Suppose that in year 20X1, taxpayer owes a deficiency of $11,000, a penalty of $3,000 and interest of $200. For year 20X2, taxpayer owes a deficiency of $20,000, a penalty of $5,000 and interest of $500. If taxpayer makes a payment of $12,000, without designating the category to which it applies, the $15,000 will:

 

Suppose that in year 20X1, taxpayer owes a deficiency of $50,000, a penalty of $2,000 and interest of $100. For year 20X2, taxpayer owes a deficiency of $20,000, a penalty of $5,000 and interest of $500. If taxpayer makes a payment of $21,000, without designating the category to which it applies, the $11,000 will:

 

reduce the most recent deficiency, 20X2, to $9,000.

eliminate the penalty and interest for 20X2 and reduce the 20X2 deficiency to $14,500.

 

eliminate the 20X1 deficiency and reduce the 20X1 penalty from $3,000 to $1,000.

 

 

eliminate the penalty and interest for 20X2 and reduce the deficiency from $18,000 to $15,600.

 

Answer rating: 100% (QA)

The second scenario you provided is correct Heres the breakdown Taxpayers Outstanding Liabilities Ye... View the full answer