This section also provides rules for allocating unclaimed prepayment credits to adjustments to a return.
Adjustment #1 (No penalty imposed) | $1,000 | |
Adjustment #2 (Substantial understatement penalty imposed) | 40,000 | |
Adjustment #3 (Civil fraud penalty imposed) | 45,000 | |
Total adjustments | $86,000 | |
Taxable income shown on return | 15,800 | |
Taxable income as corrected | $101,800 | |
Computation of underpayment: | ||
Tax imposed by subtitle A | $25,828 | |
Tax shown on return | $2,374 | |
Previous assessments | None | |
Rebates | None | |
Balance | $2,374 | |
Underpayment | $23,454 |
Computation of the portions of the underpayment on which penalties under section 6662(b)(2) and section 6663 are imposed:
Step 1 Determine the portion, if any, of the underpayment on which no accuracy-related or fraud penalty is imposed:
Taxable income shown on return | $15,800 |
Adjustment #1 | 1,000 |
"Adjusted" taxable income | $16,800 |
Tax on "adjusted" taxable income | $2,524 |
Tax shown on return | 2,374 |
Portion of underpayment on which no penalty is imposed | $150 |
Step 2 Determine the portion, if any, of the underpayment on which a penalty of 20 percent is imposed:
"Adjusted" taxable income from step 1 | $16,800 |
Adjustment #2 | 40,000 |
"Adjusted" taxable income | 56,800 |
Tax on "adjusted" taxable income | $11,880 |
Tax on "adjusted" taxable income from step 1 | $2,524 |
Portion of underpayment on which 20 percent penalty is imposed | $9,356 |
Step 3 Determine the portion, if any, of the underpayment on which a penalty of 75 percent is imposed:
Total underpayment | $23,454 | |
Less the sum of the portions of such underpayment determined in: | ||
Step 1 | $150 | |
Step 2 | 9,356 | |
Total | $9,506 | |
Portion of underpayment on which 75 percent penalty is imposed | $13,948 |
26 C.F.R. §1.6664-3