Polly M. Cherry - Page 20

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          and final regulations issued pursuant to the Code.  Sec. 6662(c);           
          sec. 1.6662-3(b)(2), Income Tax Regs.                                       
               The accuracy-related penalty does not apply to any portion             
          of an underpayment with respect to which it is shown that there             
          was a reasonable cause and that the taxpayer acted in good faith.           
          Sec. 6664(c)(1).  The decision as to whether the taxpayer acted             
          with reasonable cause and in good faith depends on all pertinent            
          facts and circumstances.  Sec. 1.6664-4(b)(1), Income Tax Regs.             
          The most important factor is the extent of the taxpayer's efforts           
          to assess the proper tax liability.  Id.  Circumstances that may            
          indicate reasonable cause and good faith include an honest                  
          misunderstanding of fact or law that is reasonable in light of              
          the experience, knowledge, and education of the taxpayer.  Id.              
          Petitioner bears the burden of proof.  Rule 142(a); ASAT Inc. v.            
          Commissioner, 108 T.C. 147, 175 (1997).                                     
               As to the disallowed deductions for 1993 and 1994,                     
          petitioner failed to prove that her lack of substantiation was in           
          good faith or due to reasonable cause.  Similarly, petitioner               
          failed to show that she acted in good faith and due to reasonable           
          cause in underreporting her income for both years in issue.                 
          Therefore, we hold that an accuracy-related penalty attributable            
          to such amounts is appropriate.                                             
               However, we hold that the accuracy-related penalty does not            
          apply to the portion of the underpayment attributable to                    
          petitioner's claimed exemption on behalf of Jasmine and Brandy              




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