Understatement Law and Legal Definition

An "understatement" is defined as “the excess of the tax required to be shown on the return over the tax actually shown on the return. An understatement of income tax is "substantial" if it exceeds the greater of 10 percent of the tax required to be shown on the return or $ 5,000.” Woodard v. Comm'r, T.C. Summary Opinion 2009-150 (T.C. 2009)