Read the article in IMA's Strategic Finance July 2017 "Failure to File on Time": http://sfmagazine.com/post-entry/july-2017-taxes-failure-to-file-on-time/
Read through page 2-26 and Exhibit 2-12 "Civil Penalties Imposed for Tax Violations" on page 2-27 of the textbook.
Each student will choose one of the following three scenarios to respond to. Identify which scenario you choose (#1, #2, or #3). Your response must be two-to-three paragraphs in length. Use one-sentence excerpts from the article or exhibit, but considering the references above and all of the possible alternatives, think through what YOU would do in each scenario. Your answer CANNOT be to seek professional advice from a CPA or attorney. You must tie the article to the text materials.
#1: Last year Lloyd did not have the funds to pay his $3,000 of tax owed with his Form 1040 by April 15th, so he filed his return with the IRS but did not pay it until he saved enough money, which was June 30. He has been in this situation for the past several years, even though he ends up paying his tax before the next year's tax return deadline. After he finally paid his tax last year he received a letter from the IRS stating that he owes a penalty on the tax for the time between the due date and the date paid. What, if any, ethical dilemma is present, and what resources should the taxpayer consult (besides a tax professional)? What are Lloyd's options at this point?
#2: Last year Paula and Simon (married filing jointly) had a total tax liability of $170,000. They filed their Form 1040 on time. They paid in $150,000 during the year in estimated tax payments, but they do not have enough as of April 15th to pay the remainder. Paula was in a terrible car accident this May, and with all of the hospital time and suffering they forgot all about their tax that is due. They received a letter in June from the IRS stating that they owe a penalty on the tax that has not yet been remitted. They have always been timely filers and payers. What, if any, ethical dilemma is present, and what resources should the taxpayer consult (besides a tax professional)? What are Paula and Simon's options at this point?
#3: Last year Santhosh, a single taxpayer, had a total tax liability of $15,000, and his employer had withheld $10,000 from his paychecks throughout the year. He assumed that he did not owe any income tax since last year he only made $4,000 from a temporary part-time job, so he did not file a tax return at all. A knowledgeable and trusted friend informed him that he should file his Form 1040, but Santhosh decided that he would try to get away with not filing at all. What, if any, ethical dilemma is present, and what resources should the taxpayer consult (besides a tax professional)? What are Santhosh's options at this point?