-16-
Court, in Commissioner v. Banks, 543 U.S. 426 (2005), found such
a feature of a settlement payment to be inconsequential under the
anticipatory assignment of income doctrine. Therefore, the total
disputed settlement amount of $135,000 must be included in
petitioners’ gross income.
3. Accuracy-Related Penalty
Respondent determined an accuracy-related penalty for
substantial understatement of income tax for the 2001 taxable
year. Section 6662 imposes a penalty of 20 percent on the
portion of an underpayment of tax attributable to any
“substantial understatement” of income tax. An understatement
(i.e., the excess of the amount of income tax required to be
shown on the return over the tax actually shown on the return,
less any rebate) is defined to be “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)(A). A taxpayer is relieved of
the accuracy-related penalty “if it is shown that there was a
reasonable cause * * * and that the taxpayer acted in good
faith”. Sec. 6664(c)(1). The determination of whether the
taxpayer acted with reasonable cause and in good faith is made on
a case-by-case basis, taking into account all of the pertinent
facts and circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs.
Generally, the most important factor is the extent of the
taxpayer’s efforts to assess the proper tax liability. Id.
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