### Question
How does the law define reportable transaction understatement?


### Answer
Under *26 U.S.C. § 6662A*, **reportable transaction understatement** is defined as:

> the sum of—



(A) the product of—



(i) the amount of the increase (if any) in taxable income which results from a difference between the proper tax treatment of an item to which this section applies and the taxpayer's treatment of such item (as shown on the taxpayer's return of tax), and



(ii) the highest rate of tax imposed by section 1 (section 11 in the case of a taxpayer which is a corporation), and


  


(B) the amount of the decrease (if any) in the aggregate amount of credits determined under subtitle A which results from a difference between the taxpayer's treatment of an item to which this section applies (as shown on the taxpayer's return of tax) and the proper tax treatment of such item

#### Citation:
  - *26 U.S.C. § 6662A*
  - Heading: **Subtitle F-Procedure and Administration > CHAPTER 68-ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE PENALTIES > Subchapter A-Additions to the Tax and Additional Amounts > PART II-ACCURACY-RELATED AND FRAUD PENALTIES**

