- 11 - Indeed, as we have indicated, the evidence shows that the lump- sum amount was not damages for a tort claim but settlement of a contract dispute as to how much was owed petitioner under the disability plan. Thus, section 104(a)(2) does not apply. Accuracy-Related Penalty Respondent determined an accuracy-related penalty under section 6662 in the amount of $7,922, based on the determination that petitioners’ underpayment was attributable to a “substantial understatement of income tax” within the meaning of section 6662(d). However, the accuracy-related penalty will not be imposed with respect to any portion of an underpayment if it is shown that there was reasonable cause and that the taxpayer acted in good faith. Sec. 6664(c)(1). The determination of whether there was reasonable cause and good faith "is made on a case-by- case basis, taking into account all pertinent facts and circumstances." Sec. 1.6664-4(b)(1), Income Tax Regs. “Generally, the most important factor is the extent of the taxpayer’s efforts to assess the taxpayer’s proper tax liability.” Id. Reasonable cause includes "an honest misunderstanding of fact or law that is reasonable in light of the experience, knowledge and education of the taxpayer." Id. The taxpayer's mental and physical condition, as well as sophistication with respect to the tax laws, at the time the return was filed are relevant in deciding whether the taxpayer acted with reasonable cause. Ruckman v. Commissioner, T.C. Memo. 1998-83; see also Carnahan v. Commissioner, T.C. Memo. 1994-163,Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 Next
Last modified: May 25, 2011