaid tax amount. The fee varies by state.

c. Gerald understated his tax liability by $10,000. The total amount of tax that should have been shown on his return was $70,000.

Nature of the Penalty: Underpayment Penalty

Amount of the Penalty: The underpayment penalty is typically calculated based on the amount of tax underpaid and the time it remains unpaid. The penalty rate can vary, but it is often a percentage of the underpayment.