What type of return?
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?