Disputing Understatement Penalties

Understatement penalties (USP) are imposed in respect of understatements by a taxpayer. A recent tax court case highlighted the fact that a taxpayer is not necessarily protected from USP on the basis that payments have been made to SARS, without further compliance with tax laws. In addition, this case also illustrated that taxpayers need to carefully consider their own position when deciding whether to dispute USP or not. The tax court may in certain circumstances increase USPs.

The Tax Administration Act (TAA) requires SARS to impose an understatement penalty (USP) in the event of an understatement. A recent tax court case (IT14247) dealt with the question whether SARS was entitled to impose such penalties in circumstances where a taxpayer had already made payment and the appropriate rate at which the USP had to be imposed.