S.C. Code Ann. § 12-54-155 — Substantial underpayment of tax or substantial valuation misstatement

(A)(1) If there is an underpayment attributable to either a substantial understatement of tax for a taxable period or a substantial valuation misstatement, there must be added to the tax an amount equal to twenty-five percent of the amount of the underpayment.
(2) This section does not apply to a portion of an underpayment attributable to fraud on which a penalty is imposed pursuant to Section 12-54-43(G).
(3) This section does not apply to a portion of an underpayment on which a penalty for underpayment of property tax on business-related property is imposed pursuant to Section 12-54-43(L).
(B)(1)(a) For purposes of this section, there is a substantial understatement of tax for a taxable period if the amount of the understatement for the taxable period exceeds the greater of ten percent of the tax required to be shown on the return for the taxable period or five thousand dollars.
(b) In the case of a corporation other than an "S" Corporation or a personal holding company, as defined in Internal Revenue Code Section 542, item (1) must be applied by substituting "ten thousand dollars" for "five thousand dollars".
(2)(a) For purposes of item (1), "understatement" means the excess of the amount of the tax required to be shown on the return for the taxable period over the amount of the tax imposed which is shown on the return.
(b) The amount of the understatement under subitem (a) must be reduced by that portion of the understatement which is attributable to the tax treatment of an item: (i) by the taxpayer if there is or was substantial authority for that treatment, or (ii) with respect to which the relevant facts affecting the item's tax treatment are adequately disclosed in the return or in a statement attached to the return and there is a reasonable basis for the tax treatment of the item by the taxpayer. For purposes of subsection (B)(2)(b)(ii) a corporation must not be treated as having a reasonable basis for its tax treatment of an item attributable to a multiple-party financing transaction if the treatment does not clearly reflect the income of the corporation. For purposes of this paragraph, the words "substantial authority" and "adequately disclosed" must be interpreted in accordance with Treasury Regulation Section 1.6662-4 as of the date on which the Internal Revenue Code is applied to state tax laws pursuant to Section 12-6-40.
(c)(i) Subitem (b) does not apply to an item attributable to a tax shelter.
(ii) For purposes of subsubitem (i), "tax shelter" means:
(A) a partnership or other entity;
(B) an investment plan or arrangement; or
(C) another plan or arrangement if the principal purpose of the partnership, entity, plan, or arrangement is the avoidance or evasion of income tax.
(C) For purposes of this section, there is a substantial valuation misstatement if the:
(1) value of property or the adjusted basis of property claimed on a return of tax imposed in Title 12 is two hundred percent or more of the amount determined to be the correct amount of the valuation or adjusted basis; or
(2)(a) price for property or services for use of property claimed on the return in connection with a transaction between persons described in Internal Revenue Code Section 482 is two hundred percent or more, or fifty percent or less, of the amount determined pursuant to Section 482 to be the correct amount of the price; or
(b) net Internal Revenue Code Section 482 transfer price adjustment for the taxable year exceeds the lesser of five million dollars or ten percent of the taxpayer's South Carolina gross receipts.
(D)(1) A penalty must not be imposed pursuant to this section with respect to a portion of an underpayment if it is shown that there was a reasonable cause for the portion and that the taxpayer acted in good faith with respect to the portion. For purposes of this item, the words " reasonable cause" and "good faith" must be interpreted in accordance with Treasury Regulation Section 1.6664-4 as of the date on which the Internal Revenue Code is applied to state tax laws pursuant to Section 12-6-40.
(2) In the case of underpayment attributable to a substantial valuation misstatement with respect to charitable deduction property, item (1) does not apply unless:
(a) the claimed value of the property was based on a qualified appraisal made by a qualified appraiser; and
(b) in addition to obtaining the appraisal, the taxpayer made a good-faith investigation of the value of the contributed property.
(3) For purposes of this subsection, the term "charitable deduction property" means property contributed by the taxpayer in a contribution for which a deduction was claimed under Internal Revenue Code Section 170. For purposes of item (2) the term does not include securities for which as of the date of the contribution, market quotations are readily available on an established securities market.
(E) As used in this section, "Internal Revenue Code" refers to the Internal Revenue Code as applied to state tax laws pursuant to Section 12-6-40.