According to Section 6662(d)(1), what percentage of the correct tax required to be shown on the return defines a "substantial understatement" of income tax?

A "substantial understatement" of income tax, as defined under Section 6662(d)(1) of the Internal Revenue Code, occurs when the amount of tax required to be shown on a taxpayer's return is understated by more than a specific percentage of the tax due. In this case, the correct percentage for defining a substantial understatement is 20%. Therefore, any understatement of income tax that exceeds this 20% threshold falls under the category of substantial.

While 10%, 25%, and 30% are not accurate thresholds for determining a substantial understatement, it's crucial to recognize that the law specifically establishes 20% as the benchmark. Understanding this percentage is vital for taxpayers to assess their tax situations and avoid potential penalties associated with substantial understatements.