Penalty for substantial understatement
For corporations, the understatement is considered substantial if the tax shown on your return exceeds the lesser of 10 percent (or if greater, $10,000) or $10,000,000.
What triggers the penalty for a substantial understatement?
Essentially, a substantial-understatement penalty is imposed when a taxpayer fails to report the correct amount of tax on its return and the resulting understatement exceeds a threshold amount.
What is substantial tax understatement penalty?
Substantial Understatement of Income Tax Penalty
If you claim a Section 199A Qualified Business Income Deduction on your tax return, the penalty applies if you understate your tax liability by 5% of the tax required to be shown on your return or $5,000, whichever is greater.
