It is my understanding that the amount that I converted in 1999 from my traditional to Roth IRA is now taxable. I realize now that I have not had my employer set aside enough federal tax from my paychecks this year, and thus have underpaid my taxes. Am I subject to underpayment penalties in a case like this?

Yes and No. If you owe and when you owe depends upon the amount of the shortfall, if you are currently paying estimated taxes, the date the conversion occured, etc. Basically, the same rules apply as if you won the lottery or got a bonus.

If the shortfall is significant and the conversion was in 4th quarter, you just barely missed the Jan 15 date for estimated. If you now send in a late estimate payment, you can stop the interest clock.