Large Corporate Understatement Penalty
Revenue and Taxation Code (R&TC) Section 19138 was added by SBX1 28 (Stats. 2008, 1st Ex. Sess. 2007-2008, Ch. 1) and is effective December 19, 2008.
The penalty applies to corporations for taxable years beginning on or after January 1, 2003, where the corporation has an understatement of tax in excess of $1 million. The penalty is 20 percent of the entire amount of the understatement. The understatement is measured by the difference between the tax reported on the original return or shown on an amended return, filed on or before the extended due date, and the correct tax liability.
For the purpose of this penalty for taxable years 2003-2007, a taxpayer can file an amended return and pay the tax shown on the amended return by May 31, 2009, to treat the tax shown on this amended return as tax shown on the original return. This will increase the self-assessed tax base against which the understatement is measured to reduce the likelihood of incurring this penalty for these taxable years.
- Frequently Asked Questions
- FTB 650, Large Corporate Understatement Penalty Election in Lieu of Filing an Amended Return
- 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)
- Sacramento County Superior Court ruling (California Taxpayers' Association v. California Franchise Tax Board, et al.)
Large Corporate Understatement Penalty Hotline - 916.845.3030