Tax Consulting Tax Compliance and Reporting 1 — Questions and Answers
Question 1: What is the penalty for failing to file a tax return on time, absent reasonable cause?
- 0.5% per month on unpaid tax, up to 25%
- 5% per month on unpaid tax, up to 25% (Correct answer)
- 10% flat penalty on total tax owed
- $1,000 fixed fine per return
Correct answer: 5% per month on unpaid tax, up to 25%
The failure-to-file penalty 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: Which IRS form is used to report miscellaneous income paid to non-employees, such as independent contractor payments of $600 or more?
- Form W-2
- Form 1099-NEC (Correct answer)
- Form 1099-MISC
- Form 1096
Correct answer: Form 1099-NEC
Form 1099-NEC (Nonemployee Compensation) is used to report payments of $600 or more made to non-employees for services rendered.
Question 3: What is the statute of limitations for the IRS to assess additional tax on a timely filed return in most cases?
- 1 year
- 3 years (Correct answer)
- 6 years
- 10 years
Correct answer: 3 years
The standard statute of limitations for IRS assessment is 3 years from the later of the return due date or the date the return was filed.
Question 4: An amended tax return must be filed using which IRS form?
- Form 1040-X (Correct answer)
- Form 4868
- Form 8275
- Form 1040-SR
Correct answer: Form 1040-X
Form 1040-X is the Amended U.S. Individual Income Tax Return used to correct a previously filed federal income tax return.
Question 5: Which penalty applies when a tax preparer fails to meet due diligence requirements for the Earned Income Tax Credit?
- $50 per return
- $100 per return
- $600 per credit claimed per return (Correct answer)
- $5,000 per return
Correct answer: $600 per credit claimed per return
Tax preparers who fail to meet EITC due diligence requirements face a penalty of $600 per credit (EITC, Child Tax Credit, AOTC, or Head of Household) claimed on the return.
Question 6: What does a Form 8868 extend?
- Individual income tax return deadline
- Estate tax return deadline
- Tax-exempt organization return deadline (Correct answer)
- Partnership return deadline
Correct answer: Tax-exempt organization return deadline
Form 8868 is an Application for Extension of Time To File an Exempt Organization Return, extending the due date for Forms 990, 990-EZ, 990-N, and related forms.
Tax Consulting Tax Compliance and Reporting 1
What is the penalty for failing to file a tax return on time, absent reasonable cause?