- 18 -
Under section 6664(c), no penalty will be imposed with
respect to any portion of any underpayment if it is shown that
there was a reasonable cause for such portion and that the
taxpayer acted in good faith with respect to such portion. This
determination is based on all of the facts and circumstances.
Sec. 1.6664-4(b)(1), Income Tax Regs. The most important factor
is the extent of the taxpayers' effort to assess their proper tax
liability for the years at issue. Sec. 1.6664-4(b)(1), Income
Tax Regs.
On the record before us, we find that respondent's
determination of penalties under section 6662(a) is correct.
Petitioners filed their 1994 and 1995 returns after Green v.
Commissioner, T.C. Summary Opinion 1995-167 was filed on
September 5, 1995. Petitioners filed their 1994 return on
October 12, 1995. Notwithstanding our holding that the $18,120
payment was not excludable under section 104(a)(2), petitioners
nonetheless continued to exclude that amount on their 1994 and
1995 returns. Petitioners offered no reasonable explanation as
to its exclusion. In this regard, we find that petitioners'
actions were not those of a reasonable and prudent person under
the circumstances. Accordingly, we sustain respondent's
determination on this issue for 1994 and 1995.
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