- 38 -
The accuracy-related penalty does not apply to any part of
an underpayment if the taxpayer shows that there was reasonable
cause for the underpayment and that the taxpayer acted in good
faith. See sec. 6664(c)(1). Reliance on the advice of a
professional, such as an accountant, may constitute reasonable
cause if, under all the facts and circumstances, that reliance is
reasonable and the taxpayer acted in good faith. See sec.
1.6664-4(c), Income Tax Regs.
Petitioner argues that it is not liable for the accuracy-
related penalty for the years in issue because the issues in this
case are highly technical; petitioner disclosed the deductions on
its tax returns for 1993, 1994, and 1995; and Steven Klein
reasonably relied on petitioner’s accountant to advise petitioner
about what would constitute reasonable compensation to pay Steven
Klein in 1995.
1. 1993 and 1994
Petitioner is not liable for the substantial understatement
penalty if it had a reasonable basis for, and adequately
disclosed the facts relating to, the Kleins’ compensation on its
1993, 1994, and 1995 returns. See sec. 6662(d)(2)(B)(ii); Rev.
Proc. 94-36, 1994-1 C.B. 682; Rev. Proc. 94-74, 1994-2 C.B. 823;
Rev. Proc. 95-55, 1995-2 C.B. 457. Section 4.01(2)(d) of each of
those revenue procedures provides that, for purposes of reducing
the understatement of income tax under section 6662(d),
additional disclosure of facts relating to an issue involving
Page: Previous 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 NextLast modified: May 25, 2011