- 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