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I'm filling out my bar application and have a C&F question. In 2017, I received from IRS a notice of proposed changes to my 2015 tax return, basically saying that I owed 8.6K more, including substantial understatement penalty. I submitted a response, which consisted of 2 arguments. IRS then replied with another notice, accepting my argument #1 but not argument #2 and saying I owed appr 2.5K (they also took out the substantial understatement penalty). I did not argue with them further and just paid that amount, including interest.

The bar application asked if I failed to file any tax returns. I think the truthful answer to that question is no. But there is a catch-all question to the effect of "Is there anything not asked here that could be a character issue?" Should I disclose the incident? I think if I disclose it, it doesn't disqualify me. But I want some thoughts on this. Thanks.

Disclaimer: I'm not a C&F attorney.

That said, if I were in your shoes, I would not disclose this incident in response to the catch-all question. After all, the IRS agreed that you did not substantially underpay your taxes and thus did not owe any penalties. If you had substantially underpaid your taxes and been fined, that would (IMO) certainly have to be disclosed for C&F, but that's not the case here.

Of course, the cautious move would be to consult a C&F attorney. And you could always overdisclose regardless if you really want to err on the safe side - there's no bar against oversharing (the only risk being a delay to your bar admission - obviously you aren't going to be dinged in the end when even the IRS withdrew its own initial decision to fine you).