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The accuracy-related penalty does not apply with respect to
any portion of an underpayment as to which the taxpayer acted
with reasonable cause and in good faith. See sec. 6664(c)(1).
The determination of whether a taxpayer acted with reasonable
cause and in good faith is made on a case-by-case basis, taking
into account all the pertinent facts and circumstances. See sec.
1.6664-4(b)(1), Income Tax Regs. The most important factor is
the extent of the taxpayer's efforts to assess the taxpayer's
proper tax liability. See id.
Petitioner testified that one of the reasons he did not
report his portion of the gain from the condemnation sale was
because the partnership purchased the property with the proceeds
from the sale of other property contributed to the partnership by
Segrest. Petitioner, therefore, assumed that Segrest was
allocated all the gain. This excuse, however, does not withstand
scrutiny.
The property was purchased by the partnership at a cost of
$537,500, and sold for $857,413. Thus, the partnership realized
$319,913 of postacquisition gain; one-half of which was allocable
to petitioner according to the partnership agreement. Therefore,
without consideration of the amount of any precontribution gain
allocable to Segrest, petitioner was required to recognize at
least $159,957 of postacquisition gain realized in the
condemnation sale. Petitioner's disregard of the gain
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Last modified: May 25, 2011