Olivia, a calendar year taxpayer, does not file her 2017 Form 1040 until Decembe

Question

Olivia, a calendar year taxpayer, does not file her 2017 Form 1040 until December 12, 2018. At this point, she pays the $40,000 balance due on her 2017 tax liability of $70,000. Olivia did not apply for nor obtain any extension of time for filing the 2017 return. When questioned by the IRS on her delinquency, Olivia asserts: "If I was too busy to file my regular tax return, I was too busy to request an extension."

a. Is Olivia liable for the failure to file penalty or the failure to pay penalty?

Olivia is liable for  BOTH OR JUST ONE?

b. If Olivia is liable for the failure to file penalty and/or the failure to pay penalty, the total penalty amount would be

HOW MUCH?

Explanation / Answer

a. Here Olivia is liable for her failure to file penalty as well as her failure to pay the penalty.

b. If we Disregard the interest element, Olivia’s total penalties are as follows:

Failure to pay penalty (1/2 of 1% per month × 8 months) :      $1,600

Add: Failure to file penalty (40,000X 5% per month × 5 months)*         $10,000

Less: Failure to pay penalty for same period:                                        ($1,000)

     TOTAL PENALITES                                                                          $10,600

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