IRS Penalty Guide
Accuracy-Related Penalty
IRC §6662
This guide explains the Accuracy-Related Penalty, how the IRS calculates it, and what relief options are available — including First Time Abate and reasonable cause.
Penalty Rate
20% of the underpayment (40% for gross valuation misstatements)
Maximum: 20% of the underpayment (40% for gross valuation misstatements)
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Relief Options for This Penalty
Reasonable Cause and Good Faith (IRC 6664(c))
Most CommonAdequate Disclosure (Form 8275 or 8275-R)
Substantial Authority for the position taken
How This Penalty Is Calculated
Example Calculation
If you understate your income by $20,000 and owe $4,400 in additional tax (22% bracket), the accuracy-related penalty is $4,400 × 20% = $880.
Most taxpayers facing the Accuracy-Related Penalty qualify for at least one relief program. Upload your notice to see which options apply to your specific situation.
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“Claimed a home office deduction that the IRS said was overstated. Got the 20% accuracy penalty on the disallowed portion. Next time I'm keeping better records.”
— Portland, OR
$39 to potentially save $1,500 in penalties. That's a 38x return.
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Frequently Asked Questions
What triggers the accuracy-related penalty?
The penalty applies for: (1) negligence or disregard of rules/regulations, (2) substantial understatement of income tax (exceeds the greater of 10% of the correct tax or $5,000), or (3) substantial or gross valuation misstatements.
Is the accuracy-related penalty eligible for First Time Abate?
No. First Time Abate only applies to failure to file, failure to pay, and failure to deposit penalties. The accuracy-related penalty requires reasonable cause or adequate disclosure for relief.
What is negligence under IRC 6662?
Negligence includes failure to make a reasonable attempt to comply with tax law, failure to keep adequate books and records, and failure to substantiate items properly.
Facing the Accuracy-Related Penalty? Check your eligibility for relief.
What qualifies as reasonable cause to avoid this penalty?
Reasonable cause factors include reliance on professional advice, complexity of the issue, efforts to assess the correct tax, taxpayer education and experience, and any circumstances that prevented compliance.
Can disclosure on the return prevent the penalty?
Yes. Adequate disclosure of a position on Form 8275 (or 8275-R for regulation-contrary positions) can avoid the negligence component if the position has a reasonable basis.
What is a substantial understatement?
A substantial understatement exists when the understatement exceeds the greater of 10% of the tax required to be shown on the return or $5,000 ($10,000 for corporations).
IRS penalties add up fast
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