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with respect to the retirement distribution proceeds, the interest
income, and the section 6662(a) accuracy-related penalty on the
grounds that it would not be inequitable to hold petitioner liable
for the tax on these items and that she failed to demonstrate
reasonable cause in omitting these items. After taking into
account the facts and circumstances presented in this case, we do
not believe respondent abused his discretion in denying equitable
relief to petitioner with respect to the retirement distribution
proceeds and interest income or with respect to the section 6662
penalty as it relates to the omitted interest income. However, we
believe respondent’s denial of equitable relief to petitioner under
section 6015(f) to be an abuse of his discretion as it relates to
the section 6662(a) penalty applicable to the omitted retirement
distribution proceeds. The reasons for our overruling respondent’s
denial of relief regarding the section 6662(a) penalty applicable
to the retirement distribution proceeds are as follows:
Section 6662(a) does not apply 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.” Sec. 6664(c)(1). After carefully observing
petitioner while testifying, we are satisfied that at the time she
signed the 1992 tax return, petitioner believed that the portion of
retirement distribution proceeds used to pay off the mortgage on
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