A taxpayer can avoid an underpayment penalty if there is substantial authority that supports her tax return position.

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According to the IRS, a taxpayer may avoid an underpayment penalty if she has substantial authority supporting her tax return position. Substantial authority means that the position taken on the tax return is supported by the law, Treasury regulations, court cases, and other IRS rulings. However, if the taxpayer does not have substantial authority, then she may still avoid the penalty if she has reasonable cause for her position and acted in good faith.

A Taxpayer Can Avoid an Underpayment Penalty If There Is