On August 13 of the Following Year, Joy Files Her

question 54

Essay

On August 13 of the following year, Joy files her current calendar-year tax return and pays the amount due without having requested an extension. The tax shown on her return is $25,000. Her current-year withholding tax is $15,000. Joy pays no estimated taxes and does not claim any tax credits on her current-year return. Calculate the penalties that the IRS is likely to assess. Ignore the penalty for underpayment of estimated taxes. Assume she did not commit fraud.

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Definitions:

Treasury Securities

Debt instruments issued by the government to finance its expenditures, considered low-risk investments.

On the Run

Refers to the most recently issued (and therefore typically the most liquid) government bonds or securities.

Forward Rate

An agreed-upon rate for a financial transaction that will occur at a future date.

Annual Coupon Bond

A bond that pays interest to the holder annually until maturity, when the face value is also paid back.