I had the question below in my homework questions for Becker. Am I correct the explanation for this question is wrong? Because Bass paid 100% of the prior year's taxes there was no delinquency penalty, but the interest still applies. Can someone confirm or correct me?
Bass Corp., a calendar year C corporation, made qualifying Year 2 estimated tax deposits based on its actual Year 1 tax liability. On March 15, Year 3, Bass filed a timely automatic extension request for its Year 2 corporate income tax return. Estimated tax deposits and the extension payment totaled $7,600. This amount was 95% of the total tax shown on Bass' final Year 2 corporate income tax return. Bass paid $400 additional tax on the final Year 2 corporate income tax return filed before the extended due date. For the Year 2 calendar year, Bass was subject to pay:
I. Interest on the $400 tax payment made in Year 3.
II. A tax delinquency penalty.
a. Neither I nor II.
b. I only.
c. Both I and II.
d. II only.
Explanation
Choice “b” is correct. A taxpayer does not extend the time for payment of tax by extending the filing deadline for the return. If there is tax owed when the return is filed, interest must be paid at the rate prescribed by IRC §6621; therefore, Bass was subject to pay interest on the $400 tax payment made in Year 3. There is no delinquency penalty if the taxpayer files its return, pays at least 90% of the tax due by the due date, and pays the balance due on or before the extended due date (all of which Bass Corp. complied with).
Choices “d”, “c”, and “a” are incorrect, per the above discussion.
AUD 7/30/12 73; 12/2/13 85
BEC 7/19/13 81
REG 8/2/14 83
FAR - Jan 2015
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