The IRS determined that Ernie Bledsoe underpaid his 2018 income tax by $11,200. Ernie's Form 1040 for that year reported an income tax liability of $31,800, so his correct 2018 income tax was $43,000 ($11,200 deficiency + $31,800 reported tax). Compute Ernie's penalty for a substantial understatement of income tax.

Question

Quizplus · Accepted Answer

The penalty for a substantial understatement of income tax is 20% of the underpayment. The underpayment is $11,200, so the penalty is 20% of $11,200, which is $2,240.

The IRS Determined That Ernie Bledsoe Underpaid His 2018 Income