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Issue 3. Section 6662(a) Penalty
Respondent determined that petitioner was liable for an
accuracy-related penalty under section 6662(a) because he
substantially understated his Federal income tax. See sec.
6662(b)(2). Section 6662(a) imposes an accuracy-related penalty
equal to 20 percent of an underpayment that is due to a
substantial understatement of income tax. Petitioner will avoid
this penalty if the record shows that his income tax was not
understated by the greater of 10 percent of the tax required to
be shown on the return or $5,000. See sec. 6662(d)(1)(A). The
accuracy-related penalty of section 6662 is not applicable to any
portion of an underpayment to the extent that an individual has
reasonable cause for that portion and acts in good faith with
respect thereto. See sec. 6664(c)(1). Such a determination is
made by taking into account all facts and circumstances,
including the experience and knowledge of the taxpayer and his or
her reliance on a professional tax adviser. See sec. 1.6664-
4(b)(1), Income Tax Regs.
The record demonstrates that petitioner acted reasonably
with respect to reporting his income for 1995. His accountant
testified that petitioner consulted with him and supplied him
with the information necessary to prepare his return. The
accountant advised petitioner on what he believed was the correct
reporting position of the items reported in the return, and
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