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imposed if it is shown that there was reasonable cause for the
underpayment and the taxpayer acted in good faith with respect to
the underpayment. See sec. 6664(c). The determination of
whether a taxpayer acted with reasonable cause and good faith
within the meaning of section 6662(c) is made on a case-by-case
basis, taking into account all the pertinent facts and
circumstances. See sec. 1.6664-4(b)(1), Income Tax Regs.
At trial, petitioner established that she acted in good
faith with respect to the 1995, 1996, and 1997 claimed dependency
exemption deductions. We find petitioner’s testimony to be
credible as to her support of certain individuals during
difficult periods in their lives. Petitioner’s lack of
compliance was not based upon bad faith, but rather on a
misunderstanding of the requirements of the dependency exemption
deduction. We also find petitioner credible in her intentions to
comply with complex Federal income tax requirements by seeking
out assistance from the Internal Revenue Service. On the basis
of the record, we hold that petitioner is not liable for
accuracy-related penalties under section 6662(a) for the years in
issue.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
under Rule 155.
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Last modified: May 25, 2011