Assignment1[1].Penalties

Assignment1[1.Penal - PENALTIES nce glige Ne Substantial ne gligence Intentional disregard of the rules and regulations Fraud 1 Taxpayer Penalties

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1 PENALTIES Negligence Intentional disregard of the rules and regulations Substantial negligence
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2 Taxpayer Penalties Do you have authority for your position? Were you trying to cheat or were you just negligent? What penalties am I facing?
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3 Taxpayer Penalties We’re talking TAXPAYER penalties. There are also penalties on the TAX RETURN PREPARER . BE SURE AND MAKE THE DISTINCTION.
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4 Accuracy-Related Penalties Section 6662 T hree types of “accuracy related” TAXPAYER penalties How bad?
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5 Accuracy-Related Penalties § 6662 TAXPAYER penalties 1. Negligence or negligent disregard for rules & regs 2. Substantial understatement of income tax Substantial negligence 3. Substantial valuation misstatement (over or under valuation) No stacking of penalties How much?
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6 Accuracy-Related Penalties § 6662 Imposed only on taxpayers Amount: 20% of the tax underpayment due to negligence or misstatement Plus interest on the penalty if not paid in a timely basis Ouch
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7 Ouch Accuracy-Related Penalties § 6662 So you were negligent. You owe 1) the tax 2) interest on the tax 3) a penalty & maybe 4) interest on penalty!
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8 Accuracy-Related Penalties: Negligence What is negligence? Defined: Prudent man rule: fail to do what a reasonable and prudent person would do. Examples: Fail to report cash tips Fail to report income on Form 1099 Fail to substantiate T&E Protection: Not imposed if there is a reasonable basis for the position regardless of whether disclosed Arguable, but fairly unlikely to prevail in court 20% chance of succeeding
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9 Hey Diaper Dandy! I’ve got the 20%, I’ve got REASONABLE BASIS . No negligence penalty for this guy . Dipsy-doo Dunk-a-roo! Awesome baby!
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10 Accuracy-Related Penalties: Substantial Underpayment Penalty (Substantial Negligence) You really understated your tax this time! You better have substantial authority.
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11 Accuracy-Related Penalties: Substantial Underpayment Penalty (Substantial Negligence) When does the  substantial underpayment  penalty apply? Only if understatement is SUBSTANTIAL: Exceeds larger of: 10% of correct tax or $5,000 Protection: Understatement < threshold  Disclosed position needs only a reasonable basis Undisclosed position must have  substantial authority
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This note was uploaded on 06/23/2009 for the course BUPA 551 taught by Professor Susan during the Spring '09 term at IUPUI.

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Assignment1[1.Penal - PENALTIES nce glige Ne Substantial ne gligence Intentional disregard of the rules and regulations Fraud 1 Taxpayer Penalties

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