- 11 -
(b) of section 6662 then provides that among the causes
justifying imposition of the penalty are: (1) Negligence or
disregard of rules or regulations and (2) any substantial
understatement of income tax.
“Negligence” is defined in section 6662(c) as “any failure
to make a reasonable attempt to comply with the provisions of
this title”, and “disregard” as “any careless, reckless, or
intentional disregard.” Case law similarly states that
“Negligence is a lack of due care or the failure to do what a
reasonable and ordinarily prudent person would do under the
circumstances.” Freytag v. Commissioner, 89 T.C. 849, 887 (1987)
(quoting Marcello v. Commissioner, 380 F.2d 499, 506 (5th Cir.
1967), affg. on this issue 43 T.C. 168 (1964) and T.C. Memo.
1964-299)), affd. 904 F.2d 1011 (5th Cir. 1990), affd. 501 U.S.
868 (1991). A “substantial understatement” is declared by
section 6662(d)(1) to exist where the amount of the
understatement exceeds the greater of 10 percent of the tax
required to be shown on the return for the taxable year or
$5,000.
An exception to the section 6662(a) penalty is set forth in
section 6664(c)(1) and reads: “No penalty shall be imposed under
this part with respect to any portion of an underpayment if it is
shown that there was a reasonable cause for such portion and that
the taxpayer acted in good faith with respect to such portion.”
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Next
Last modified: May 25, 2011