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The penalty for a substantial understatement is triggered when ____

A. The taxpayer understates their tax by the larger if $5,000 or 10% of the correct tax,

B. The taxpayer shows negligence or disregard of the rules of regulations, causing an underpayment,

C. The taxpayer fails to pay the tax owed by the due date,

D. The taxpayer fails to file the return by the due date, including extentions, and there is a balance due.

Respuesta :

Answer:

The correct answer is A

Explanation:

A substantial understatement may occur when tax return is understated by an amount greater than 10% of the tax required to be shown on the tax return.

Example: If a tax payer that is suppose to report a $6000 tax due and choose to report a $2000 instead, to know if a penalty will be charged or not it has to be greater than 10% of the amount which is suppose to be reported (i.e $6000 x 10% = 600) . therefore in the case shown above the penalty will be applied

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