definition of tax in IRC 6662

Discussion in 'Tax' started by removeps-groups@yahoo.com, Feb 20, 2012.

  1. Guest

    Suppose you forget to report a W-2, 1099-MISC, 1099-R, etc that has
    federal tax withheld. The IRS imposes the IRC 6662 penalty.

    BEGIN QUOTE

    (a) Imposition of penalty
    If this section applies to any portion of an underpayment of tax
    required to be shown on a return, there shall be added to the tax an
    amount equal to 20 percent of the portion of the underpayment to which
    this section applies.

    END QUOTE

    >From what I saw on a friend, it looks like the IRS is imposing a

    penalty 20% of the increase in tax, but they didn't consider the
    federal tax withheld, or the itemized deduction from state tax
    withheld. In other words, the income of the missing form results in
    an increase of the tax of say $10,000 (because income is higher so tax
    is naturally higher, but credits etc are phased out more too because
    of increased AGI). It looks like the penalty is then $2,000. However
    the form also had federal and state tax withheld. In fact, if 10k
    federal were withheld then I think the penalty should be 20% of $0 or
    $0 -- and after you consider deduction for state taxes paid the
    federal tax is lowered further.

    So who's right?

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    , Feb 20, 2012
    #1
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