Patrick E. Catalano - Page 17




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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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