48.6 Tax Penalties for Inaccurate Returns

A 20% “accuracy-related” penalty generally applies to the portion of any tax underpayment attributable to any of the following: (1) negligence or disregard of IRS rules and regulations; (2) substantial understatement of tax liability; (3) overvaluation of property; or (4) undervaluation of property on a gift tax or estate tax return. There is no stacking of penalties. Only one 20% penalty can be imposed on a portion of an underpayment, even if that portion is attributable to more than one of the above types of prohibited conduct. These penalties may be avoided by showing that you acted in good faith and with reasonable cause in underpaying the tax. Reliance on a tax preparer may constitute reasonable cause and good faith, but the reliance on the preparer must be reasonable. The Tax Court has held that reliance on a preparer is not reasonable if the taxpayer does not provide the preparer with the documents necessary to make a professional conclusion, or if the preparer lacks sufficient expertise to justify reliance. A stricter reasonable cause exception applies to the penalty for overvaluing charitable donations, discussed below.

There is a 40% penalty for an underpayment of tax that is attributable to an undisclosed foreign financial asset.

Penalties apply to taxpayers who fail to disclose participation in “reportable” transactions and to taxpayers who understate tax liability on “listed” transactions or on other reportable transactions ...

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