Oregon Department of Revenue

Rule Rule 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 $3,750 for corporations (other than S corporations, as defined in section 1361 of the Internal Revenue Code, or a personal holding company, as defined in section 542 of the Internal Revenue Code), or exceeds $2,550 for individuals and all other taxable entities.
(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 (Revenue estimate).
(5) The department will not impose a penalty under ORS 314.402 (Understatement of net tax) unless a return has been filed.
(6) The following table shows threshold amounts used by the department to compute the substantial understatement penalty.
Source

Last accessed
Jun. 8, 2021