Changes to Large Corporate Understatement Penalty.

• Position: New exceptions - Brief article

A recent law change added some exceptions to the Large Corporate Understatement Penalty (LCUP) that may apply to your clients. On Sept. 30, Gov. Brown signed Assembly Bill 154, which provided a change to the understatement measurement and two additional exceptions to the LCUP. Under the new law, an additional tax liability as reported on the first amended return that results from a proper Internal Revenue Code Sec. 338 election is treated as if included in the amount of tax shown on an original return for the understatement as well as the 20 percent threshold. This change to the understatement measurement is effective for taxable years beginning on or after Jan. 1, 2015.

In addition to the existing exceptions regarding change of law and reliance on Chief Counsel ruling, the penalty will not be imposed if an understatement is attributable to either of these new exceptions:

* Federal Accounting Method Change: A change to the taxpayer's federal accounting method...