John Franklin Foust - Page 16

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          6651(a)(1) addition to tax in an amount equal to 5 percent of the           
          Issue 5:  The Section 6662(a) Penalty                                       
               Section 6662(a) imposes a 20-percent accuracy-related                  
          penalty for, among other reasons, negligence or disregard of                
          rules or regulations.  Section 6001 requires taxpayers to                   
          maintain records to support positions taken on their Federal                
          income tax returns.  In this case, petitioner failed to produce             
          any documentary evidence to support the positions taken on his              
          return, with respect to the alleged rental payments, other than             
          the amounts reported as rental income on the returns of related             
          taxpayers.  As a practicing certified public accountant with                
          legal training, petitioner should have known that he was required           
          to maintain and produce such documentary evidence, and his                  
          failure to do so is clearly negligent.                                      
               An alternative ground for the imposition of the section                
          6662(a) accuracy-related penalty--set forth in the statutory                
          notice--is substantial understatement of income.  Sec.                      
          6662(b)(2).  Section 6662(d)(1)(A) defines a substantial                    
          understatement as the greater of “(i) 10 percent of the tax                 
          required to be shown on the return for the taxable year or, (ii)            
          $5,000.”  Petitioner reported no tax liability on his 1989                  
          personal Federal income tax return.  Respondent has determined,             

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Last modified: May 25, 2011