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6662(c); sec. 1.6662-3(b)(2), Income Tax Regs. The section 6662
accuracy-related penalty does not apply with respect to any portion
of an underpayment if reasonable cause exists for the underpayment
and the taxpayer acted in good faith with respect to such portion.
Sec. 6664(c)(1). The determination of whether the taxpayer acted
with reasonable cause and in good faith depends upon the pertinent
facts and circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs.
2. Substantial Understatement
Section 6661 imposes an addition to tax in an amount equal to
25 percent of the underpayment of income tax if the underpayment is
attributable to a substantial understatement. Section 6661 applies
to tax returns with a due date prior to January 1, 1990. Section
6661 was repealed with regard to returns having a due date after
December 31, 1989, and recodified in section 6662. Section 6662(a)
and (b)(2) imposes a penalty in an amount equal to 20 percent of the
portion of underpayment which is attributable to any substantial
understatement of income tax.
For purposes of sections 6661 and 6662(a), an understatement is
substantial if it exceeds the greater of 10 percent of the correct
tax or $5,000 or, in the case of a corporate taxpayer, $10,000.
Secs. 6661(b)(1)(A) and (B), 6662(d)(1)(A) and (B). The term
"understatement" is defined as the excess of the amount of tax
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