Larry W. and Cynthia J/ Van Wyk - Page 16

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          Section 6662(a)                                                             
               The final issue is whether petitioners are liable for a                
          penalty under section 6662.  Section 6662(a) imposes a 20-percent           
          penalty on the portion of an underpayment of tax that is                    
          attributable to, inter alia, any substantial understatement of              
          income tax.  A substantial understatement of tax is defined as              
          the amount which exceeds the greater of 10 percent of the tax               
          required to be shown on the return for the taxable year or                  
          $5,000.  See sec. 6662(d)(1)(A).  An understatement is reduced to           
          the extent it is:  (1) Based upon substantial authority; (2)                
          adequately disclosed in the tax return or in a statement attached           
          to the return and there was a reasonable basis for the treatment            
          of the item.  See sec. 6662(d)(2)(B).  Petitioners must establish           
          error in respondent's determination that they are liable for the            
          penalty provided by section 6662(a).  See Rule 142(a).                      
               The section 6662 penalty does not apply to any portion of an           
          underpayment where it is shown that there was reasonable cause              
          and that the taxpayer acted in good faith.  Sec. 6664(c)(1).  The           
          decision as to whether the taxpayer acted with reasonable cause             
          and in good faith depends upon all pertinent facts and                      
          circumstances.  Sec. 1.6664-4(b)(1), Income Tax Regs.  Under the            
          circumstances of the instant case, we believe that the complexity           
          of section 465, and the lack of express guidance in the                     
          regulations, led petitioners to an honest mistake of law for                

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