James S Sparkman - Page 34

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             B.  Accuracy-Related Penalties                                           
             Respondent determined that Sparkman is liable for section                
        6662(a) accuracy-related penalties for all years at issue.                    
        Section 6662(a) imposes a 20-percent accuracy-related penalty on              
        any portion of a tax underpayment that is attributable to, among              
        other things, negligence or disregard of rules and regulations.               
        Negligence includes a failure to make a reasonable attempt to                 
        comply with the tax code, to exercise ordinary care in preparing a            
        tax return, or to substantiate items properly on a tax return.                
        Sec. 1.6662-3(b)(1), Income Tax Regs.                                         
             The evidence shows that Sparkman failed to report income from            
        his Mercury Solar business (specifically, $113,354 of income from             
        HECO rebate payments), which he purported to transfer to a sham               
        trust, and claimed losses from HEH that he has failed to                      
        substantiate.  We find that the resulting understatements of                  
        Sparkman’s income for all years at issue are attributable to                  
        Sparkman’s negligence in failing to ascertain his correct income              
        tax liability and in failing to substantiate claimed deductions.              
        Accordingly, respondent has met his burden of production pursuant             
        to section 7491(c).                                                           
             The section 6662 accuracy-related penalty is inapplicable to             
        the extent the taxpayer has reasonable cause and acted in good                
        faith.  Sec. 6664(c)(1).  This determination is made considering              
        all relevant facts and circumstances.  Sec. 1.6664-4(b)(1), Income            
        Tax Regs.  “Generally, the most important factor is the extent of             
        the taxpayer’s effort to assess the taxpayer’s proper tax                     




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