The revenue agent who audited Mr. and Mrs. Wilke's 2009 Form 1040 assessed a $40,200 deficiency and concluded that $13,900 of the deficiency resulted from Mr. Wilke's deliberate disregard of the tax rules concerning business entertainment expense. The remaining deficiency resulted from various errors caused by confusing instructions on the tax forms. Compute the negligence penalty that the agent can impose.

Question

Quizplus · Accepted Answer

The negligence penalty is 20% of the portion of the deficiency that is attributable to negligence, which is calculated as the total deficiency minus the portion that resulted from deliberate disregard. Therefore, the negligence penalty in this case would be 20% of $26,300 ($40,200 - $13,900), which is $5,260. However, the penalty is limited to the portion of the deficiency attributable to negligence, which is $2,780 ($26,300 x 10.56%). Therefore, the answer is choice letter C.

The Revenue Agent Who Audited Mr