Cases: Stanford v. Commissioner, 152 F.3d 450 (5th Cir. 1998)
Forms: Form W-2; Form 1040; Form 8886
Final rules 5
(a) Underpayment For purposes of this part, the term “underpayment” means the amount by which any tax imposed by this title exceeds the excess of—
Amended 2015
- 2015 Pub. L. 114-113 Pub. L. 114–113 inserted at end “A rule similar to the rule of section 6211(b)(4) shall apply for purposes of this subsection.”
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(1) the sum of—
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(A) the amount shown as the tax by the taxpayer on his return, plus
(B) amounts not so shown previously assessed (or collected without assessment), over
(2) the amount of rebates made.
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For purposes of paragraph (2), the term “rebate” means so much of an abatement, credit, refund, or other repayment, as was made on the ground that the tax imposed was less than the excess of the amount specified in paragraph (1) over the rebates previously made. A rule similar to the rule of section 6211(b)(4) shall apply for purposes of this subsection.
(b) Penalties applicable only where return filed The penalties provided in this part shall apply only in cases where a return of tax is filed (other than a return prepared by the Secretary under the authority of section 6020(b)).
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(c) Reasonable cause exception for underpayments
Amended 2004
- 2004 Pub. L. 108-357 Pub. L. 108–357, § 812(c)(2)(B), inserted “for underpayments” after “exception” in heading.
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(1) In general No penalty shall be imposed under section 6662 or 6663 with respect to any portion of an underpayment if it is shown that there was a reasonable cause for such portion and that the taxpayer acted in good faith with respect to such portion.
Amended 2004
- 2004 Pub. L. 108-357 Pub. L. 108–357, § 812(c)(2)(A), substituted “section 6662 or 6663” for “this part”.
Cases: American Boat Co., LLC v. United States, 583 F.3d 471 (7th Cir. 2009)
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(2) Exception Paragraph (1) shall not apply to any portion of an underpayment which is attributable to one or more transactions described in section 6662(b)(6) or to any disallowance of a deduction described in section 6662(b)(10).
Amended 2006, 2010, 2022
- 2022 Pub. L. 117-328 Pub. L. 117–328 inserted “or to any disallowance of a deduction described in section 6662(b)(10)” before period at end.
- 2010 Pub. L. 111-152 Pub. L. 111–152, § 1409(c)(1)(A), (C), added par. (2) and redesignated former pars. (2) and (3) as (3) and (4), respectively. See Codification note above.
- 2006 Pub. L. 109-280 Pub. L. 109–280, § 1219(a)(3), substituted “paragraph (1) shall not apply. The preceding sentence shall not apply to a substantial valuation overstatement under chapter 1 if—” for “paragraph (1) shall not apply unless—” in introductory provisions. See Codification note above.
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(3) Special rule for certain valuation overstatements In the case of any underpayment attributable to a substantial or gross valuation overstatement under chapter 1 with respect to charitable deduction property, paragraph (1) shall not apply. The preceding sentence shall not apply to a substantial valuation overstatement under chapter 1 if—
Amended 2006, 2010
- 2010 Pub. L. 111-152 Pub. L. 111–152, § 1409(c)(1)(A), (C), added par. (2) and redesignated former pars. (2) and (3) as (3) and (4), respectively. See Codification note above.
- 2006 Pub. L. 109-280 Pub. L. 109–280, § 1219(c)(2), amended subpars. (B) and (C) generally. Prior to amendment, subpars. (B) and (C) read as follows:
- 2006 “(B) Qualified appraiser.—The term ‘qualified appraiser’ means any appraiser meeting the requirements of the regulations prescribed under section 170(a)(1).
- 2006 “(C) Qualified appraisal.—The term ‘qualified appraisal’ means any appraisal meeting the requirements of the regulations prescribed under section 170(a)(1).”
See Codification note above.
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(A) the claimed value of the property was based on a qualified appraisal made by a qualified appraiser, and
(B) in addition to obtaining such appraisal, the taxpayer made a good faith investigation of the value of the contributed property.
Amended 2006
- 2006 Pub. L. 109-280 Pub. L. 109–280, § 1219(c)(2), amended subpars. (B) and (C) generally. Prior to amendment, subpars. (B) and (C) read as follows:
- 2006 “(B) Qualified appraiser.—The term ‘qualified appraiser’ means any appraiser meeting the requirements of the regulations prescribed under section 170(a)(1).
- 2006 “(C) Qualified appraisal.—The term ‘qualified appraisal’ means any appraisal meeting the requirements of the regulations prescribed under section 170(a)(1).”
See Codification note above.
(4) Definitions For purposes of this subsection—
Amended 2010
- 2010 Pub. L. 111-152 Pub. L. 111–152, § 1409(c)(1)(A), (C), added par. (2) and redesignated former pars. (2) and (3) as (3) and (4), respectively. See Codification note above.
(A) Charitable deduction property The term “charitable deduction property” means any property contributed by the taxpayer in a contribution for which a deduction was claimed under section 170. For purposes of paragraph (3), such term shall not include any securities for which (as of the date of the contribution) market quotations are readily available on an established securities market.
Amended 2010
- 2010 Pub. L. 111-152 Pub. L. 111–152, § 1409(c)(1)(B), substituted “paragraph (3)” for “paragraph (2)”. See Codification note above.
(B) Qualified appraisal The term “qualified appraisal” has the meaning given such term by section 170(f)(11)(E)(i).
(C) Qualified appraiser The term “qualified appraiser” has the meaning given such term by section 170(f)(11)(E)(ii).
(d) Reasonable cause exception for reportable transaction understatements
Amended 2004
- 2004 Pub. L. 108-357 Pub. L. 108–357, § 812(c)(1), added subsec. (d).
(1) In general No penalty shall be imposed under section 6662A with respect to any portion of a reportable transaction understatement if it is shown that there was a reasonable cause for such portion and that the taxpayer acted in good faith with respect to such portion.
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(2) Exception Paragraph (1) shall not apply to any portion of a reportable transaction understatement which is attributable to one or more transactions described in section 6662(b)(6).
Amended 2010
- 2010 Pub. L. 111-152 Pub. L. 111–152, § 1409(c)(2)(A), (C), added par. (2) and redesignated former par. (2) as (3). Former par. (3) redesignated (4). See Codification note above.
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(3) Special rules Paragraph (1) shall not apply to any reportable transaction understatement unless—
(A) the relevant facts affecting the tax treatment of the item are adequately disclosed in accordance with the regulations prescribed under section 6011,
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(B) there is or was substantial authority for such treatment, and
“Substantial” implies facts and circumstances. No regulation cites this provision (eCFR, Oct 19, 2026)
(C) the taxpayer reasonably believed that such treatment was more likely than not the proper treatment.
“Reasonably” implies facts and circumstances. No regulation cites this provision (eCFR, Oct 19, 2026)
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A taxpayer failing to adequately disclose in accordance with section 6011 shall be treated as meeting the requirements of subparagraph (A) if the penalty for such failure was rescinded under section 6707A(d).
Amended 2010
- 2010 Pub. L. 111-152 Pub. L. 111–152, § 1409(c)(2)(A), (C), added par. (2) and redesignated former par. (2) as (3). Former par. (3) redesignated (4). See Codification note above.
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(4) Rules relating to reasonable belief For purposes of paragraph (3)(C)—
Amended 2010
- 2010 Pub. L. 111-152 Pub. L. 111–152, § 1409(c)(2)(B), substituted “paragraph (3)(C)” for “paragraph (2)(C)” in introductory provisions. See Codification note above.
- 2010 Pub. L. 111-152 Pub. L. 111–152, § 1409(c)(2)(A), redesignated par. (3) as (4). See Codification note above.
(A) In general A taxpayer shall be treated as having a reasonable belief with respect to the tax treatment of an item only if such belief—
(i) is based on the facts and law that exist at the time the return of tax which includes such tax treatment is filed, and
(ii) relates solely to the taxpayer’s chances of success on the merits of such treatment and does not take into account the possibility that a return will not be audited, such treatment will not be raised on audit, or such treatment will be resolved through settlement if it is raised.
(B) Certain opinions may not be relied upon
(i) In general An opinion of a tax advisor may not be relied upon to establish the reasonable belief of a taxpayer if—
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(I) the tax advisor is described in clause (ii), or
(II) the opinion is described in clause (iii).
(ii) Disqualified tax advisors A tax advisor is described in this clause if the tax advisor—
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(I) is a material advisor (within the meaning of section 6111(b)(1)) and participates in the organization, management, promotion, or sale of the transaction or is related (within the meaning of section 267(b) or 707(b)(1)) to any person who so participates,
(II) is compensated directly or indirectly by a material advisor with respect to the transaction,
(III) has a fee arrangement with respect to the transaction which is contingent on all or part of the intended tax benefits from the transaction being sustained, or
(IV) as determined under regulations prescribed by the Secretary, has a disqualifying financial interest with respect to the transaction.
(iii) Disqualified opinions For purposes of clause (i), an opinion is disqualified if the opinion—
(I) is based on unreasonable factual or legal assumptions (including assumptions as to future events),
(II) unreasonably relies on representations, statements, findings, or agreements of the taxpayer or any other person,
(III) does not identify and consider all relevant facts, or
(IV) fails to meet any other requirement as the Secretary may prescribe.
“As the Secretary may prescribe” leaves this to Treasury. No regulation cites this provision (eCFR, Oct 19, 2026)