Which statement correctly states the Grounds for compromise and the applicable minimum percentages of the basic tax due?

• A. Doubtful validity of the assessment (40%) and financial incapacity (10%)
• B. Financial incapacity (10%) and questionable merit
• C. Doubtful validity of the assessment (30%) and financial incapacity (20%)
• D. Doubtful validity of the assessment (40%) and financial incapacity (10%)

Answer: (C)

The idea being tested is how the tax authority can settle a deficiency by compromise when certain conditions apply. There are two recognized grounds: doubtful validity of the assessment and financial incapacity to pay the full amount. For doubtful validity, the minimum you can pay as part of a compromise is 30% of the basic tax due. For financial incapacity, the minimum is 20% of the basic tax due. The term “basic tax due” means the tax itself before any interest or penalties. So the correct statement pairs these grounds with their respective minimum percentages: doubtful validity at 30% and financial incapacity at 20%. The other options mix in incorrect percentages.