Large Corporate Understatement Penalty
Revenue and Taxation Code (R&TC) Section 19138 authorizes the Large Corporate Understatement Penalty (LCUP).
- Senate Bill (SB) X1 28 (Stats. 2008, 1st Ex. Sess. 2007-2008, Ch. 1), effective December 19, 2008, added it.
- SB 858 (Stats. 2010, Ch. 721), effective October 19, 2010, amended it.
- AB 154 (Stats. 2015, Ch. 359), effective September 30, 2015, amended it.
For taxable years that begin on or after January 1, 2003, the LCUP applies to corporations with an understatement of tax in excess of $1 million.
For taxable years that begin on or after January 1, 2010, the LCUP applies to corporations with an understatement of tax that exceeds the greater of $1 million or 20 percent of the tax reported on an original return or on an amended return filed on or before the original or extended due date of the return for the taxable year.
The penalty is 20 percent of the entire understatement amount. We measure the understatement as the difference between the correct tax and tax the corporation reports on the original or amended return, filed on or before the original or extended due date. For taxable years that begin on or after January 1, 2015, the amount of additional tax shown on the first amended return reflecting a proper election under Section 338 of the Internal Revenue Code, relating to certain stock purchases treated as asset acquisitions, is treated as if included in the amount of tax shown on an original return for measuring the understatement as well as the 20 percent threshold.
- Frequently Asked Questions
- FTB Notice 2009-3, Large Corporate Understatement Penalty -- Payments and Amended Returns for the 2003-2007 Taxable Years
- Interested Parties Meeting (December 5, 2008)
- Interested Parties Meeting (March 23, 2009)
Large Corporate Understatement Penalty Hotline - 916.845.3030
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