You are preparing a tax return for Hollis and Arlene Winters and they ask you about the underpayment penalty. The Winters paid all of the tax due on their income December 31st of the current tax year. How would you communicate the issues of an underpayment penalty? 

There is no penalty since they paid the tax owed which is really not due until April 15th of the following year 

There is no penalty since they paid the tax owed in the current tax year 

There is no such penalty for individual taxpayers only for corporate taxpayers 

They needed to make quarterly payments since the penalty is based on the underpayment each quarter not at the end of the year