OAR 150-314-0205: Substantial Understatement Penalty (SUP)

(1) The department will assess a penalty if a substantial understatement of net tax exists for any taxable year. The penalty is equal to 20 percent of the amount of any underpayment of net tax attributable to the understatement. A substantial understatement exists only if incurred on the return of the individual, corporation, or reporting entity required to file a return and pay tax. (2) Net Tax. In determining if a substantial understatement of net tax exists, net tax equals the total tax as calculated in accordance with the applicable provisions of ORS chapters 314, 315, 316, 317, and 318, reduced by nonrefundable and refundable credits. (3) Substantial Understatement of Net Tax. An understatement of net tax is substantial if the understatement exceeds the applicable threshold for the tax year, as adjusted for inflation. The department will publish the applicable threshold amount for each tax year on the department’s website. (4) Penalty. The substantial understatement penalty is equal to 20 percent of the amount of the understatement of net tax. (a) The total understatement of net tax is the amount of net tax due as determined by the department, minus: (A) Net tax as reported on the return by the taxpayer for the taxable year, (B) The tax attributable to any item for which there is or was substantial authority, and (C) The tax attributable to any item for which the relevant facts affecting the item’s tax treatment are adequately disclosed on the return or in a statement attached to the return, and there is a reasonable basis for the tax treatment of the item by the taxpayer. (b) Net tax as reported on the return is the amount of net tax reported by the taxpayer and determined before the taxpayer was first notified by the department concerning their tax liability. If the return shows no net income tax, the amount of net tax shown on the return is considered to be zero. In all cases, net tax as reported is computed without regard to: (A) Withholdings; (B) Estimated tax paid by the taxpayer; or (C) The state surplus refund pursuant to ORS 291.349. (5) The department will not impose a penalty under ORS 314.402 unless a return has been filed.