there may no penalties when the sale is reported in 2020. TP understated cost so depreciation was understated in prior years. since the property was sold in 2020 the 3115 will allow immediate deduction of the missed depreciation this will in turn increase the section 1250 recapture by a like amount. however, since this will all be in 2020 unless TP underpaid the minimum required tax payments, I don't see where there will be any penalties.
did you really understate the depreciable cost? when converted to rental, the proper cost for depreciation purposes was the lower of actual cost or Fair Market Value on the date of conversion. was the proper amount allocated to non-depreciable land?
