CTRS CTRS Penalty Abatement and Relief 2

Question 1

What is the Failure to File (FTF) penalty rate and maximum amount?

Accepted Answer

5% per month or part thereof, up to a maximum of 25% of the unpaid tax

Answer

The FTF penalty under IRC §6651(a)(1) is 5% of the unpaid tax for each month or part of a month the return is late, capped at 25% of the unpaid tax.

Question 2

What happens when both the FTF and FTP penalties apply in the same month?

Accepted Answer

The FTP penalty is reduced by the amount of the FTF penalty, so the combined rate is 5% per month rather than 5.5%

Answer

When both FTF and FTP apply in the same month, the FTP penalty (0.5%) is subtracted from the FTF penalty (5%), resulting in a net monthly rate of 5% rather than 5.5%.

Question 3

What is the 'reliance on professional advice' standard for reasonable cause penalty abatement?

Accepted Answer

The taxpayer must show they disclosed all relevant facts to a qualified tax professional and reasonably relied on the professional's advice, even if the advice was wrong

Answer

Reliance on professional advice establishes reasonable cause when the taxpayer fully disclosed relevant facts to a competent professional and reasonably relied on the advice received, regardless of whether the advice was ultimately correct.

Question 4

What is the 'penalty abatement cascade' strategy practitioners use?

Accepted Answer

Applying FTA to the most recent eligible year first, then using reasonable cause for earlier years to preserve the FTA option for future use

Answer

The cascade strategy involves using FTA for the most recent eligible tax year first, which clears that year from the 3-year lookback, potentially making prior years eligible for FTA in subsequent requests.

Question 5

What is the Accuracy-Related Penalty under IRC §6662 and what is its rate?

Accepted Answer

A 20% penalty on the portion of an underpayment attributable to negligence, substantial understatement, or other enumerated causes

Answer

The IRC §6662 Accuracy-Related Penalty is 20% of the underpayment attributable to negligence, substantial understatement of income tax, or other specified causes, doubling to 40% for gross valuation misstatements.

(CTRS) Certified Tax Resolution Specialist Practice Test

(CTRS) Certified Tax Resolution Specialist Practice Test

CTRS CTRS Penalty Abatement and Relief 2