If a taxpayer shows negligence in their filing, what type of penalty applies?

When a taxpayer demonstrates negligence in their filing, the appropriate penalty that applies is a percentage of the underpayment that results from that negligence. In this context, negligence refers to a failure to make a reasonable effort to comply with tax laws, which can include underreporting income or claiming deductions without proper basis.

The penalty amount for negligence is set at 20% of the underpayment. This provision aims to encourage accurate reporting and compliance with tax obligations, as negligence can lead to significant discrepancies in tax owed. The determination of negligence involves looking at how a reasonable person would have acted in the same circumstances, and failing to uphold that standard can result in the penalty being levied.

This understanding emphasizes the importance of due diligence in tax preparation and reporting, ensuring that taxpayers take care to adhere to tax laws and guidelines to avoid such penalties.