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the section applies. The section applies to, among other items,
the portion of an underpayment attributable to (1) negligence or
disregard of rules or regulations, or (2) any substantial
understatement of income tax. Sec. 6662(b). Negligence includes
the failure to make any reasonable attempt to comply with the
Internal Revenue Code. Sec. 6662(c). No penalty may be imposed
on any portion of an underpayment that is attributable to
negligence if the position is adequately disclosed, the position
is not "frivolous", and the taxpayer has adequate books and
records and has substantiated items properly. Sec. 1.6662-3(c),
Income Tax Regs. A "frivolous" position is one that is "patently
improper." Sec. 1.6662-3(b)(3), Income Tax Regs.
Petitioners offered no plausible explanation for their
failure to report significant amounts of income. While the Kaos
and Kolyn disclosed, on Forms 8275, that Kolyn received $790,000
in 1991, they failed to produce adequate books and records and to
substantiate items properly. As a result, we sustain
respondent's determinations on this issue.
We have considered all other arguments made by the parties
and found them to be either irrelevant or without merit.
To reflect the foregoing,
Decisions will be entered
under Rule 155.
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Last modified: May 25, 2011