An accuracy tax penalty is considered a substantial understatement penalty
Accuracy-related penalties are a collection of different penalties. The two most common are the “substantial understatement” penalty and the “negligence and disregard of the rules and regulations” penalty.
Substantial Understatement Penalty
Substantial understatement penalties are calculated as a flat 20% of the net understatement of tax. The accuracy-related penalties may usually be avoided by providing adequate disclosures on the tax return, ensuring that the positions taken on one’s tax return are defensible, or by showing that they acted with in good faith.
