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"Since many of us will be hit with taxable gains because of mutual fund distributions, will we also be hit with a penalty because of underpayment of taxes? "

Possibly. The way to avoid such penalties is to stay in the safe harbor--be sure the sum of this year's withholding and timely quarterly estimated payments totals LAST year's tax. Since the capital gains tend to all come in December, it may be possible to make one quarterly estimate by January 15, with the form indicating that the extra income occurred in the fourth quarter of the year.
Good luck!
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