- 30 -
the return or in a statement attached to the return. See sec.
6662(d)(2)(B).
The accuracy-related penalty does not apply with respect to
any portion of the underpayment if it is shown that there was
reasonable cause for such portion and that the taxpayer acted in
good faith. See sec. 6664(c)(1). The determination of whether a
taxpayer acted with reasonable cause and in good faith depends
upon the pertinent facts and circumstances, including the
taxpayer’s efforts to assess his or her proper tax liability, the
knowledge and experience of the taxpayer, and reliance on the
advice of a professional, such as an accountant. See sec.
1.6664-4(b)(1), Income Tax Regs.
Petitioners contend they had a good faith belief that they
were entitled to take the $8 million bad debt deduction on their
1989 tax return based on discussions with their return preparers.
They claim that they relied on the professional advice of the
preparers, and the decision to take the deduction was Mr.
Johnson’s. Petitioners further contend that they disclosed all
relevant facts to the preparers.
Generally the duty of filing accurate returns cannot be
avoided by placing the responsibility on a tax return preparer.
See Metra Chem Corp. v. Commissioner, 88 T.C. 654, 662 (1987).
While hiring an attorney or accountant does not insulate the
taxpayer from negligence penalties, good faith reliance on
Page: Previous 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 NextLast modified: May 25, 2011