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this title, and the term "disregard" includes any
careless, reckless, or intentional disregard.
To the extent that the penalty is attributable to a
substantial understatement of income tax under section 6662(b)(2)
or to a position contrary to rules or regulations under section
6662(b)(1), it may be reduced if relevant facts are adequately
disclosed in a statement attached to the return. The provision
for reduction, however, requires that the taxpayer's position
have a reasonable basis. Sec. 6662(d)(2)(B)(ii)(II); sec.
1.6662-3(c), Income Tax Regs.
There is no indication that petitioners ever sought
professional advice concerning their deductions or the procedural
means for vacating decisions. They rejected the explanations of
the IRS, and ultimately of the Court, out of hand. They did not
have a reasonable basis for their position on their 1995 return.
The underpayment of their taxes for 1995 is due to intentional
disregard of applicable rules, and the section 6662(a) penalty is
sustained in full.
Prior to and during the trial in this matter, petitioners
acknowledged that the $99,000 deduction was improper and that the
Court does not have jurisdiction to award the damages that they
seek. They claim that they are merely bringing the issues before
the Court to secure findings that would support their charges
against the IRS. Although the Court warned petitioners of the
applicability of section 6673 to frivolous or groundless claims,
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Last modified: May 25, 2011