The revenue agent who audited Ms. Hsui’s Form 1040 discovered that she had claimed a $15,250 deduction that wasn’t allowed by the tax law. The improper deduction reduced Ms. Hsui’s tax by $5,033. Her total tax deficiency for the year under audit was $6,490.
a. Compute the penalty that the agent can impose if he concludes that the improper deduction was due to Ms. Hsui’s negligence in preparing her tax return.
b. Compute the penalty that the agent can impose if he concludes that the improper deduction represented Ms. Hsui’s deliberate attempt to cheat the government by underpaying her tax.