Clifford L. Brody and Barbara J. Declerk - Page 19

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          tax is substantial if it exceeds the greater of 10 percent of the           
          tax required to be shown on the return, or $5,000.  Sec.                    
          6662(d)(1) and (2).  Respondent has the burden of production with           
          respect to the accuracy-related penalty.  See sec. 7491(c).                 
               An exception to the section 6662 penalty applies when the              
          taxpayer demonstrates:  (1) There was reasonable cause for the              
          underpayment, and (2) the taxpayer acted in good faith with                 
          respect to the underpayment.  Sec. 6664(c).8  Whether the                   
          taxpayer acted with reasonable cause and in good faith is                   
          determined by the relevant facts and circumstances on a                     
          case-by-case basis.  See Stubblefield v. Commissioner, T.C. Memo.           
          1996-537; sec. 1.6664-4(b)(1), Income Tax Regs.  “Circumstances             
          that may indicate reasonable cause and good faith include an                
          honest misunderstanding of fact or law that is reasonable in                
          light of all the facts and circumstances, including the                     
          experience, knowledge and education of the taxpayer.”  Sec.                 
          1.6664-4(b)(1), Income Tax Regs.  A taxpayer is not subject to              
          the addition to tax for negligence where the taxpayer makes                 
          honest mistakes in complex matters, but the taxpayer must take              
          reasonable steps to determine the law and to comply with it.                
          Niedringhaus v. Commissioner, 99 T.C. 202, 222 (1992).  The most            
          important factor is the extent of the taxpayer’s effort to assess           

               8  This section may provide relief even if a return position           
          does not satisfy the reasonable basis standard.  Sec. 1.6662-               
          3(b)(3), Income Tax Regs.                                                   





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