§6664 Definitions and special rules

Summary

Sets rules for when you owe extra tax and when penalties apply. An "underpayment" is the extra tax you owe after you count the tax shown on your return plus any amounts later assessed or collected, and then subtract any refunds. Penalties only apply when a tax return is actually filed (not when the IRS files one for you under section 6020(b)). You won’t be hit with the penalties in sections 6662 or 6663 for part of an underpayment if you had a reasonable cause and acted in good faith. That relief does not apply if the underpayment comes from certain transactions (see 6662(b)(6)) or from specific disallowed deductions (see 6662(b)(10)). Also, if the problem is a big overstatement of value for a charitable deduction, you still can avoid the penalty only if the claimed value was based on a qualified appraisal by a qualified appraiser and you did a good-faith check of the value. Definitions: "underpayment" — how much extra tax is owed; "charitable deduction property" — property given to charity for which a deduction was claimed; "qualified appraisal" and "qualified appraiser" — as defined under section 170. Similar rules apply to penalties under section 6662A for reportable-transaction understatements. You can avoid that penalty for part of an understatement if you had reasonable cause and acted in good faith, except for transactions covered by 6662(b)(6). To avoid the 6662A penalty you must also properly disclose the facts under rules for reporting (section 6011), have substantial legal authority for the tax treatment, and reasonably believe the treatment was more likely than not correct. A reasonable belief must be based on the facts and law when you file and must be about the legal merits only, not about the chance of being audited. You generally cannot rely on a tax advisor’s written opinion to prove your belief if the advisor helped promote or sell the transaction, is paid by a promoter, has a fee tied to the tax benefit, or has a disqualifying financial interest. An opinion is also disqualified if it uses unreasonable assumptions, unreasonably relies on others’ statements, overlooks relevant facts, or fails other requirements set by the Secretary.