Question

Three years ago you made a error on your federal tax return by underpaying your taxes in the amount of $4,000. The IRS charges interest and penalty of 6% per year and hae found your error. Originally you owed $4,000. Now how much do you owe the IRS?
N= I/Y= PV= PMT= FV= P/Y=

Answer 1

Answer:

$4,764.064

Step-by-step explanation:

As provided:

Error amount not paid = $4,000

Interest penalty charged by IRS per year = 6%

The error was made 3 years ago, that means the penalty will be attracted for 3 years.

Note: The interest charged by tax departments are compound interest but not simple interest.

Therefore, total amount due at end of 3 years = $Principal \times ( 1 + rate\ of\ interest)^D^u^r^a^t^i^o^n$

= $4,000\ \times \ (1 + 0.06)^3$

= $4,000 $\times$ 1.191016

= $4,764.064