How to waive substantial tax understatement penalty

[StoneCold]

I used turbotax to file my tax, but this is not turbotax fault.  I am just trying to figure out if I could file any forms or do anything via turbotax or in any other way to avoid substantial tax understatement penalty.

I have just received CP2000 regarding tax I owe in 2021.  I forgot to include a sale of stocks, which I used to pay for my first home, on my tax return.  Because I closed this particular investment account right after the sale and moved to my new home, I didn't receive the tax forms for the stock sale and I forgot to include it on my tax return for 2021 (other stock sales from still open accounts which sent me the tax forms, I have included).  Now I do not dispute the tax I owe or the interest, but I am trying to figure out how I can avoid paying the substantial tax understatement penalty (~$1,550).  I called the IRS and explained this, the IRS said that it's not a reasonable condition. 

I fully expect to pay the tax and interest, I am just trying to figure out how I could avoid paying the substantial tax understatement penalty, if it is possible.  If not, I will try to pay the proposed amount as soon as possible.

Thanks,

[Anonymous_ · Accepted solution]

See https://www.irs.gov/payments/underpayment-of-estimated-tax-by-individuals-penalty

We may reduce a penalty if any of the following apply:

• You or your spouse (if you file a joint return) retired in the past 2 years after reaching age 62 or became disabled and you had reasonable cause to underpay or pay your estimated tax late. See Waiver of Penalty in Instructions for Form 2210PDF.
• You had most of your income tax withheld early in the year instead of spreading it equally through the year. Complete Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and TrustsPDF.
• Your income varies during the year.

[MonikaK1]

Review your notice carefully to confirm that the penalty is only for underpayment of estimated tax (see the information provided by tagteam above) and not also an accuracy-related penalty for substantial understatement of tax. You stated that you received a CP2000 and that you left an item of income off of the tax return. The two penalties have different criteria for relief.

See here for more information from IRS about the accuracy-related penalty for substantial understatement of tax. 

Your CP2000 will have specific instructions on how to protest any of the changes proposed.

@StoneCold