The Internal Revenue Service Determined That Covington Ltd

question 44

Multiple Choice

The Internal Revenue Service determined that Covington Ltd. should have been using a transfer price of $400 for the purchase of goods from its U.S. subsidiary but had set the price at $50. What is the rate of penalty that the IRS can impose on the taxpayer?

• A) 10% of the amount of taxes underpaid
• B) 20% of the amount of taxes underpaid
• C) 40% of the amount of taxes underpaid
• D) 100% of the amount of taxes underpaid

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Definitions:

Gratuitous

Provided without requiring anything in return; given freely or without charge.

Service

The provision of assistance or professional work performed for another person or organization.

Quantum Meruit

A legal principle meaning "as much as he has deserved," used to determine the amount of compensation due for services provided when there is no existing contract.

Service

The action or process of serving or providing assistance to others, often in the context of customers or clients.