We assess an understatement penalty if you understate a substantial amount of tax on your return.
The penalty is 20% of the amount you underpaid due to the understatement.
An understatement is the difference between the amount of tax required under law and the amount of tax reported on the return.
How Penalty is Assessed
The penalty is assessed differently for C corporations and mining companies than other taxpayers.
C Corporations and Mining Companies
- The understatement exceeds the greater of $10,000 or 10% of the corrected tax liability
- For C corporations only, the understatement exceeds the lesser of 10% of the corrected tax liability (or, if greater, $10,000) or $10 million
The penalty is assessed if the understatement exceeds the greater of $5,000 or 10% of the corrected tax liability.
Reduction of Understatement Penalty
The understatement penalty may be reduced if there is either:
- Substantial authority for the tax as shown on the return
- A reasonable basis for the tax shown on the return and that basis is adequately disclosed in the return or in a statement attached to the return, including in Form TPD
These reductions are subject to exceptions as defined in Minnesota Statute 289A.60, subdivision 4.