Edward and Ruth Kelly - Page 23

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            4(b)  Accuracy-Related Penalties for 1989-92                                                  
                  Respondent determined that petitioners are liable for the                               
            accuracy-related penalties under section 6662(a) and (b)(1) for                               
            the taxable years 1989 through 1992.6  These sections impose a                                
            penalty equal to 20 percent of the portion of an underpayment of                              
            tax that is attributable to negligence or disregard of rules or                               
            regulations.  "Negligence" includes any failure to make a                                     
            reasonable attempt to comply with the provisions of the Code.                                 
            Sec. 6662(c).  As under prior law, failure to maintain records to                             
            substantiate an item constitutes negligence.  Sec. 1.6662-                                    
            3(b)(1), Income Tax Regs.  The penalty does not apply to any                                  
            portion of an underpayment for which the taxpayer had reasonable                              
            cause and acted in good faith.  Sec. 6664(c)(1).  For the taxable                             
            years at issue, the penalty also may be avoided by making                                     
            adequate disclosure of relevant information.  Secs. 1.6662-1,                                 
            -3(a), (c), Income Tax Regs.                                                                  



            5(...continued)                                                                               
            petitioners credit for the amount of tax withheld.  Mr. Kelly is                              
            plainly mistaken.  For both 1986 and 1987 respondent properly                                 
            computed the underpayment as the excess of the corrected tax                                  
            liability over the net payment (amount withheld less amount                                   
            refunded).  See Woods v. Commissioner, 91 T.C. 88, 95-99 (1988).                              
            Mr. Kelly's challenge to the computation of the "underpayment"                                
            for purposes of the accuracy-related penalties for 1989-92 on the                             
            same ground is similarly without merit.  See sec. 6664(a).                                    
            6By amendment to answer, respondent also asserted accuracy-                                   
            related penalties under sec. 6662(b)(2).  We need not consider                                
            the alternative theory.                                                                       




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