What is Accuracy-related penalty?
In short
The accuracy-related penalty is 20% of an underpayment of tax caused by negligence, a substantial understatement of income tax or a substantial valuation misstatement. It rises to 40% for gross valuation misstatements.
Key takeaways
- For individuals, an understatement is substantial if it exceeds the greater of 10% of the correct tax or $5,000.
- It can be avoided for positions with substantial authority, or with a reasonable basis and adequate disclosure.
- Reasonable cause and good faith are also a defense.
Where it's tested
REG: Federal Tax Procedures & Penalties — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A taxpayer's prior-year AGI was $250,000 with a tax liability of $50,000. To avoid an underpayment penalty for the current year using the prior-year safe harbor, how much must the taxpayer pay in through withholding and estimates?