What type of return?

How late?

Are you sure it's underpayment penalty?

Yes you can challenge a penalty.

On an individual return there is no penalty for filing late if you have a refund.

Are you SURE it is a late-filing penalty?  Have you seen the IRS notice that states that exact phrase?

Or are you talking about the Underpayment of Estimated Tax?

Is this a personal return, Form 1040?