What is the amount of tax penalty

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Problem - Eggers Corporation filed an amended Form 1120, claiming an additional $400,000 deduction for payments to a contractor for a prior tax year. The amended return was based on the entity's interpretation of a Regulation that defined deductible advance payment expenditures. The nature of Eggers's activity with the contractor did not exactly fit the language of the Regulation. Nevertheless, because so much tax was at stake, Eggers's tax department decided to claim the deduction.

Eggers's tax department estimated that there was only a 15% chance that Eggers's interpretation would stand up to a Tax Court review.

Required -

a. What is the amount of tax penalty that Eggers is risking by taking this position?

b. What would be the result if there was a 45% chance that Eggers's interpretation of the Regulation was correct?

c. Construct a Microsoft Excel formula that would generate the correct answer for parts (a) and (b).

Reference no: EM132650769

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