the penalty for a substantial understatement is triggered when

Expert Solution

Answer:

Sec. 6662 imposes an accuracy-related penalty equal to 20% of any underpayment of federal tax resulting from certain specified taxpayer behaviors (e.g., negligence, disregard of rules or regulations, substantial understatement of income tax, and certain valuation misstatements).

If any portion of an underpayment, as defined in section 6664(a) and any income tax imposed under subtitle A of the Code that is required to be shown on a return is attributable to a substantial understatement of such income tax, there is added to the tax an amount equal to 20 percent of such portion.

An understatement is “substantial” if it exceeds the greater of -

(i) 10 percent of the tax required to be shown on the return for the taxable year ; or

(ii) $5,000 ($10,000 in the case of a corporation other than an S corporation or a personal holding company ).

The term “understatement” means the excess of -

(i) The amount of the tax required to be shown on the return for the taxable year, over

(ii) The amount of the tax imposed which is shown on the return for the taxable year, reduced by any rebate .

ekkarill92 answered 2 years ago

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