(a)

1. (1) A taxpayer subject to the tax imposed under Part 11 (commencing with Section 23001) with an understatement of tax for any taxable year shall be subject to the penalty imposed under this section if that understatement exceeds the greater of the following:

   1. (A) One million dollars ($1,000,000).
   2. (B) Twenty percent of the tax shown on an original return or shown on an amended return filed on or before the original or extended due date of the return for the taxable year.
2. (2) For taxpayers that are required to be included in a combined report under Section 25101 or authorized to be included in a combined report under Section 25101.15, the threshold amount prescribed in subparagraph (A) or subparagraph (B) of paragraph (1) shall apply to the aggregate amount of tax liability under Part 11 (commencing with Section 23001) for all taxpayers that are required to be or authorized to be included in a combined report.

(b)

1. (1) The penalty under this section shall be an amount equal to 20 percent of any understatement of tax. For purposes of this section, “understatement of tax” means the amount by which the tax imposed by Part 11 (commencing with Section 23001) exceeds the amount of tax shown on an original return or shown on an amended return filed on or before the original or extended due date of the return for the taxable year.
2. (2) For any taxable year beginning before January 1, 2008, the amount of tax paid on or before May 31, 2009, and shown on an amended return filed on or before May 31, 2009, shall be treated as the amount of tax shown on an original return for purposes of this section.
3. (3) The amount of additional tax shown on the first amended return reflecting a proper election under Section 338 of the Internal Revenue Code, relating to certain stock purchases treated as asset acquisitions, shall be treated as if that amount was included in the amount of tax shown on an original return for purposes of this section.

(f) No penalty shall be imposed under this section on any understatement to the extent that the understatement is attributable to any of the following:

1. (1)

   1. (A) A change in law that is enacted, promulgated, issued, or becomes final after the earlier of either of the following dates:

      1. (i) The date the taxpayer files the return for the taxable year for which the change is operative.
      2. (ii) The extended due date for the return of the taxpayer for the taxable year for which the change is operative.
   2. (B) For purposes of this paragraph, a “change of law” means a statutory change or an interpretation of law or rule of law by regulation, legal ruling of counsel, within the meaning of subdivision (b) of Section 11340.9 of the Government Code, or a published federal or California court decision.
   3. (C) The Franchise Tax Board shall implement this paragraph in a reasonable manner.
2. (2) The imposition of an alternative apportionment or allocation method by the Franchise Tax Board under the authority of Section 25137 because the standard allocation and apportionment provisions of Article 2 (commencing with Section 25120) and the regulations thereunder do not fairly represent the extent of the taxpayer’s business activity in this state.
3. (3) A change to the taxpayer’s federal accounting method pursuant to Section 446 of the Internal Revenue Code, relating to general rule for methods of accounting, that is applicable for purposes of Part 11 (commencing with Section 23001), but only to the extent of understatements for taxable years where the due date of the return, without regard to any extension of time for filing the return, is before the date of consent of the secretary to that change of accounting method.

(h)

1. (1) This section shall apply to each taxable year beginning on or after January 1, 2003, for which the statute of limitations on assessment has not expired.
2. (2) The amendments made to this section by Chapter 721 of the Statutes of 2010 shall apply to each taxable year beginning on or after January 1, 2010.

3. (3)

   1. (A) Except as otherwise provided, the amendments made to this section by the act adding this paragraph shall apply to each taxable year beginning on or after January 1, 2015.
   2. (B) The provisions of paragraph (2) of subdivision (f), as added by the act adding this paragraph, shall apply to understatements for any taxable year for which the statute of limitations on assessments has not expired as of the effective date of the act adding this paragraph.