1. Negligence or disregard of rules or regulations,
2. Any substantial understatement of income tax,
3. Any substantial valuation misstatement under chapter 1 of the Internal Revenue Code,
4. Any substantial overstatement of pension liabilities,
5. Any substantial estate or gift tax valuation understatement, or
6. Any claim of tax benefits from a transaction lacking economic substance, as defined by section 7701(o), or failing to meet the requirements of any similar rule of law.

The penalty is 40% of any portion of a tax underpayment attributable to one or more gross valuation misstatements in (3), (4), or (5) above if the applicable dollar limitation under section 6662(h)(2) is met. The penalty also increases to 40% for failing to adequately disclose a transaction that lacks economic substance in (6) above. See Economic substance, below. The penalty is 40% of any portion of an underpayment that is attributable to any undisclosed foreign financial asset understatement.

Economic substance. To satisfy the disclosure requirements under section 6662(i), you may adequately disclose with a timely filed original return (determined with regard to extensions) or a qualified amended return (as defined under Regulations section 1.664-2(c)(3)) the relevant facts affecting the tax treatment of the transaction.

Reasonable cause exception. Generally, no accuracy-related penalty will be imposed on any portion of an underpayment if you show that there was reasonable cause for that portion and you acted in good faith with respect to that portion. If you failed to keep proper books and records or failed to substantiate items properly, you cannot avoid the penalty by disclosure.

Adequate disclosure. Generally, you can avoid the disregard of rules and substantial understatement portions of the accuracy-related penalty if the position is adequately disclosed and the position has at least a reasonable basis.

Reasonable basis. Reasonable basis is a relatively high standard of tax reporting that is significantly higher than not frivolous or not patently improper. The reasonable basis standard is not satisfied by a return position that is merely arguable.

If the return position is reasonably based on one of the authorities set forth in Regulations section 1.6662-4(d)(3)(iii) (taking into account the relevance and persuasiveness of the authorities, and subsequent developments), the return position will generally satisfy the reasonable basis standard even though it may not satisfy the substantial authority standard as defined in Regulations section 1.6662-4(d)(2). For details, see Regulations section 1.6662-4(d).

If you failed to keep proper books and records or failed to substantiate items properly, you cannot avoid the penalty by disclosure.

You will need to provide the IRS written explanation of how you acted in good faith and how the omission of the information was not intentional.