Albert Lemishow - Page 3

                                        - 3 -                                         
          on excluding the "negligent" income (i.e., the $102,519).2                  
          Respondent then imposed the 20-percent penalty on the difference,           
          the difference representing the underpayment attributable to                
          negligence.  Petitioner calculated the underpayment of tax                  
          attributable to negligence as the excess of tax based on income             
          of $102,519 plus the reported income, over the tax shown on his             
          return.  It is only because of the different tax rates at                   
          different levels of taxable income that respondent's method                 
          results in a higher penalty than the method petitioner                      
          advocates.3                                                                 
               Section 1.6664-3, Income Tax Regs., provides the rules for             
          determining the order in which adjustments to a return are taken            
          into account for the purpose of computing the penalties imposed             
          under sections 6662 and 6663.  The adjustments to the return are            
          made in the following order:                                                
                    (1) Those with respect to which no penalties have                 
               been imposed.                                                          
                    (2) Those with respect to which a penalty has been                
               imposed at a 20 percent rate (i.e., a penalty for                      
               negligence or disregard of rules or regulations,                       
               substantial understatement of income tax, or                           
               substantial valuation misstatement, under sections                     
               6662(b)(1) through 6662(b)(3), respectively).                          

               2  Since this case only involves two adjustments, one with             
          respect to which no penalty applies and one to which a penalty              
          does apply, the underpayment excluding the "negligent" income is            
          the same as the underpayment that results from adding the                   
          "nonnegligent" income to that shown on the return.                          
               3  In this case, respondent's computation results in an                
          accuracy-related penalty of $8,119 and petitioner's in $5,298.              




Page:  Previous  1  2  3  4  5  6  7  Next

Last modified: May 25, 2011