314.402
Understatement of net tax; penalty; cost-of-living adjustment; waiver of
penalty. (1) If
the Department of Revenue determines that there is a substantial understatement
of net tax for any tax year under any law imposing a tax on or measured by net
income, there shall be added to the amount of tax required to be shown on the
return a penalty equal to 20 percent of the amount of any underpayment of tax
attributable to the understatement.
(2) A substantial
understatement of net tax exists for any tax year if the amount of the
understatement for the tax year exceeds:
(a) Except as
provided in paragraph (b) of this subsection, $2,400.
(b) In the case
of a corporation other than an S corporation, 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, $3,500.
(c)(A) For a
calendar year beginning on or after January 1, 2017, the Department of Revenue
shall make a cost-of-living adjustment to the net tax threshold amounts
described in paragraphs (a) and (b) of this subsection.
(B) The
cost-of-living adjustment for a calendar year is the percentage by which the
monthly averaged U.S. City Average Consumer Price Index for the 12 consecutive
months ending August 31 of the prior calendar year exceeds the monthly averaged
index for the period beginning September 1, 2015, and ending August 31, 2016.
(C) As used in
this paragraph, “U.S. City Average Consumer Price Index” means the U.S. City
Average Consumer Price Index for All Urban Consumers (All Items) as published
by the Bureau of Labor Statistics of the United States Department of Labor.
(D) If any
adjustment determined under subparagraph (B) of this paragraph is not a
multiple of $50, the adjustment shall be rounded to the next lower multiple of
$50.
(E) The
adjustment shall apply to all tax years beginning in the calendar year for
which the adjustment is made.
(3) In the case
of any item attributable to an abusive tax shelter:
(a) No reduction
of the amount of the understatement shall be made with regard to that item
regardless of the existence of substantial authority for the treatment of the
item by the taxpayer.
(b) No reduction
of the amount of the understatement shall be made with regard to that item
regardless of the disclosure of the facts affecting the tax treatment of the
item unless, in addition to the disclosure, the taxpayer reasonably believed
that the tax treatment of the item was more likely than not the proper
treatment.
(4) As used in
this section:
(a) “Abusive tax
shelter” means any partnership, corporation or other organization or entity,
any investment plan or arrangement or any other plan or arrangement, which has
as its principal purpose the evasion or improper avoidance of federal or state
income tax. “Abusive tax shelter” includes any investment or activity in
connection with which tax benefits derived by investors are not clearly
intended under the tax laws or any investment or activity that involves little
or no economic reality, making use of unrealistic allocations of income or
expenses, inflated appraisals of asset values, losses substantially in excess
of investment, mismatching of income and expenses, financing techniques that do
not conform to standard commercial business practice or mischaracterization of
the substance of the investment or activity.
(b) “Understatement”
means the excess of the amount of the net tax required to be shown on the
return for the tax year over the amount of the net tax shown on the return,
reduced by any portion of the understatement that is attributable to:
(A) The tax
treatment of any item by the taxpayer if there is or was substantial authority
for such treatment; or
(B) Any item with
respect to which:
(i) The relevant
facts affecting the item’s tax treatment are adequately disclosed in the return
or in a statement attached to the return; and
(ii) There is a
reasonable basis for the tax treatment of the item by the taxpayer.
(5) The penalty
imposed under this section is in addition to any other penalty imposed by law.
A penalty imposed under this section shall be treated for all purposes as an
additional deficiency subject to the provisions of ORS 305.265, but shall not
bear interest.
(6) The
department may waive all or any part of the penalty imposed under this section
on a showing by the taxpayer that there was reasonable cause for the
understatement, or any portion thereof, and that the taxpayer acted in good
faith. [1987 c.843 §9; 1995 c.556 §25a; 2015 c.32 §1]
Notes of Decisions
Routledge v. Dept. of Rev., 24 Or. Tax 103 (Or. T.C. 2020).
· cites it 7× “Penalties and Attorney Fees The court now turns to the various additional amounts that Defendant claims against Plaintiff: the pen- alties for substantial understatement of tax (ORS 314.402), intent to evade tax (ORS 314.”
Santa Fe Nat. Tabacco Co. v. Dept. of Rev., 25 Or. Tax 124 (Or. T.C. 2022).
· cites it 16× “” The department audited taxpayer’s returns, concluded that PL 86-272 did not protect taxpayer, and after an administrative confer- ence, issued notices of assessment of tax and interest, as well as penalties for substantial understatement of tax- able income (ORS 314.402) and…”
Hillenga v. Dept. of Rev., 21 Or. Tax 396 (Or. T.C. 2014).
· cites it 2× “Penalties The department imposed three separate penalties on taxpayers’ 2006 return: a 20 percent penalty provided for under ORS 314.402 for substantial understatement of tax- able income (SUI); a 25 percent penalty for noncompliance with the terms of the tax amnesty provided…”
Ormsby v. Dep't of Revenue, 18 Or. Tax 146 (Or. T.C. 2004).
· cites it 2× “As to penalties, ORS 314.402(1) states that, “If the [department] determines that there is a substantial understatement of taxable income for any taxable year under any law imposing a tax on or measured by net income, there shall be added to the amount of tax required to be…”
DeGroat v. Dept. of Rev., 23 Or. Tax 254 (Or. T.C. 2019).
· cites it 2× “ORS 314.402(1). The department is then required to add the penalty amount to the total amount of tax the taxpayer is required to pay for that year.”
Clark v. Dept. of Rev. (Or. T.C. 2021).
· cites it 36× “) For the 2016 tax year, Plaintiffs used TurboTax to prepare and file their tax returns.”
Fisher Broad. Co. v. Dept. of Rev., 22 Or. Tax 69 (Or. T.C. 2015).
· cites it 2× “ISSUES There are two issues for decision in this case: (1) Is apportioned taxation by Oregon of the gain on the disposition of the Safeco stock consistent with Oregon law and the limitations on state taxation found in the Constitution of the United States? (2) Is taxpayer liable…”
Ooma, Inc. v. Dept. of Rev., 24 Or. Tax 48 (Or. T.C. 2020).
“ORS 314.402(4)(b)(A) - (B) (reducing “substan- tial underpayment” penalty if underpayment was based on “substantial authority,” or had “reasonable basis” and was “adequately disclosed”).”
Santa Fe Nat. Tobacco Co. v. Dept. of Rev. (Or. T.C. 2019).
· cites it 7× “Additional issues briefed are: (1) Whether the department properly imposed the substantial understatement of income penalty under ORS 314.402; (2) If so, whether the department improperly declined to waive that penalty; and (3) Whether the department’s Notices and Demands for…”
Dept. of Rev. v. Wakefield (Or. T.C. 2023).
· cites it 7× “Taxpayer filed a timely 2015 Oregon personal income tax return on or about April 12, 2016. (See Ptf’s Decl of Lawson at 1, ¶ 2.”
Moffitt v. Dept. of Rev. (Or. T.C. 2016).
· cites it 6× “Penalties Imposed by Defendant Defendant imposed a 20 percent substantial understatement of taxable income penalty under ORS 314.402; a 100 percent intent to evade penalty under ORS 305.”
Gossack v. Dept. of Rev. (Or. T.C. 2015).
· cites it 9× “) Defendant responded by requesting additional penalties, including a “20% Substantial Understatement Penalty (ORS 314.402), 100% Intent to Evade Penalty (ORS 314.”
— Or. Rev. Stat. § 314.402(1) — 14 cases
Santa Fe Nat. Tabacco Co. v. Dept. of Rev., 25 Or. Tax 124 (Or. T.C. 2022).
“” The department audited taxpayer’s returns, concluded that PL 86-272 did not protect taxpayer, and after an administrative confer- ence, issued notices of assessment of tax and interest, as well as penalties for substantial understatement of tax- able income (ORS 314.402) and…”
Routledge v. Dept. of Rev., 24 Or. Tax 103 (Or. T.C. 2020).
“Penalties and Attorney Fees The court now turns to the various additional amounts that Defendant claims against Plaintiff: the pen- alties for substantial understatement of tax (ORS 314.402), intent to evade tax (ORS 314.”
Ormsby v. Dep't of Revenue, 18 Or. Tax 146 (Or. T.C. 2004).
“As to penalties, ORS 314.402(1) states that, “If the [department] determines that there is a substantial understatement of taxable income for any taxable year under any law imposing a tax on or measured by net income, there shall be added to the amount of tax required to be…”
DeGroat v. Dept. of Rev., 23 Or. Tax 254 (Or. T.C. 2019).
“ORS 314.402(1). The department is then required to add the penalty amount to the total amount of tax the taxpayer is required to pay for that year.”
— Or. Rev. Stat. § 314.402(2) — 3 cases
Routledge v. Dept. of Rev., 24 Or. Tax 103 (Or. T.C. 2020).
“Penalties and Attorney Fees The court now turns to the various additional amounts that Defendant claims against Plaintiff: the pen- alties for substantial understatement of tax (ORS 314.402), intent to evade tax (ORS 314.”
Ormsby v. Dep't of Revenue, 18 Or. Tax 146 (Or. T.C. 2004).
“As to penalties, ORS 314.402(1) states that, “If the [department] determines that there is a substantial understatement of taxable income for any taxable year under any law imposing a tax on or measured by net income, there shall be added to the amount of tax required to be…”
Santa Fe Nat. Tabacco Co. v. Dept. of Rev., 25 Or. Tax 124 (Or. T.C. 2022).
“” The department audited taxpayer’s returns, concluded that PL 86-272 did not protect taxpayer, and after an administrative confer- ence, issued notices of assessment of tax and interest, as well as penalties for substantial understatement of tax- able income (ORS 314.402) and…”
— Or. Rev. Stat. § 314.402(2)(a) — 10 cases
Hillenga v. Dept. of Rev., 21 Or. Tax 396 (Or. T.C. 2014).
“Penalties The department imposed three separate penalties on taxpayers’ 2006 return: a 20 percent penalty provided for under ORS 314.402 for substantial understatement of tax- able income (SUI); a 25 percent penalty for noncompliance with the terms of the tax amnesty provided…”
DeGroat v. Dept. of Rev., 23 Or. Tax 254 (Or. T.C. 2019).
“ORS 314.402(1). The department is then required to add the penalty amount to the total amount of tax the taxpayer is required to pay for that year.”
Moffitt v. Dept. of Rev. (Or. T.C. 2016).
“Penalties Imposed by Defendant Defendant imposed a 20 percent substantial understatement of taxable income penalty under ORS 314.402; a 100 percent intent to evade penalty under ORS 305.”
Clark v. Dept. of Rev. (Or. T.C. 2021).
“) For the 2016 tax year, Plaintiffs used TurboTax to prepare and file their tax returns.”
— Or. Rev. Stat. § 314.402(2)(b) — 1 case
Santa Fe Nat. Tobacco Co. v. Dept. of Rev. (Or. T.C. 2019).
“Additional issues briefed are: (1) Whether the department properly imposed the substantial understatement of income penalty under ORS 314.402; (2) If so, whether the department improperly declined to waive that penalty; and (3) Whether the department’s Notices and Demands for…”
— Or. Rev. Stat. § 314.402(4)(b) — 8 cases
Routledge v. Dept. of Rev., 24 Or. Tax 103 (Or. T.C. 2020).
“Penalties and Attorney Fees The court now turns to the various additional amounts that Defendant claims against Plaintiff: the pen- alties for substantial understatement of tax (ORS 314.402), intent to evade tax (ORS 314.”
Santa Fe Nat. Tobacco Co. v. Dept. of Rev. (Or. T.C. 2019).
“Additional issues briefed are: (1) Whether the department properly imposed the substantial understatement of income penalty under ORS 314.402; (2) If so, whether the department improperly declined to waive that penalty; and (3) Whether the department’s Notices and Demands for…”
— Or. Rev. Stat. § 314.402(4)(b)(A) — 3 cases
Santa Fe Nat. Tabacco Co. v. Dept. of Rev., 25 Or. Tax 124 (Or. T.C. 2022).
“” The department audited taxpayer’s returns, concluded that PL 86-272 did not protect taxpayer, and after an administrative confer- ence, issued notices of assessment of tax and interest, as well as penalties for substantial understatement of tax- able income (ORS 314.402) and…”
Ooma, Inc. v. Dept. of Rev., 24 Or. Tax 48 (Or. T.C. 2020).
“ORS 314.402(4)(b)(A) - (B) (reducing “substan- tial underpayment” penalty if underpayment was based on “substantial authority,” or had “reasonable basis” and was “adequately disclosed”).”
— Or. Rev. Stat. § 314.402(4)(b)(B) — 1 case
Santa Fe Nat. Tabacco Co. v. Dept. of Rev., 25 Or. Tax 124 (Or. T.C. 2022).
“” The department audited taxpayer’s returns, concluded that PL 86-272 did not protect taxpayer, and after an administrative confer- ence, issued notices of assessment of tax and interest, as well as penalties for substantial understatement of tax- able income (ORS 314.402) and…”
— Or. Rev. Stat. § 314.402(4)(b)(B)(ii) — 1 case
Santa Fe Nat. Tabacco Co. v. Dept. of Rev., 25 Or. Tax 124 (Or. T.C. 2022).
“” The department audited taxpayer’s returns, concluded that PL 86-272 did not protect taxpayer, and after an administrative confer- ence, issued notices of assessment of tax and interest, as well as penalties for substantial understatement of tax- able income (ORS 314.402) and…”
— Or. Rev. Stat. § 314.402(5) — 1 case
Clark v. Dept. of Rev. (Or. T.C. 2021).
“) For the 2016 tax year, Plaintiffs used TurboTax to prepare and file their tax returns.”
— Or. Rev. Stat. § 314.402(6) — 17 cases
Santa Fe Nat. Tabacco Co. v. Dept. of Rev., 25 Or. Tax 124 (Or. T.C. 2022).
“” The department audited taxpayer’s returns, concluded that PL 86-272 did not protect taxpayer, and after an administrative confer- ence, issued notices of assessment of tax and interest, as well as penalties for substantial understatement of tax- able income (ORS 314.402) and…”
Clark v. Dept. of Rev. (Or. T.C. 2021).
“) For the 2016 tax year, Plaintiffs used TurboTax to prepare and file their tax returns.”
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