Cleo Perfume, Inc. - Page 16

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          understatement attributable to a substantial understatement.  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. 6662(d)(1).  The understatement is reduced          
          by that portion of the understatement for which the taxpayer had            
          substantial authority or for which the taxpayer adequately                  
          disclosed the relevant facts in the return.  Sec. 6662(d)(2)(B).            
          Additionally, no penalty is imposed with respect to any portion of          
          an understatement as to which the taxpayer acted with reasonable            
          cause and in good faith.  Sec. 6664(c)(1).  Section 1.6664-4(b),            
          Income Tax Regs., provides that reliance on professional advice             
          constitutes reasonable cause and good faith if, under all the               
          circumstances, the reliance was reasonable and the taxpayer acted           
          in good faith.  The taxpayer, however, must disclose to the adviser         
          all relevant facts regarding the proper tax treatment of an item in         
          order to be able to invoke the professional reliance exception.             
               Although petitioner retained the services of a tax return              
          preparer, it did not disclose the relevant facts to the preparer.           
          Accordingly, petitioner is liable for the section 6662(a) accuracy-         
          related penalty with regard to the items it conceded.                       
               To reflect the foregoing and petitioner's concessions,                 

                                                       Decision will be               
                                                  entered under Rule 155.             

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Last modified: May 25, 2011