What is an uncertain tax position?

An uncertain tax position is any position on a return where it isn't clear the IRS would agree with your treatment if it examined the return — for example, whether an expense is deductible, how to classify a worker, or whether income can be deferred. It's not inherently wrong; it just carries a real chance of challenge, which means it needs documentation and, in some cases, a reserve.

How do I keep an aggressive tax position defensible?

Build a contemporaneous file at the time you file: identify the position, gather the supporting authorities, write down the reasoning, and confirm it meets at least reasonable basis (and disclose it if it doesn't reach substantial authority). Reliance on that documented analysis — and on a competent adviser — is the foundation of a reasonable-cause defense against penalties.

When should I get a written tax opinion?

A written opinion from a qualified tax adviser is worth the cost when a position involves large dollars, genuine legal uncertainty, or a transaction the IRS is known to scrutinize. A well-reasoned opinion supports a reasonable-cause, good-faith defense under IRC Section 6664 and can be the difference between owing tax and owing tax plus a 20% penalty.

What is the reasonable-cause defense to a tax penalty?

Under IRC Section 6664(c), the accuracy-related penalty doesn't apply to any portion of an underpayment for which you had reasonable cause and acted in good faith. Reasonable, documented reliance on a competent tax professional — given full and accurate information — is a common way to establish it. The key is contemporaneous documentation showing you took real care.

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Tax Risk Services

Uncertain Tax Positions: How Small Businesses Keep Aggressive Positions Defensible

An uncertain tax position isn't a problem — an undocumented one is. Here's how to identify where uncertainty lives, build the file that defends it, and know when a written opinion is worth the cost.

SMAART Tax Team

March 9, 2026

6 min read