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Accuracy-Related Penalty
Respondent determined that petitioners underpaid a portion
of their income tax because of negligence. Section 6662(a)
imposes a penalty in an amount equal to 20 percent of the portion
of the underpayment attributable to negligence or disregard of
rules or regulations.
Negligence is defined as any failure to make a reasonable
attempt to comply with the provisions of the Internal Revenue
Code, and the term “disregard” includes any careless, reckless,
or intentional disregard. Sec. 6662(c). The accuracy-related
penalty will apply unless petitioners demonstrate that there was
reasonable cause for the underpayment and that they acted in good
faith with respect to the underpayment. See sec. 6664(c)(1).
Taxpayers can avoid liability for the accuracy-related
penalty if they engage a competent professional to prepare their
returns, and they reasonably rely on the advice of that
professional. See Freytag v. Commissioner, 89 T.C. 849, 888
(1987), affd. 904 F.2d 1011, 1017 (5th Cir. 1990), affd. 501 U.S.
868 (1991). Taxpayers must show that they provided all relevant
information to the professional. See Pessin v. Commissioner, 59
T.C. 473, 489 (1972).
Applying these principles to the instant case, we conclude
that petitioners have sustained their burden of establishing that
reasonable cause and good faith existed for deducting legal fees
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Last modified: May 25, 2011