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This article examines the optimal level of tax compliance and the optimal penalty for noncompliance in circumstances in which the substance of the tax law is uncertain - that is, when the precise application of the Internal Revenue Code to a particular situation is not clear. In such situations, a number of interesting questions arise. This article will consider two of them. First, as a normative matter, how certain should taxpayers be before they rely on a particular interpretation of a substantively uncertain tax rule? If a particular position is not clearly prohibited but neither is it clearly allowed, what is the appropriate threshold of confidence that the taxpayer ought to have before engaging in the transaction? Second, what penalty regime would give the taxpayer the right incentive with respect to relying on substantively uncertain tax law? With these questions in mind, this article shows that, applying standard assumptions from the economic literature on deterrence, the tax penalty regime that would induce the optimal reliance (or nonreliance) on uncertain tax laws depending on the circumstances would involve (1) a rule of strict liability with respect to taxes owed as well as to the penalty and (2) a penalty that roughly approximates the famous Bentham-Becker punitive fine, calculated by dividing the harm (the underpaid tax) by the ex ante probability that the harm would be detected. This article also explains why a fault-based approach to tax penalties, under the standard assumptions of the classical deterrence model, would not work as well as the strict liability approach. Reasons for the inferiority of the fault-based approach include its comparatively high administrative costs, its inability to properly regulate "activity levels," and its relatively unattractive distributional consequences. This article concludes, however, that if Bentham-Becker level penalties or wide-spread use of tax liability insurance are not feasible, a second-best case can be made for using a fault-based penalty regime similar to the one currently in force. The framework used in this article may have implications for any area of law where the substantive law is uncertain.