DONAT Company reported current year E&P of $400,000 in 2020. This amount included a $12,000 expense for payment of an underpayment penalty related to its federal tax return. If you start with E&P of $400,000 what adjustment will you need to make for the penalty for purposes of calculating taxable income?

a. a $12,000 addition.b. a $12,000 deduction.c. no adjustment.d. none of the above.