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State of California Franchise Tax Board

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.


Contact information

Large Corporate Understatement Penalty Hotline - 916.845.3030

Chat with an FTB Representative