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fair market value or arm’s-length price of the LaserNet
technology.
VII. Section 6662 Penalties
For each of the 3 taxable years, respondent determined
accuracy-related penalties under section 6662. In particular,
for each year, respondent alternatively determined that either
the 40-percent gross valuation misstatement penalty under section
6662(h) is applicable or that the 20-percent penalty under
section 6662(b) is applicable. Section 6662(b) lists the types
of underpayments to which the 20-percent penalty of section
6662(a) applies, including: (1) Negligence or disregard of
rules, (2) substantial understatements, and (3) substantial
valuation misstatements. Substantial valuation misstatements
include determinations under section 482 where the reported price
is 200 percent or more (or 50 percent or less) of the arm’s-
length price. Sec. 6662(e)(1)(B). Section 6662(h) imposes a 40-
percent penalty on “gross valuation misstatements”, which include
determinations under section 482 where the reported price is 400
percent or more (or 25 percent or less) of the arm’s-length
price. If section 6662 is applicable, the question of which
valuation misstatement penalty (substantial or gross) applies is
purely a question of computation.
No penalty may be imposed under section 6662 if reasonable
cause exists and the taxpayer acts in good faith. Sec. 6664(c).
Despite the general application of section 6664(c), Congress
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