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substantial understatement of income tax. A substantial
understatement means an understatement which exceeds the greater of
10 percent of the tax required to be shown on the return or $5,000.
Sec. 6661(b)(1). Finally, section 6651(a)(1) imposes an addition
to tax of 5 percent of the tax required to be shown on the return
for each month or fraction thereof for which a return is not filed,
not to exceed 25 percent. An exception is made where the failure
to file the return is due to reasonable cause not the result of
willful neglect.
For 1989 and 1990, section 6662(a) imposes an accuracy-related
penalty of an amount equal to 20 percent of the portion of the
underpayment attributable to negligence or disregard of rules or
regulations, or to a substantial understatement of tax.
Negligence is defined as a lack of due care or failure to do
what a reasonable person would do under the circumstances. Neely
v. Commissioner, 85 T.C. 934, 947 (1985). A taxpayer is not liable
for negligence or disregard of rules or regulations, or substantial
understatement of tax, if he shows that he acted with reasonable
cause and in good faith with respect to the underpayment in issue.
Sec. 6664(c). The most important factor in determining reasonable
cause is the extent of the taxpayer's effort to assess the proper
tax liability. Sec. 1.6664-4(b), Income Tax Regs. The reasonable
cause exception applies only to returns due after December 31, 1989
(without regard to extensions). Omnibus Budget Reconciliation Act
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