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Section 6662(a) imposes a 20-percent penalty on the portion
of an underpayment of tax that is attributable to, inter alia,
negligence or disregard of rules or regulations. The term
"negligence" includes any failure to make a reasonable attempt to
comply with the provisions of the Code, including failure to
exercise due care, failure to do what a reasonable person would
do under the circumstances, or failure to keep adequate books and
records to substantiate items properly. See sec. 1.6662-3(b)(1),
Income Tax Regs. The term "disregard" includes any careless,
reckless, or intentional disregard of the Code or of the
temporary and final regulations issued pursuant to the Code.
Sec. 6662(c); sec. 1.6662-3(b)(2), Income Tax Regs.
The accuracy-related penalty does not apply to any portion
of an underpayment with respect to which it is shown that there
was a reasonable cause and that the taxpayer acted in good faith.
See sec. 6664(c)(1). The decision as to whether the taxpayer
acted with reasonable cause and in good faith depends on all
pertinent facts and circumstances. See sec. 1.6664-4(b)(1),
Income Tax Regs. The most important factor is the extent of the
taxpayer's efforts to assess the proper tax liability. See id.
Circumstances that may indicate reasonable cause and good faith
include an honest misunderstanding of fact or law that is
reasonable in light of the experience, knowledge, and education
of the taxpayer. See id.
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Last modified: May 25, 2011