A taxpayer owes $50,000 in taxes for Year 1. The return was filed on time, but the tax was not paid until 3 months after the due date. No extension was filed. Assuming no fraud and no reasonable cause, what is the total failure-to-pay penalty?

Answer options:

$750

$2,500

$7,500

$1,500

How to approach this question

Differentiate between Failure to File (5%/mo) and Failure to Pay (0.5%/mo).

Full Answer

A.$750✓ Correct

The failure-to-pay penalty is 0.5% of the unpaid tax for each month or fraction of a month the tax remains unpaid, up to 25%. Here, the delay is 3 months. Penalty = $50,000 x 0.5% x 3 = $750.

Common mistakes

Applying the failure-to-file rate (5%) instead of failure-to-pay (0.5%).

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